South Korea’s Ministry of Industry, Trade, and Energy (hereafter, the Ministry) announced on August 26 that it plans to increase electricity rates after the conclusion of the summer peak consumption period, in an effort to relieve the financial strain on the state-owned Korea Electric Power Corporation (KEPCO).
The Minister, during a press briefing, stated that the government will opportunistically hike electricity tariffs once the high-demand summer months pass, with the objective of restoring KEPCO’s financial stability. The exact timing of the increase, however, will be determined after the peak season for electricity usage, typically driven by air conditioning demands during hot weather.
The decision comes amidst KEPCO’s significant financial losses over the past few years. Despite the surge in international energy prices due to the Russia-Ukraine war, KEPCO has been providing electricity at rates below its cost since 2021. This has resulted in a cumulative loss of 43 trillion Korean won (approximately 2303 billion Chinese yuan) as of the end of 2023. As of June 30 this year, the company’s total liabilities, based on consolidated financial statements, stood at 202.99 trillion Korean won, an increase of around 4400 billion Korean won from the end of the previous year.
While KEPCO has seen profitability in the past four quarters following six successive rate hikes since 2022, the interest expenses for last year alone exceeded 4 trillion Korean won. This, the Minister emphasized, is not sufficient to break the vicious cycle of continually mounting total liabilities.
In addition to the impending rate hike, the Minister also shed light on the Ministry’s budget for the upcoming year. The 2024 budget is set at 11.501 trillion Korean won, representing a nominal increase of 218 billion Korean won compared to this year. However, considering the allocation of funds for the semiconductor and nuclear power development fund to the Financial Services Commission, the Ministry’s budget will increase by 3418 billion Korean won, approximately a 3% rise.
The move to increase electricity rates is expected to draw mixed reactions from the public and businesses, particularly given the current economic climate and the impact on household budgets. KEPCO’s financial health is crucial for the country’s energy security, and the government’s decision underscores the need to balance the need for affordable electricity with the sustainability of the power utility.
This development comes amidst a backdrop of increasing energy costs globally and the ongoing challenges posed by the Russia-Ukraine conflict. The South Korean government’s efforts to stabilize KEPCO’s finances are part of a broader strategy to ensure the stability of the national power grid and maintain the country’s economic resilience.
In the coming months, the government will likely engage in consultations with stakeholders to determine the extent of the rate hike and how it will be distributed among different consumer categories. The public and the industry will be watching closely as the Ministry navigates this delicate balance between fiscal prudence and energy affordability.
The government’s decision to raise electricity rates post-summer peak is a strategic move aimed at addressing KEPCO’s financial woes while minimizing the immediate impact on consumers. It remains to be seen how effective this measure will be in restoring KEPCO’s financial health and whether it will lead to long-term energy stability in South Korea.
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【source】https://cn.yna.co.kr/view/ACK20240827001700881?section=economy/index&input=rss
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