Seoul to introduce cap on wholesale power price to rescue money-losing KEPCO

[Photo by Lee Chung-woo]

The South Korean government will enable Korea Electric Power Corporation (KEPCO) to cap power purchasing prices from public and private generators, a move that can help the state utility firm to contain snowballing losses from expensive fuel prices but hurt profitability of private power vendors.

The industry ministry said on Tuesday it will start applying the new restriction on the system marginal price (SMP) against electricity wholesalers from as early as July this year.

The new measure is aimed at easing the cost burden on the monopoly power distributor whose operating loss hit a record 7.8 trillion won ($6.17 billion) in the first quarter ended March.

The wholesale price offered from local power generators to KEPCO has skyrocketed due to mounting prices of oil, coal and LNG fuel. The SMP surged to 202.11 won per kwh last month, the highest ever since the electricity wholesale market was established in Korea. The soaring costs devastated KEPCO’s bottom line as it had been contained from raising electricity fees due to inflationary concerns.

Under the new rule, the government will apply a temporary upper limit price for one month when the three-month average SMP exceeds 10 percent of the monthly SMP in the past decade. The upper limit price represents 125 percent of the 10-year average SMP. Market watchers estimate the SMP will be fixed at the 130 won range per kwh under the price cap system. The ministry, instead, will compensate for losses of power generators when their actual fuel costs exceed the upper-limit price.

But private power generators are protesting the measure, arguing it will only benefit public power generators with no cost-saving programs. Private power generators say they have tried to save fuel costs through various programs including direct imports of LNG and contest to the price burden on the private companies.

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