Has South Korea's energy policy failed?

KEPCO recorded all-time losses! They say that ESG expenditure is one of the causes!

*KEPCO = Korea Electric Power Corporation

How much is the loss?

KEPCO recorded an operating loss of 5.8 trillion won last year. Stock industry sources expect KEPCO to lose more than 10 trillion won this year. Concerns are raised that KEPCO's financial structure, Korea's leading energy-public company, will become weak.

KEPCO's operating loss last year was the largest ever. KEPCO recorded an operating loss of 2.7 trillion won in 2008, more than double the loss.

KEPCO explained that despite the increase in sales due to increased electricity sales, the sharp increase in operating costs due to increased fuel costs and electricity purchase costs is the cause of poor performance. In particular, the deficit snowballed as the government withheld the increase in fuel costs due to COVID-19.

What is the real reason for the loss?

Fuel and electricity purchase costs have increased significantly. Fuel costs for subsidiaries stood at 19.4 trillion won last year, up 4.6 trillion won from a year earlier. Private power companies' electricity purchase costs also rose 5.9 trillion won year-on-year to 21.6 trillion won. This was affected by a significant rise in fuel prices such as LNG and coal. In addition to the government's implementation of upper limits on coal power for recent ESG policies, LNG power has increased due to increased electricity demand. Renewable energy-related costs also rose as the ratio of mandatory renewable energy supply (RPS) performance was raised.

Can the turning point come?

The problem is that KEPCO's performance will worsen this year. Considering the rapid rise in oil prices in the first half of this year, electricity wholesale prices are expected to surpass record highs.

In fact, as of the 24th, April prices of North Sea Brent oil traded in the ICE futures market in the UK recorded $100, surpassing $100 a barrel for the first time in seven years. Considering that electricity wholesale prices are usually reflected with a six-month time difference in oil prices, electricity wholesale prices are expected to soar further in the second half of this year.

Can we say that this energy policy has failed?

It cannot be simply said that an increase in operating loss is the cause of energy policy failure. But if national policy greatly undermines one field for one field, isn't there a problem?

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