There is a forecast that Korea Electric Power Corporation's second-quarter results will worsen and its liability will grow further. That is because prices of materials and supplies such as liquefied natural gas (LNG), a raw input, have jumped due to the war between the United States and Iran. Fuel cost increases are typically reflected in earnings with a time lag of more than two months.
According to the Korea Power Exchange on the 14th, the April system marginal price (SMP) rose to 118.94 won per kilowatt-hour (kWh), higher than in the first quarter from January to March. January was 103.54 won, February 108.52 won, and March 110.03 won. SMP is the wholesale power price at which KEPCO purchases electricity from power generation companies, including state-run generators. When this figure rises, the purchased power expense, which is part of operating expenses, increases.
The reason SMP rose in April is that increases in fuel costs such as international crude and LNG have begun to be reflected. In the first quarter, generators used inventory fuel secured before the Middle East crisis, so the average SMP in the first quarter was 107.1 won per kWh, actually lower than the previous year (115.6 won/kWh). As a result, KEPCO's burden of purchased power expense, which is the cost of buying electricity, eased. In fact, looking at KEPCO's first-quarter results, purchased power expense was 8.7203 trillion won, down 36.5 billion won (0.4%) from the first quarter of last year.
The problem is that rising fuel costs due to the war between the United States and Iran will be reflected from the second quarter. LNG prices, which usually serve as the benchmark for SMP, have been climbing since the outbreak of the war. According to KEPCO, LNG traded at 892,900 won per ton in the first quarter of this year, but in April it traded at 914,300 won per ton.
In financial markets, there is also a forecast that KEPCO's results will be sluggish from the second quarter on. You Jae-seon, an analyst at Hana Securities, said, "With the prolonged Middle East conflict, fuel costs and purchased power expense are estimated to increase 40.2% and 15.7% year over year," adding, "KEPCO's sales in the second half of this year are expected to fall 0.1% from a year earlier." Jeong Hye-jeong, an analyst at KB Securities, projected, "While the LNG generation fuel unit cost of power generation subsidiaries is rising from the second quarter, the impact of fuel cost increases is likely to be fully reflected from the third quarter."
KEPCO previously saw fuel costs rise due to the war between Russia and Ukraine, which increased its liability. On a consolidation basis for the first quarter of this year, KEPCO is carrying total liabilities of 206.4 trillion won, including 128.2 trillion won in borrowing fund. Daily interest expense alone reaches 11.4 billion won.
A KEPCO official said, "The impact of rising international crude and LNG prices due to the Middle East situation has not yet been reflected in first-quarter results," adding, "With LNG prices continuing to rise, there is absolutely no reason for SMP to fall in the second quarter."
Shin Hyun-don, a professor in the Department of Energy Resources at Inha University, said, "Absent an electricity rate hike, KEPCO's financial structure is unlikely to improve in the short term."