Perfect storm for an escalation in energy prices

Energy prices are soaring due to war and a disrupted energy supply chain. Prices of crude oil and even cheap energy sources like coal have increased sharply. The system market price (SMP), the cost of producing 1 kilowatt hour of electricity, ..

Power meter at a low-rise apartment in Seoul in March. [NEWS1]

Energy prices are soaring due to war and a disrupted energy supply chain. Prices of crude oil and even cheap energy sources like coal have increased sharply.

The system market price (SMP), the cost of producing 1 kilowatt hour of electricity, reached 202.11 won ($0.16) last month, 2.6 times higher than a year earlier, according to the Electric Power Statistics Information System.

The Korea Power Electric Corporation (Kepco) purchases electricity from generators based on this pricing system.

The SMP surpassed the 100-won per kilowatt hour level last October as demand for heating increased, which then sharply increased to 197.32 won per kilowatt hour in February after Russia invaded Ukraine.

A rise in the cost of relatively cheap energy sources such as bituminous coal contributed to the surging SMP.

Bituminous coal produced in Kalimantan increased by 124 percent to 199.48 dollars per ton from last Jan. 1 to May 6. During the same period, the price of Australian bituminous coal increased by 365 percent from 108.35 dollars to 503.94 dollars, according to Korea Mineral Resource Information Service.

Disruptions in the supply chain fanned the price increases.

Production of bituminous coal had been already fallen due to countries’ implementation of eco-friendly policies. The supply shrunk even more as Russia, the main coal producer, invaded Ukraine and Indonesia banned coal exports.

The average unit price calculated by Kepco when purchasing electricity produced from bituminous coal was 162.1 won per kilowatt hour last month, a 97 percent increase from last April, and the highest since 2002.

As energy prices are increasing, analysts say Kepco will face a loss of 17.5 trillion won this year, three times higher than last year’s 5.9 trillion won, according to FnGuide.

Kepco has issued corporate bonds worth over 13 trillion won to make up for losses this year, exceeding last year’s 11.7 trillion won.

“It is difficult to find cheap fuels as prices of relatively inexpensive sources such as coal have increased,” said Yoo Seung-hoon, a Seoul National University of Science and Technology professor of energy policy.

“If geopolitical issues such as war are not resolved, we might go beyond an oil crisis and eventually experience an energy crisis.”

BY KIM NAM-JUN [cho.jungwoo1@joongang.co.kr]