[2023 Economic Policy] Electricity and Gas Fees to Double Next Year... KEPCO Deficit to Be Resolved by 2026

'2023 Economic Policy Direction'... Gradual Increase in Electricity and Gas Fees
Deficit Expected at 31.3 Trillion This Year... Gas Gong Debt Ratio Nears 480%

[Asia Economy Sejong=Reporter Lee Jun-hyung] The government has established a policy to 'realize electricity rates.' This is to overcome the negative margin structure of Korea Electric Power Corporation (KEPCO), which incurs losses the more electricity it sells. The government also decided to gradually raise gas prices to reduce the outstanding payments of Korea Gas Corporation.

On the 21st, the government announced the '2023 Economic Policy Direction' containing these details. First, to improve the financial structure of KEPCO and Korea Gas Corporation, the government decided to gradually increase electricity and gas rates starting next year. This decision was made because international energy prices have surged sharply, making it impossible to suppress electricity and gas rate hikes under the pretext of price stability. The government's goal is to resolve KEPCO's deficit and Korea Gas Corporation's outstanding payments by 2026 through normalization of electricity and gas rates in line with soaring fuel costs.

Electricity Rates Expected to Rise Significantly Next Year

KEPCO's financial structure is already deteriorating. The increase in electricity rates has not kept pace with the soaring fuel costs caused by the surge in international energy prices, solidifying a negative margin structure where electricity is sold at a loss. This is why KEPCO recorded a deficit of 21.8342 trillion KRW through the third quarter this year. This amount is 3.7 times the size of last year's deficit (5.8601 trillion KRW), which was the largest on an annual basis. The consensus operating loss forecast for KEPCO this year is 31.2791 trillion KRW.

The situation is similar for Korea Gas Corporation. The outstanding payments accumulated this year because fuel costs were not reflected in gas prices are estimated to reach 10 trillion KRW, double last year's amount (approximately 5 trillion KRW). As of the third quarter this year, Korea Gas Corporation's debt ratio was 478.5%, about 100 percentage points higher than last year's 378.87%.

The Ministry of Trade, Industry and Energy, the relevant department, is considering raising electricity and gas rates next year to about twice the increase made this year. The ministry and KEPCO recently calculated the factor for next year's electricity rate increase at 51.6 KRW per kWh. This is 2.7 times the total increase of 19.3 KRW from the three hikes made this year. For gas prices, the increase factor for next year was estimated to be between 8.4 KRW and 10.4 KRW per megajoule (MJ). This means gas prices could rise 1.5 to 1.9 times the increase made this year.

High Inflation as a Variable

However, the possibility that high inflation will continue next year could act as a variable. In this economic policy direction, the government revised the consumer price inflation forecast for next year upward from the previous estimate of 3.0% to 3.5%. In a situation of sustained high inflation, significantly raising electricity and gas rates, which are directly linked to the livelihood of ordinary people, is inevitably a burden for the government.

Accordingly, the government also introduced measures to encourage energy conservation by reducing energy consumption itself. The government plans to expand the target for loans supporting energy-saving facility installations to include large corporations and increase the support rate from the current maximum of 90% to 100%. Additionally, through cost subsidies, the government aims to eliminate blind spots in energy diagnosis for small and medium-sized enterprises and strengthen incentives for companies that improve energy efficiency. To encourage energy saving among the general public, the government will also expand the automobile carbon point system and energy cashback programs.

If the energy supply and demand situation worsens, the government will consider strengthening 'energy diet' measures for public institutions. Since October, the government has been implementing energy use restrictions such as lowering the heating temperature in public institution buildings from 18 degrees to 17 degrees Celsius and turning off landscape lighting like fountains. A government official explained, "We are reviewing additional measures such as further shortening the time for turning off landscape lighting, restricting elevator operation, and cutting power in unmanned or unused areas."