[Click eStock] "Korea Electric Power, Deficit Expected to Widen Further"

Factors for Price Increase Remain Including Renewable Energy Supply Certificates Due to Renewable Energy Supply Obligation
Hyundai Motor Securities Lowers Korea Electric Power Target Price from 27,000 Won to 25,000 Won

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] Korea Electric Power Corporation (KEPCO) is recording massive losses due to rising energy prices and electricity rates that fail to keep pace. If additional energy price increases are reflected in the future, the deficit is expected to widen further.

According to Hyundai Motor Securities on the 23rd, KEPCO posted a large-scale loss exceeding 900 billion KRW in the third quarter of this year despite the summer peak season. This is due to structural problems. While energy prices are rising, the electricity rate structure is not keeping up.

Crude oil prices next year are expected to show a high start and low finish. This is because concerns about crude oil demand, the Iran nuclear deal, and expanded shale oil production are expected to increase supply. Nevertheless, the deficit is expected to widen further. Kang Dong-jin, a researcher at Hyundai Motor Securities, explained, “Additional energy price increases are expected to be reflected each quarter,” adding, “Since natural gas prices, which decisively affect the wholesale electricity market price (SMP), lag behind crude oil prices, if crude oil stabilizes downward, costs will stabilize only in the second half of next year.”

There are also factors for rate hikes. The cost of Renewable Energy Certificates (REC) under the Renewable Portfolio Standard (RPS) is expected to rise from 10% to 12.5% next year. The rise in carbon emission permit prices is another factor driving costs other than crude oil prices.

Renewable energy transactions, which had to go through KEPCO, have become possible to enter the business with deregulation. With the possibility of renewable energy Power Purchase Agreements (PPA), some operators have entered the charging business using solar power facilities and their own Energy Storage Systems (ESS) starting next year. Researcher Kang said, “If KEPCO’s electricity rates rise in the future and renewable energy and battery costs fall, price competitiveness will continue to decline.”

Accordingly, Hyundai Motor Securities maintained its investment opinion on KEPCO as ‘Marketperform’. The target stock price was lowered from the previous 27,000 KRW to 25,000 KRW. The closing price on the previous day was 22,300 KRW.