[2020 National Audit] "KEPCO and Power Generation Companies Plan 600 Billion KRW Investment in New and Renewable Energy under Moon Administration"

Gu Ja-geun "Pushed into New and Renewable Investments... SPC Management Must Be Properly Handled"

[Asia Economy Reporter Moon Chaeseok] It has been revealed that Korea Electric Power Corporation (KEPCO) and its six power generation subsidiaries have established investment plans exceeding 600 billion won for domestic and overseas new and renewable energy development since the inauguration of the Moon Jae-in administration.

According to data received by Koo Ja-geun, a member of the National Assembly's Industry, Trade, Energy, Small and Medium Enterprises Committee from KEPCO and each power generation subsidiary on the 22nd, these public enterprises planned investments of 629.6 billion won in new and renewable energy projects from 2017 to 2020, of which 368.2 billion won has been invested to date.

Of the planned 275 billion won investment in domestic new and renewable projects, 204.1 billion won has been invested, and of the 354.6 billion won planned for overseas new and renewable projects, 164.1 billion won has been invested.

Looking at the investment plans by company: KEPCO 160.8 billion won, Korea Hydro & Nuclear Power 41.2 billion won, Korea South-East Power 130.7 billion won, Korea Southern Power 7.6 billion won, Korea East-West Power 66 billion won, Korea Western Power 68.5 billion won, and Korea Midland Power 154.8 billion won.

Based on total amounts, KEPCO had the largest investment, with Korea South-East Power leading domestic investments and Korea Midland Power leading overseas investments.

These public enterprises have established Special Purpose Companies (SPCs) for each new and renewable energy investment project to carry out their business.

Previously, in December 2017, the government revised the public institution management evaluation criteria to add 'new and renewable energy development performance' to the evaluation indicators for power generation subsidiaries, assigning a weight of 3 points.

The calculated performance includes domestic new and renewable SPC project results, creating a structure where the more domestic new and renewable SPC projects conducted, the higher the performance score received.

The problem is that since 2018, when new and renewable energy policies were fully implemented, the management performance of these public enterprises has simultaneously deteriorated.

KEPCO's debt ratio based on separate financial statements rose from 91.0% in 2017 to 98.7% in 2018 and 113.4% in 2019.

During the same period, Korea South-East Power's debt ratio increased from 100.0% to 102.9% and then to 126.6%, while Korea Midland Power's rose from 168.3% to 192.1% and then to 241.2%.

It is also pointed out as a problem that public enterprises present only optimistic forecasts while promoting new and renewable energy projects.

For example, KEPCO invested 19.4 billion won in a solar power project in Colorado, USA, in 2016, expecting sales of about 120 billion won over the 26-year project period, but decided to withdraw from the project this year due to deteriorating power generation performance.

KEPCO's financial status in new and renewable energy investment projects was generally poor, even considering the early stage of the projects.

According to last year's settlement data, net income showed losses of 2.458 billion won for Jeju Hallim Offshore Wind Power, 1.24 billion won for Guam Mangilao Solar Power, and 560 million won for Mexico Solar Power.

Only the California Solar Power project avoided losses, and all four projects had no operating profit.

Representative Koo said, "Energy public enterprises are rushing to align with government policies while investing hundreds of billions of won in new and renewable energy projects," adding, "It is necessary to examine whether the government’s management and supervision of SPC projects are being properly conducted."