Raw Material Prices Surge Amid Heatwave... Government to Hold Summer Power Supply Meeting Next Week

TF Meeting of Power Supply Experts on July 2
Preparing for Energy Supply Instability This Summer
Final Supply Plan to Be Announced Early July
KEPCO Faces Rising Power Demand and Deficit... Financial Structure Deteriorates

On the 24th, as the daytime temperature in Seoul rises to 30 degrees Celsius, heat continues, and heat haze is rising on Yeouidaero in Seoul. Photo by Jinhyung Kang aymsdream@

As a global energy supply shortage and record-breaking heatwaves due to abnormal temperatures are expected this summer, concerns are rising that the financial deterioration of Korea Electric Power Corporation (KEPCO), which has entered an emergency management system due to the surge in maximum power demand, could worsen further. Since electricity is supplied at prices lower than the power purchase price, it is analyzed that KEPCO's deficit will inevitably expand during the summer when power demand surges.

According to the power industry on the 26th, the government and KEPCO will hold the 2nd working-level meeting of the 'Power Supply and Demand Expert Advisory Task Force (TF)' on July 2nd at KEPCO's Power Infrastructure Center in Yeouido to forecast this summer's electricity demand.

This TF, composed of experts including the Ministry of Trade, Industry and Energy, KEPCO, Korea Power Exchange, Korea Meteorological Administration, public power generation companies, and professors from related academic departments, will focus on the outlook and countermeasures for power supply and demand this summer. Starting with the first meeting on the 20th, opinions will be coordinated until next month, and the final supply and demand plan will be announced in early July.

The TF plans to intensively review the maximum power demand and supply reserve ratio, expecting domestic power demand to exceed normal levels due to the record-breaking global heatwave forecast this summer. Especially, with the prolonged Russia-Ukraine war adding instability to raw material supply this year, a stable raw material supply plan must be established to prepare for blackouts during peak power demand.

According to the Korea Power Exchange's power demand trends over the past five years, last year's maximum power demand was 91.1GW, a 7.0% increase compared to 85.1GW in 2017. The power supply reserve ratio, an indicator of additional power supply capacity, is usually monitored when it falls below 10% for stable power supply and demand. Last year, the lowest power supply reserve ratio dropped to 9.45% (July 13), marking the lowest point in 1 year and 11 months. The maximum power demand in July 2018, remembered as an unprecedented heatwave, was 92.5GW, with the supply reserve ratio falling to 7.7% at that time.

The problem is that increasing power generation to prepare for this year's maximum power demand could further worsen KEPCO's financial structure.

The System Marginal Price (SMP), the wholesale electricity price applied when KEPCO purchases power from power generators, was 202.11 KRW per kWh in April, a 155.5% increase compared to 79.1 KRW in May last year. The selling cost is about 110.4 KRW per kWh, so the more electricity sold, the greater the deficit, meaning the higher the demand, the larger the deficit.

Although the government recently adjusted KEPCO's power purchase price from power generators to 130-140 KRW per kWh through the 'Emergency Settlement Price Cap System' in the electricity market, adjusting the average margin by about 70 KRW per kWh, experts say this is only a temporary measure. Professor Seunghoon Yoo of the Department of Future Energy Convergence at Seoul National University of Science and Technology said, "To prepare for summer power supply and demand, normalizing KEPCO's electricity rates should also be considered," adding, "An increase in electricity rates within the scope of the fuel cost linkage system is necessary."