[AI Era Electric Power is National Power]⑨ 'Debt 204 Trillion' KEPCO as Investment Entity... Experts Say "Electricity Rates Must Be Realistic to Create Capacity"

Despite First Profit in Four Years, Operating Losses and Debt Still Loom Large
Experts Say "Normalizing Electricity Rates Should Come First"
Opinions Divided on How to Encourage Private Investment

The Special Act on the Expansion of the National Backbone Power Grid for Smooth Electricity Supply passed the National Assembly at the end of last month, establishing an institutional foundation to rapidly build transmission lines. However, the fact that Korea Electric Power Corporation (KEPCO), the main investor, has accumulated debt of 200 trillion won is cited as another stumbling block.

There are continuous concerns that KEPCO's ongoing financial deterioration is becoming a burden on attracting power grids and expanding transmission lines. Especially in a situation where the expansion of renewable energy and the improvement of transmission infrastructure are urgent, there are worries that if KEPCO fails to invest timely due to financial difficulties, it could lead to a decline in national competitiveness.

An electric meter is installed in a commercial building in Seoul. Photo by Jinhyung Kang aymsdream@

KEPCO recorded an operating profit of 8.3489 trillion won on a consolidated basis last year, turning a profit for the first time in four years. This was largely due to the implementation of price increases. However, considering the accumulated deficits over time, last year's performance improvement does not provide much help. Since 2021, the accumulated operating loss has reached 34.7 trillion won, and as of the third quarter of last year, accumulated debt reached 204 trillion won. The sharp rise in international fuel prices combined with delayed electricity rate increases caused a deficit of 32 trillion won in 2022 alone, and the deficit structure has continued since then.

KEPCO's structural problem lies in the small difference between the purchase and sales prices of electricity. Last year, the purchase price (including RPS) was 134.8 won per kWh, while the sales price was 162.9 won. When international oil prices or fuel costs rise, KEPCO is vulnerable to a negative margin situation where electricity is sold below cost.

A KEPCO official said, "In recent years, electricity rates have been abnormally frozen while costs have risen sharply, causing deficits," and added, "We are considering normalizing electricity rates as a way to overcome this."

The financial deterioration also affects power management. First, it can cause a vicious cycle where power grid maintenance and transmission facility expansion are not carried out on time. Especially, under the government's carbon neutrality policy, renewable energy generation is expanding, but the necessary transmission infrastructure construction can only proceed slowly. If new investments are not made due to lack of funds, solar and wind power generation will become useless. Moreover, renewable energy generation is mainly concentrated in rural areas. KEPCO's insolvency could block the expansion of transmission lines needed to send surplus power from rural areas to the metropolitan area.

Experts unanimously emphasize that since transmission line issues are directly linked to national energy policy, electricity rates must be raised to realistic levels.

Professor Son Yang-hoon of the Department of Economics at Incheon National University said, "Normalizing electricity rates is obviously necessary," and pointed out, "The problem is that residential and general rates need to be raised, but so far the government has excessively raised the industrial electricity rates, which are easier targets, making it so difficult for industries that they have to generate their own power." He added, "We need to correct electricity rates first so that KEPCO can receive fair prices for electricity and have the capacity to invest."

Professor Lee Deok-hwan, emeritus professor of chemistry at Sogang University, said, "KEPCO is not just worrying but in a state of capital erosion. There is no other way now," and emphasized, "If KEPCO collapses, the lights in our homes will go out immediately. The government must save KEPCO with the national budget."

KEPCO's recent dividend payment is cited as an obstacle to budget support. KEPCO posted operating profits in the 8 trillion won range last year, escaping deficits for the first time in four years, but the dividend payment sparked controversy. The dividend per share was 214 won, with a market dividend yield of 1.0%, and the total dividend amount was 137.4 billion won. Some criticized this as a 'moral hazard.'

Professor Jung Dong-wook of the Department of Energy Systems Engineering at Chung-Ang University said, "As a listed company, some dividend payments are unavoidable," and added, "While paying dividends amid heavy debt may seem unreasonable, it can help restore market credibility and improve financial conditions. However, the level should not be excessive."

KEPCO stated, "This is the minimum level of dividend considering the essential investment funds needed for power grid expansion," and added, "Although small, it was necessary to enhance shareholder value by returning profits to investors who have trusted and invested for a long time."

Some argue that private investment in the power grid should be activated. Germany's TenneT, a company owned by the Dutch government, operates transmission networks in northern and central Germany, attracting private capital to expand the power grid. Under German government regulation, several private transmission operators compete and actively invest. The UK's National Grid has privatized the power industry to efficiently operate transmission networks and continuously expand investments for renewable energy integration.

Professor Yoon Je-yong of the Department of Chemical and Biological Engineering at Seoul National University said, "In the past, stable electricity supply was the top priority, so the current power system was the most efficient," and added, "However, now is the era of energy transition, so as new energy technologies like renewable energy come in, innovation is needed in the power system as well." He said, "We should allow private investment in sales and distribution to build an active retail market."

However, private investment in the power grid has many challenges to overcome. Professor Lee Deok-hwan said, "Even if opportunities open to the private sector, there are no companies in Korea currently capable of investing. The system is not yet established," and pointed out, "Unlike the US, Korea is small in scale, so there is no room for private businesses to operate in the power sector."

Professor Son Yang-hoon said, "KEPCO is in a desperate crisis now, so there are calls to allow private investment even in some sections," but added, "However, there are many hurdles such as contract and operation methods and tariff settings. First, government support is needed to realize budgets for transmission line installation and to ease regulations."