Discussion Intensifies on Merging Five Power Companies in South Korea

Discussions are intensifying regarding the restructuring of South Korea's power generation sector, focusing on the potential merger of five state-owned power companies. Experts agree that consolidation is necessary to achieve energy transition and carbon neutrality, but they emphasize the need for a clear roadmap that prioritizes public benefits.
 
The Climate Energy Environment Ministry held an interim report meeting on June 18 at the Korea Electric Power Corporation (KEPCO) Art Center in Seocho-gu, Seoul, to discuss the restructuring direction for power generation companies.

During the meeting, Samil Accounting Corporation, which conducted the research, presented a proposal to merge the five power companies into a single entity, citing it as the optimal solution. The current five-company system is deemed inadequate for securing the large-scale capital needed for expanding renewable energy and facilitating the energy transition.

In 2001, the government restructured the power industry by separating the generation sector from KEPCO and dividing it into five companies: Southeast, Southern, Eastern, Western, and Central. However, contrary to the original intention of promoting competition among these companies, actual competition has been limited, leading to inefficiencies due to overlapping functions and structures, thus reigniting the need for restructuring.

Samil Accounting Corporation highlighted that a 500 MW offshore wind project would require approximately 3.75 trillion won. They noted, "If a single power company undertakes the project alone, the debt ratio is projected to increase by about 48%." They warned that the current system could delay the transition to carbon-free energy amid the dual pressures of phasing out coal power and investing in LNG.

Inefficiencies in organizational operations were also cited as a reason for the need for consolidation. The five companies are reportedly duplicating similar functions and structures, leading to unnecessary personnel and cost expenditures.

Samil Accounting Corporation stated, "Each executive in the five power companies manages about 700 personnel, while KEPCO manages 3,300 and Korea Hydro & Nuclear Power manages 2,200," diagnosing the situation as a structure with overlapping organizations and functions.
 
Experts participating in the discussion generally concurred on the necessity of merging the power generation companies.

Professor Jo Young-sang from Yonsei University’s Department of Industrial Engineering expressed, "I fully agree that the current five-company system is not an effective framework for energy transition and carbon neutrality. The proposal to merge into one company is a reasonable alternative in terms of energy transition, just transition, and efficiency."

He suggested that power generation companies should expand their roles beyond mere electricity production to include supporting local energy transitions, renewable energy consulting, and virtual power plants (VPPs).

Professor Park Jong-bae from Konkuk University’s Department of Electrical and Electronic Engineering noted, "This could mark another significant turning point following the establishment of the integrated KEPCO system in 1961 and the separation of generation companies in 2001."

However, some experts cautioned that merging the power companies may not solve all issues.

Professor Ha Yoon-hee from Korea University’s Graduate School of Energy and Environment assessed, "The sluggish expansion of renewable energy is largely due to institutional limitations rather than the separation of power companies." She emphasized that competition among the companies has had positive effects in areas such as fuel procurement and overseas projects, indicating that institutional mechanisms to encourage competition and innovation should remain post-merger.

Despite the consensus on the need for consolidation, there were calls for more concrete implementation plans.

Professor Sung Si-kyung from Dankook University’s Department of Public Policy stated, "It must be clear what benefits the public will gain from the consolidation process. Only then can we establish tangible goals that need to be achieved post-merger. Currently, the discussions are focused on the needs of the power companies themselves."

He added, "There is no visible roadmap regarding the timing of special legislation, the consolidation schedule, the establishment of a new corporation, or the succession of existing fuel contracts," stressing that the success of the merger hinges on detailed discussions.

Professor Kim Chang-wan from Chung-Ang University’s Department of Architecture also remarked, "It is essential to clearly outline what missions the five power companies will undertake after the merger and what benefits the public will receive. Discussions on integrating organizational culture, compensation systems, and work methods must also take place to achieve the expected synergies."

Meanwhile, the Climate Ministry plans to incorporate the opinions of experts and stakeholders raised during the meeting to develop a plan for restructuring and reorganizing the functions of power generation companies by July.