[Column] Electricity Rates Need to Rise... KEPCO, 'No One on My Side'

[Asia Economy Sejong=Reporter Dongwoo Lee] “Electricity rates need to be normalized, but that is not an easy situation.”

A senior official from Korea Electric Power Corporation (KEPCO) said this regarding the possibility of electricity rate hikes next year. The use of the term ‘normalization’ instead of ‘increase’ reveals KEPCO’s burden about external perceptions. KEPCO, which is forecasting a record deficit of 30 trillion won this year, desperately needs to raise electricity rates but has been circling around without a definite solution for years.

The government must discuss and decide the details of next year’s electricity rate hike with relevant ministries by the end of this month. The Ministry of Economy and Finance, which holds the key to whether electricity rates will rise, is expected to hesitate under the pretext of minimizing the burden on the public, making the process difficult.

The reason KEPCO is running a deficit is simple. It buys electricity at a high price and sells it cheaply. KEPCO purchased electricity from power producers at an average of 177.4 won per kWh (kilowatt-hour) and sold it at 116.4 won. This means KEPCO lost about 60 won for every unit of electricity sold. KEPCO analyzed that it would need to raise the fuel cost adjustment rate by 52.3 won in the fourth quarter of this year to avoid a deficit, but the government only raised it by 7.4 won for residential use and 11.9 to 16.6 won for industrial use.

As the deficit management continues, the market and industry views are also unfavorable. The bond market, which has served as KEPCO’s funding source, complained that the issuance of KEPCO bonds rated AAA exceeding 2 trillion won every month is absorbing market liquidity and exacerbating industry confusion. This is because corporate bonds with lower ratings than KEPCO bonds are being shunned in the bond market, forcing companies to borrow money at higher interest rates.

The Ministry of Trade, Industry and Energy, the relevant department, has implemented the ‘SMP cap system’ limiting the System Marginal Price (SMP) from this month as a desperate measure, but even this is facing lawsuits from private power producers citing reduced profits.

KEPCO is estimated to record a record deficit of 31.28 trillion won this year alone. If the electricity rate hike is delayed, the deficit is expected to reach 12.7 trillion won next year. There are only two ways to normalize KEPCO’s management: raising electricity rates and government financial support.

Both ultimately come from taxpayers’ money, but the rate hike is a realistic measure where consumers pay according to their electricity usage, whereas financial support means the government bears the cost needed to cover KEPCO’s deficit regardless of electricity consumption. This is why the normalization of electricity rates should not be postponed due to political considerations.

This content was produced with the assistance of AI translation services.