As extreme heat drives total power demand to record levels, the financial burden related to power systems is expected to increase due to climate change. Analysts suggest that the 'climate adaptation costs' associated with investments in power grids and energy storage systems (ESS) may lead to pressure for higher electricity rates amid ongoing financial challenges for Korea Electric Power Corporation (KEPCO).
According to the Korea Power Exchange, total demand, including both market and external demand, reached 104.4 gigawatts (GW) on August 7 at 3 p.m., surpassing the previous record of 104.2 GW set on August 25 last year. On the same day, market demand peaked at 95.3 GW, resulting in a supply reserve of 8.3 GW and a supply reserve ratio of 8.7%.
Despite this surge in demand, the likelihood of immediate power supply issues remains low. The Korea Power Exchange forecasts this week's power demand to range between 92.9 and 96.7 GW, with reserves expected to be between 10.3 and 14.4 GW, indicating no anticipated disruptions in supply.
However, the intensifying extreme weather events due to climate change are raising concerns. Heat waves increase cooling demand while reducing the cooling efficiency of power generation facilities, and droughts can further impact the availability of cooling water.
The frequency and intensity of compound disasters, such as heavy rain and heat waves, are also on the rise. A study commissioned by Greenpeace and conducted by a research team led by Professor Kim Hyung-jun of KAIST analyzed summer weather patterns from 1991 to 2020 and the last four years (2021-2024). The median intensity index for compound disasters increased from 0.55 to 1.65, a threefold rise. The number of extreme compound disaster days, which fall within the top 1% historically, has increased from an average of 1.1 days to 5.2 days per year, a 4.8-fold increase.
Professor Kim Hyung-jun stated, "Heat waves increase power demand while decreasing the cooling efficiency of power generation, and droughts affect the availability of cooling water. As climate change increases variability, it will also impact power supply stability."
With the expansion of renewable energy, the importance of predicting weather variables is growing. Since solar and wind power generation varies with weather conditions, investments in power grids, ESS, and reserve resources are necessary to mitigate volatility. The Korea Power Exchange incorporates weather changes into hourly demand forecasts, but sudden changes, such as unexpected cloud cover, can lead to temporary forecasting errors.
These 'climate adaptation costs' could further burden KEPCO's financial normalization efforts. Despite returning to profitability, KEPCO has struggled to improve its financial structure. As of the end of the first quarter, KEPCO's debt stood at 206 trillion won, with cumulative operating losses since 2021 reaching approximately 34 trillion won. According to financial information provider FnGuide, KEPCO's consensus operating profit for the second quarter, set to be announced on August 12, is projected to be 1.9642 trillion won, an 8% decrease from the same period last year. The company faces the challenge of addressing its accumulated financial burdens while simultaneously investing in new projects, such as expanding the power grid.
Professor Park Jong-bae of Konkuk University’s Department of Electrical and Electronic Engineering noted, "If extreme heat becomes commonplace, power demand will increase, necessitating additional investments in power grids, generation facilities, and reserves. This implies higher investment and operational costs, which ultimately means consumers will bear the increased costs through higher electricity rates."
* This article has been translated by AI.
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