[Opinion] How Should KEPCO Handle Its Massive Deficit?

Im Joo-hwan, Honorary President of the Korea Communications Society

KEPCO recorded an operating loss of 7.8 trillion won in the first quarter. This exceeded last year's annual loss of 5.8 trillion won in just one quarter, and it is forecasted that this year's operating loss will reach 20 trillion won. KEPCO buys electricity from power generation companies and resells it to make a profit. Due to rising fuel costs, the generation cost has increased significantly, but since the government controls electricity sales prices citing inflation, the more electricity KEPCO sells, the more it incurs losses.

The direct cause of KEPCO's massive deficit is the surge in international fuel prices. In the first quarter of this year, the price per ton of liquefied natural gas (LNG) rose 2.4 times compared to a year ago. Our government introduced the 'Electricity Tariff Fuel Cost Linkage System' in 2021. However, the government did not properly apply it.

However, the fundamental cause that led to this large deficit is believed to be the previous government's nuclear phase-out policy. In 2017, the government promoted the nuclear phase-out policy by halting new nuclear power plant construction and excluding the extension of nuclear plant lifespans, thereby suppressing the construction and operation of nuclear power plants. Instead, renewable energy such as solar and wind was expanded, and expensive LNG power generation was rapidly increased.

According to the 9th Basic Plan for Electricity Supply and Demand, nuclear power capacity will be reduced from 23GW in 2020 to 19GW in 2034, while LNG power generation capacity will increase significantly from 41GW in 2020 to 59GW in 2034. Renewable energy will increase about fourfold from 20GW in 2020 to 78GW in 2034.

Because renewable energy has high variability, energy storage systems appropriate to this scale must be installed to ensure power stability. Pumped-storage hydroelectricity can be used for energy storage, but an easier solution is to install LNG power generation facilities. As the scale of renewable power generation grows, LNG power generation also increases.

A high-cost structure for power production was created, and with the surge in LNG prices due to Russia's invasion of Ukraine, KEPCO took a direct hit. If nuclear power, which has a generation cost one-third that of LNG, had been fully utilized, the deficit could have been somewhat reduced under the current international energy price surge. If the nuclear phase-out policy is not revised, the impact is expected to be greatly amplified in the future.

LNG emits only half the carbon emissions of coal power and is classified as green energy along with solar and wind in Europe. LNG power generation is important for responding to climate change. However, ignoring nuclear power, which emits no carbon, cannot be considered a proper energy policy. Europe classified nuclear power as eco-friendly energy in February this year, and France, where nuclear power accounts for 70%, postponed the target year to reduce nuclear power share to 2035 in its second long-term energy program announced earlier this year, delaying it by 10 years.

KEPCO has announced plans to prepare self-help measures such as restructuring, but considering that power purchase costs account for more than 85% of operating expenses, this is unrealistic. The previous government brought about the current crisis through policies focused on suppressing electricity prices. The new government decided last Monday to raise electricity prices by 5 won per kWh; although insufficient, the direction is correct.

Future energy, including the expansion of electric vehicle adoption, is being reorganized around electricity. If a reasonable tariff level is not achieved due to a poor pricing structure, KEPCO's investment in the power grid will be reduced, leading to power supply issues and ultimately harming the public. An electricity tariff decision structure independent from politics is necessary.