KEPCO’s burgeoning renewable energy costs may add burden on households

[Courtesy of KEPCO]

State-run Korea Electric Power Corporation (KEPCO) is projected to exceed 6 trillion won ($4.5 billion) in renewable energy procurement costs by 2026 and over 6.6 trillion won by 2027, which could ultimately increase the burden on power consumers.

According to KEPCO’s five-year medium-term financial management plan, the costs associated with procuring renewable energy have been trending upward with an annual average increase of around 1 trillion won.

The forecasts were revealed in data obtained by the office of Rep. Yang Geum-hee, a member of the People Power Party. The data predicts the medium-term costs for the power distributor’s Renewable Portfolio Standard (RPS) and Emission Trading System (ETS).

The RPS mandates that power generation companies with facilities capable of producing over 500 megawatts (MW) must supply a certain percentage of their total electricity generation from renewable sources such as solar and wind energy.

As a result, KEPCO and its subsidiary power generation companies, as well as private energy providers, either operate renewable energy facilities or purchase Renewable Energy Certificates (RECs) issued to small-scale solar operators to meet their RPS obligations.

The combined cost projections for KEPCO’s RPS and ETS expenses are 3.85 trillion won in 2023, 4.71 trillion won in 2024, 5.04 trillion won in 2025, 6.02 trillion won in 2026, and 6.62 trillion won in 2027. The figures represent a substantial 71.8 percent increase in KEPCO’s renewable energy procurement costs from this year to 2027.

These cost estimates also align with the RPS rates set in the 10th Basic Plan for Power Supply and Demand, which mandate a gradual increase in the percentage of renewable energy supplied with 13 percent in 2023, 13.5 percent in 2024, 14 percent in 2025, 15 percent in 2026, and 17 percent in 2027.

The expenses associated with RPS and ETS are ultimately transferred to consumers in the form of a “climate and environment fee” in their electricity bills.

The Yoon Suk Yeol administration has proposed shifting away from the previous administration’s nuclear phase-out policy, opting instead to increase the proportion of nuclear power generation while also expanding renewable energy sources at a more controlled pace. However, there are concerns that the growing RPS rates will increase the burden on electricity consumers.

The cost per kilowatt-hour (kWh) for the climate and environment fee has risen significantly, increasing from 5.3 in 2021 to 7.3 in the past year and reaching 9 in 2023.

This could also pose a risk to KEPCO’s financial structure, with total debt exceeding 200 trillion won for the first time.