Rising oil costs force KEPCO to raise electricity prices

The Korea Times

The Korea Times

Business

Mon, September 25, 2023 | 02:22

Energy

Rising oil costs force KEPCO to raise electricity prices

Posted : 2021-09-23 16:35

Updated : 2021-09-24 08:41

Korea Electric Power Corp. headquarters in Naju, South Jeolla Province / Courtesy of KEPCO

By Kim Hyun-bin

Korea Electric Power Corp. (KEPCO) announced Thursday it will hike electricity pricess starting in the fourth quarter of the year to reflect a continued increase in global oil prices. This is the first electricity rate hike in Korea since November 2013.

The state-run utility plans to end its 3 won ($0.0025) per kilowatt-hour discount that was applied since the first quarter. The electricity bill for an average four-person household is expected to increase by 1,050 won each month.

KEPCO shifted from a fixed-rate electricity billing system and adopted a flexible rate starting this year to enhance profitability amid fluctuating global fuel prices.

The current system revises billing every quarter to reflect the movement of natural resource prices, including crude oil, liquefied natural gas (LNG) and coal.

The rate hike comes after KEPCO suffered more than 760 billion won ($652.7 million) in operating losses during the second quarter of this year. According to KEPCO's semiannual report, sales reached 28.5 trillion won in the first six months of this year, but the company ended up suffering an operating loss of 193.1 billion won and a net loss of 555.4 billion won.

Although KEPCO is set to raise electricity fees, industry watchers expect the company to suffer another consecutive yearly operating loss due to higher costs of importing the raw materials to produce power.

In addition, the latest rate hike could heighten concerns about inflation in Asia's No. 4 economy.

The country's consumer prices have jumped over 2 percent in August, rising for the fifth-consecutive month due to rising prices of agricultural and oil products.

"The rise in electricity costs will put pressure on concerns over inflation as the entire manufacturing and service sectors will be burdened by the rise. Inflation was already on a steep rise, but the new rate hikes will place a bigger burden," Sung Tae-yoon, an economics professor at Yonsei University, said. "Inflation has been expanding in all sectors and it will be inevitable for the BOK to raise interest rates in November. The BOK has signaled a possible interest rate hike.

Many experts say more hikes in electricity prices are inevitable due to the government's gradual nuclear power phase-out policy.

"The government is allowing KEPCO to raise rates even though the presidential election is just around the corner as its mounting deficit is difficult to manage," Kim Dae-jong, a business professor at Sejong University, said. "The mounting deficit is mostly due to the Moon Jae-in administration's nuclear phase-out policy. Nuclear power contributed 25 percent to 30 percent of the country's electricity production and now the government is seeking to transition to renewable energy which is five times more expensive."

KEPCO's stock price declined 1.22 percent to 24,200 won, Thursday, on the KOSPI, according to Korea Exchange (KRX) data.

hyunbin@koreatimes.co.kr