KEPCO's operating loss to widen to $8.3 bn in 2022 amid higher fuel costs

[Photo by Kim Ho-young]

Korean state utility firms are expected to slip deeper into the red amid surge in imported fuel prices coupled with transitional cost to renewables, with loss at Korea Electric Power Corporation (KEPCO) projected to snowball to 10 trillion won ($8.3 billion) this year.

According to Korea Power Exchange on Sunday, average system marginal price (SMP) in January rose 8.1 percent from the previous month to 154.42 won per kilowatt hour (kwh). It marks the highest in nearly nine years since 155.29 won in July 2013.

From a year ago, SMP surged 118.5 percent from 70.65 won in January due to steep gains in fuel costs. Average SMP is expected to reach an all-time high in February.

U.S. West Texas Intermediate (WTI) crude prices rose to the highest of $92 per barrel since September 2014. Prices of bituminous coal also reached $130 per ton, nearly tripling from $45.95 per ton in July 2020. Liquefied natural gas (LNG) prices also jumped about 10 times to $25.35 per 1 million British thermal units (BTU).

The rise in energy costs has led to a sharp surge in power unit price in which KEPCO pays to its power generation subsidiaries.

The power unit price of Korea Midland Power Co. jumped 63.3 percent from 89.79 won per kwh in 2020 to 146.62 won in November last year. Korea South-East Power Co.’s price also increased 42.3 percent to 118.29 won during the same period.

Amid surge in import cost, KEPCO’s debt ratio soared from 187 percent in 2020 to 201 percent in the third quarter last year. Total debt increased nearly 6 trillion won from 132.5 trillion won to 138.2 trillion won. Total debt held by five power generation companies excluding Korea Hydro & Nuclear Power Co. (KHNP) that use uranium as key raw material increased 1.37 trillion won during the same period.

Analysts expected that KEPCO’s operating loss would be snowballed to up to 10 trillion won in 2022 if the current energy price trend continues.

Electricity prices will go up from April, but the increase would not be enough to cope with surging energy prices, as well as KEPCO and its affiliates’ worsening financial sheets, said an unnamed industry official.

The government’s aggressive policy to phase out nuclear power and achieve carbon neutrality has also aggravated KEPCO’s financial state.

The Korean government has set a goal to completely shut down 58 coal power generation units by 2050.

Under the 2030 Nationally Determined Contributions (NDC) and 2050 carbon neutrality scenario, Korea’s coal-fired power generation from total energy should be halved from 41.9 percent in 2018 to 21.8 percent in 2030 and LNG power generation from 26.8 percent to 19.5 percent. Renewable energy from total energy will increase from 6.2 percent in 2018 to 30.2 percent in 2030.

Despite the rapid shift to renewable energy, coal-fired power generation at power generation companies still account for 35 percent of total power output in Korea as of November last year.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]