Page 11 - AsiaElec Week 41 2022

AsiaElec COMPANIES AsiaElec

KEPCO losses put its energy

transition plans at risk

SOUTH Korean state utility KEPCO could find faces financial challenges, is exposed to high risk
SOUTH KOREA it difficult to follow through on its plan to sell off for its debt investors and now has an uncertain
its coal and gas assets abroad to fund the clean transition plan.
energy transition at home as it tries to fill a $12bn KEPCO has a lack of a credible track record
operating loss hole in its balance sheet. to see it through a clean energy transition. Its
The company, which dominates the domestic ability to finance its decarbonisation remains
market and is a key investor in emerging markets uncertain.
across Asia, posted a loss of $6bn in Q1 2022, Coal represented 43-52% of its power genera-
which has since grown to $12bn for H1 2022. tion mix in the last ten years, followed by nuclear
However, it could find it difficult to find buy- (34-38%) and liquefied natural gas (8-19%).
ers and fetch good prices for assets that are effec- “Fossil fuels dominate KEPCO’s generation
tively stranded, calling into question KEPCO’s mix and fuel costs are not passed through to cus-
ability to decarbonise, the Institute for Energy tomers. Therefore, high and volatile fuel prices
Economics and Financial Analysis (IEEFA) said have been the major culprit behind its deteri-
in a recent report. orating earnings over the last decade,” says the
“KEPCO’s main responsibility is to ensure a IEEFA’s Hazel James Ilango.
cost-efficient and effective power supply in keep- The result is that KEPCO’s management and
ing with the government’s strict tariff environ- board have put the company at severe financial
ment,” said the IEEFA’s Christina Ng. risk.
“However, a series of short-sighted missteps “Instead of revisiting investment choices,
have weighed on profitability and business via- KEPCO has become overconfident of gov-
bility, therefore exposing KEPCO’s poor aptitude ernment bailout, which suggests the need for
for business and corporate governance.” a rethink in how sovereign-linked entities are
KEPCO has been issuing green bonds since assessed,” said Ng.
2018/2019, of which the proceeds are required Despite a reorientation in 2022 towards
to be allocated to green projects, which include renewable energy with its “Zero for Green”
renewable energy. vision, LNG appears to play a pivotal role in
Nonetheless, KEPCO’s green projects appear KEPCO’s future generation mix.
inconsequential to its total capital expenditure. “The replacement of one fossil fuel for
KEPCO was, in fact, still investing in large new another means that high and volatile fuel prices
coal and gas projects overseas as recently as 2020. will continue to undermine profits and exacer-
This includes the controversial coal power plants bate stranded asset risks,” said Ng.
Jawa 9 and 10 in Indonesia and Vung Ang 2 in In addition, investing in technologies unfit
Vietnam. for net-zero ambitions, such as blue hydrogen
This appears inconsistent with its strategy to and carbon capture, utilisation and storage
create a clean and efficient energy ecosystem. (CCUS), is also alarming, given that KEPCO
“To this date, KEPCO’s negligible renewable is not in any position to splurge and has limited
generation assets and questionable future gener- experience in such technologies. This creates
ation mix suggest that its green bond issuances additional risks for KEPCO’s investors and the
were merely tokenism.” South Korean market™
IEEFA found in its report that KEPCO now

Week 41 12•October•2022 www. NEWSBASE .com P11