SEOUL, October 24 (AJP) — South Korea's long-running electricity rate debate is resurfacing as state utility Korea Electric Power Corp. (KEPCO) faces a looming borrowing limit that could constrain investment in the country's rapidly expanding power grid.
KEPCO could exceed its statutory bond issuance ceiling by about 19.2 trillion won ($14.5 billion) once a temporary exemption expires at the end of 2027, according to estimates based on the utility's medium-term financial plan.
Its outstanding bonds are projected to reach about 76 trillion won by the end of next year, compared with an estimated statutory ceiling of 56.8 trillion won when the normal limit returns in 2028.
The problem dates back to 2021, when global fuel prices began rising faster than KEPCO was allowed to pass through to customers.
The state utility buys electricity from generators and resells it to households and businesses at regulated prices, leaving it exposed when coal, liquefied natural gas and other fuel costs rise sharply.
Korea introduced a fuel-cost adjustment system in 2021, but calculated increases were repeatedly withheld as the government sought to shield households and businesses from the economic effects of the COVID-19 pandemic and rising inflation.
The imbalance worsened after Russia invaded Ukraine in 2022, pushing KEPCO from a consolidated operating loss of 5.8 trillion won in 2021 to a record 32.7 trillion won loss the following year.
As losses mounted, KEPCO increasingly relied on bond issuance to fund operations.
The Yoon Suk Yeol administration responded with a series of electricity rate increases beginning in 2022 and accelerating in 2023, including hikes of 13.1 won per kilowatt-hour in January 2023 and another 8 won in May.
Lawmakers also temporarily raised KEPCO's bond issuance ceiling at the end of 2022, allowing the company to borrow up to five times its capital and reserves through 2027, while the utility launched asset sales, investment adjustments and other cost-cutting measures.
Falling fuel prices, higher electricity rates and restructuring gradually restored profitability, with KEPCO's operating loss narrowing to 4.5 trillion won in 2023 before swinging to profits of 8.4 trillion won in 2024 and 13.5 trillion won last year.
Its balance sheet recovered much more slowly because years of losses had already been financed largely through borrowing.
In October 2024, the government raised industrial electricity rates by an average 9.7 percent but froze residential and general-use rates, citing inflation and pressure on household finances.
The Lee Jae Myung administration has so far focused more on restructuring industrial tariffs than on a broad household increase, lowering some daytime industrial rates while raising evening charges and preparing regional pricing aimed at making electricity cheaper in areas closer to major power generation sources.
Those changes may redistribute costs among businesses but do little by themselves to reduce KEPCO's accumulated debt, even as the utility faces rising investment needs for the power grid.
KEPCO's latest long-term transmission plan calls for about 72.8 trillion won in grid investment through 2038 as semiconductor clusters, artificial intelligence data centers and wider electrification sharply increase power demand.
KEPCO President Kim Dong-cheol told lawmakers this month that the company would need to discuss at least a minimal electricity rate increase with the government as grid investment continues to climb.
Allowing the temporary bond ceiling to expire without sharply reducing debt could leave KEPCO above its legal borrowing limit, while extending it again would postpone rather than solve the underlying financial problem.
Raising electricity rates would strengthen KEPCO's finances and help fund new infrastructure, but would also increase costs for households and businesses — the same trade-off that has defined Korea's electricity policy since the energy shock began.
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