[2020 National Audit] Minister of Industry "Considering Fuel Cost-Linked Electricity Rates"

"KEPCO's Performance Should Be Stable and Predictable"

[Asia Economy Reporter Moon Chaeseok] Sung Yoon-mo, Minister of Trade, Industry and Energy, said on the 7th, "Korea Electric Power Corporation (KEPCO) is deeply reviewing the introduction of a fuel cost linkage system in the new electricity rate structure reform plan, and the government is also watching it with interest." This is interpreted to mean that there is a high possibility that the fuel cost linkage system will be applied to the electricity rate reform plan to be announced within this year.

Minister Sung made this statement during the National Assembly Trade, Industry, Energy, Small and Medium Venture Business Committee's audit in response to a question from Shin Jeong-hoon, a member of the Democratic Party of Korea.

Rep. Shin pointed out, "KEPCO posted a deficit of 1.3 trillion won last year and turned to a surplus of 820 billion won in the first half of this year, showing significant performance fluctuations depending on oil price changes," adding, "The structure that does not properly reflect costs in electricity rates not only undermines KEPCO's management stability but also leads to consumption distortion."

He then asked, "Is it possible to introduce a fuel cost linkage system to stabilize KEPCO's operation and rationalize consumption?"

Minister Sung replied, "Basically, stability and predictability are good for both institutional operation and the public," adding, "Fuel cost is the biggest determining factor in electricity rates, so it also affects KEPCO's performance."

He continued, "The 3rd Basic Energy Plan mentioned the necessity of reforming the electricity rate system," and said, "Since last year, we have been reviewing with KEPCO to bring rationality to the electricity rate system."

Currently, electricity rates are determined regardless of fuel cost fluctuations, causing significant volatility in KEPCO's operating profits depending on international oil prices. When oil prices are low, KEPCO posts a surplus, but when oil prices are high, it incurs a deficit.

KEPCO and the government are considering introducing a price ceiling system together to partially reduce the reflection of oil price fluctuations.

Amid the government's energy transition policy, the issue of KEPCO pursuing overseas coal power plant projects was also raised.

Minister Sung explained, "Regarding coal power generation, South Korea has chosen to ban new coal power plants, but overseas, each country has its own circumstances," adding, "We are restricting it in cases where the counterpart country requests it as a policy or when it is difficult to develop other power sources in that country."

He added, "We have confirmed that KEPCO currently has no intention to pursue additional overseas coal projects," and said, "The government's position is to carefully review support for overseas coal power generation under stricter and more rigorous conditions than at present."