As the freeze on electricity rates continues, Korea Electric Power Corporation (KEPCO) is facing increased financial burdens. The rising costs of liquefied natural gas (LNG) for power generation and the electricity wholesale price (SMP) have coincided with KEPCO bond interest rates nearing 4.5%, putting pressure on both power purchase costs and financing expenses.
On September 21, KEPCO announced that it will maintain the fuel cost adjustment rate at +5 won per kilowatt-hour (kWh) for the fourth quarter (October to December). Consequently, other rate components, including basic charges, energy charges, and climate environment fees, will also remain unchanged, keeping electricity rates at their current level.
The fuel cost adjustment rate reflects fluctuations in the prices of coal, LNG, and bunker C oil over the previous three months, applied within a range of ±5 won per kWh, with the current cap already set at +5 won.
However, the necessary adjustment rate for the fourth quarter was calculated at +7.3 won per kWh, exceeding the cap of +5 won. The increase in fuel prices for coal and LNG during July and August has resulted in an actual fuel cost of 549.64 won per kilogram. Thus, the final fuel cost adjustment rate remains at +5 won per kWh, marking 18 consecutive quarters at the same level since the third quarter of 2022.
The challenge lies in the rising power purchase costs for KEPCO. The price of natural gas for power generation surged from 13,731 won per gigajoule (GJ) in March to 22,726 won in August. The average monthly SMP also jumped 43.8%, from 102.84 won per kWh in January to 147.88 won in August.
Financing costs are also on the rise. According to the Korea Financial Investment Association, the interest rate on KEPCO's three-year bonds reached 4.424% as of September 18, climbing to 4.491% on September 15, nearing the 4.5% mark.
Amid increasing cost pressures, KEPCO must also invest heavily in its power grid to meet rising electricity demand from sectors such as semiconductors and artificial intelligence (AI) data centers. The National Assembly Budget Office previously projected that the debt of public institutions in the energy sector, including KEPCO and its power generation subsidiaries, would increase by 19.2 trillion won, from 288.6 trillion won in 2025 to 307.8 trillion won in 2029.
The rise in financing rates could also burden the funding for power grid investments. By the end of last month, KEPCO had issued 12.21 trillion won in bonds this year.
While KEPCO reported an operating profit of 13.49 trillion won last year, indicating a recovery in profitability, its debt burden remains significant. As of the end of the first half of this year, KEPCO's consolidated debt stood at 210.7 trillion won, an increase of 5.1 trillion won from the end of last year, with borrowings rising from 129.8 trillion won to 133.3 trillion won. The average daily interest expense amounts to 11.5 billion won.
An industry insider stated, "With recent increases in fuel costs and SMP, KEPCO's power purchase burden is inevitably growing. As investments in the power grid ramp up and financing rates rise, this could further strain efforts to improve its financial structure."
On September 21, KEPCO announced that it will maintain the fuel cost adjustment rate at +5 won per kilowatt-hour (kWh) for the fourth quarter (October to December). Consequently, other rate components, including basic charges, energy charges, and climate environment fees, will also remain unchanged, keeping electricity rates at their current level.
The fuel cost adjustment rate reflects fluctuations in the prices of coal, LNG, and bunker C oil over the previous three months, applied within a range of ±5 won per kWh, with the current cap already set at +5 won.
However, the necessary adjustment rate for the fourth quarter was calculated at +7.3 won per kWh, exceeding the cap of +5 won. The increase in fuel prices for coal and LNG during July and August has resulted in an actual fuel cost of 549.64 won per kilogram. Thus, the final fuel cost adjustment rate remains at +5 won per kWh, marking 18 consecutive quarters at the same level since the third quarter of 2022.
The challenge lies in the rising power purchase costs for KEPCO. The price of natural gas for power generation surged from 13,731 won per gigajoule (GJ) in March to 22,726 won in August. The average monthly SMP also jumped 43.8%, from 102.84 won per kWh in January to 147.88 won in August.
Financing costs are also on the rise. According to the Korea Financial Investment Association, the interest rate on KEPCO's three-year bonds reached 4.424% as of September 18, climbing to 4.491% on September 15, nearing the 4.5% mark.
Amid increasing cost pressures, KEPCO must also invest heavily in its power grid to meet rising electricity demand from sectors such as semiconductors and artificial intelligence (AI) data centers. The National Assembly Budget Office previously projected that the debt of public institutions in the energy sector, including KEPCO and its power generation subsidiaries, would increase by 19.2 trillion won, from 288.6 trillion won in 2025 to 307.8 trillion won in 2029.
The rise in financing rates could also burden the funding for power grid investments. By the end of last month, KEPCO had issued 12.21 trillion won in bonds this year.
While KEPCO reported an operating profit of 13.49 trillion won last year, indicating a recovery in profitability, its debt burden remains significant. As of the end of the first half of this year, KEPCO's consolidated debt stood at 210.7 trillion won, an increase of 5.1 trillion won from the end of last year, with borrowings rising from 129.8 trillion won to 133.3 trillion won. The average daily interest expense amounts to 11.5 billion won.
An industry insider stated, "With recent increases in fuel costs and SMP, KEPCO's power purchase burden is inevitably growing. As investments in the power grid ramp up and financing rates rise, this could further strain efforts to improve its financial structure."
* This article has been translated by AI.
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