KEPCO looking at deficit near $30 bn as power purchase cost hits new highs

Korea Electric Power Corp. (KEPCO) is looking at an operating loss near 40 trillion won ($27.9 billion) this year as power purchase cost hits new highs amid worsening international energy crisis.

According to the Korea Power Exchange on Tuesday, the system marginal price (SMP), the price KEPCO pays when purchasing power from private power generators, hit record high 358.36 won ($2.42) per kilowatt-hour on Oct. 20, breaking the previous record of 334.52 won in January 2010.

The SMP has been on the rise since Russia’s invasion of Ukraine early this year. The monthly SMP recorded 154.42 won per kilowatt-hour in January and then shot up to 202.11 won in April. It dropped to 129.72 won in June but rebounded to 234.95 won in September, up 137.7 percent from a year ago. The monthly cost for October is projected to be set around 250 won due to the strong seasonal demand for energy in year-end.

“The SMP would surge to 360 won if oil prices hover around $100 per barrel,” said Cho Hong-chong, an economics professor at Dankook University.

The mounting power purchasing cost is set to further widen KEPCO’s deficit for this year. According to Seoul-based financial data tracker FnGuide, the state power monopoly is projected to record an operating loss of 30.17 trillion won this year. Despite the hike in utility rate this month, KEPCO’s loss in the second half is forecast to jump to 15.87 trillion won after it hit 14.30 trillion won in the first six months. Some industry observers forecast KEPCO’s loss could stretch to 40 trillion won.

To cope with the mounting loss, KEPCO has been streamlining its assets under a self-rescue plan, including the sale of its idle real estate assets and stakes. At the same time, it plans to issue bonds to secure working capital. To improve KEPCO’s fund raising, the finance ministry is seeking to expand the limit on KEPCO’s corporate bond sales.

Citing KEPCO’s poor financial health, Finance Minister Choo Kyung-ho, also deputy prime minister, recently said the ministry plans to revise a related law to allow KEPCO to issue more bonds so that the company can secure enough fund to operate the company.

In addition, the energy ministry has been working to place a cap on the SMP since May. The plan has met strong opposition from private power generators, but the ministry plans to push for a ceiling to contain KEPCO’s deficits.

KEPCO shares closed down 0.6 percent at 16,650 won on Wednesday.

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