President Yoon Suk-yeol's administration plans to build new nuclear reactors to reduce the country's reliance on coal and natural gas, but unless the public's electricity bills are hiked drastically in line with generation fuel costs, the government may have to infuse liquidity into the utility, analysts said.
KEPCO reported on Friday 7.8 trillion won ($6.1 billion) in consolidated January-March operating losses, a record quarterly loss. Revenue was 16.5 trillion won.
"The only way to improve business performance is to raise electricity rates ... Excluding lifting electricity rates, there is no remaining means to stabilise KEPCO's financial state other than capital increase," said Yoo Jae-sun, an analyst at Hana Financial Investment, in a note.
"In the case of a share issuance, the government will have to take on more than half of the capital increase."
Resource-poor South Korea imports most of its energy. Coal produced 32.8% of its power as of February, with natural gas at 28.1%, nuclear 28.8%, and renewables 8.6%, according to provisional KEPCO data.
Global energy prices have skyrocketed. In April, the prices of Australian bituminous coal used by South Korea for power rose 280% from a year ago while gas climbed 189%.
KEPCO's fuel costs and power purchases from other generators jumped 34% to 41 trillion won in 2021.
However, the public's electricity payments, fixed by the government, have remained largely the same. KEPCO said it sold electricity to manufacturing firms at an average of 105.5 won per kilowatt-hour in 2021, versus 107.4 won in 2020.
Keeping electricity bills level provides a competitive edge for global manufacturers like Samsung and Hyundai, and defends the disposable income for Korean households as inflation drives other prices up, but KEPCO has been left holding the bag.
"It's nerve-wracking," said a source at KEPCO, who declined to be identified as they are not authorised to speak to the media. "We're just looking to the government to keep us safe."
Analysts' outlooks on KEPCO's annual losses this year have more than doubled since the beginning of the year because "energy prices continue to rise, but electricity prices have not been raised," said Kim Soo-yeon, an analyst at Hanwha Investment & Securities.
Yoon plans to increase nuclear's portion of power generation through 2030 by resuming the construction of two reactors and extending the operation of aging reactors, thereby "reasonably reducing" coal and liquefied natural gas (LNG) power generation.
Nuclear power is South Korea's cheapest power source, costing 67.99 won per kilowatt-hour versus coal's 155.05 won, LNG's 247.48 won and alternative energy's 203.33 won in February.
South Korea has 24 nuclear power reactors and four under construction. Two due to restart construction may do so in 2025, newspaper Kookmin Ilbo reported on Thursday citing a transition team document.
The presidential office said no details have been fixed.
While more operational nuclear reactors would help KEPCO, that would not be able to erase all of its losses, analysts said.
"We estimate at least 15 new nuclear power plants should have been already completed and in operation" for KEPCO to fully make up for expected losses this year, said Hana Financial's Yoo.
Yoon's administration plans to raise electricity bills more in line with fuel costs. But, analysts are unsure how big the hikes will actually be under Yoon, who won the March presidential election by the smallest margin in South Korea's democratic history.
($1 = 1,282.7200 won)
(Reporting by Joyce Lee; Editing by Christian Schmollinger)
By Joyce Lee