Not Enough for a Turn to Black

The author is an analyst of KB Securities. She can be reached at hyejung.jung@kbfg.com. -- Ed.

 

Ministry of Trade, Industry and Energy announces 1Q23 electricity rate hike

— On Dec 30, 2022, the MOTIE announced that it would raise the electricity rate by a total of KRW13.1/kWh in 1Q23, or +9.5% compared to end-2022. The increase includes KRW11.4/kWh in electricity consumption rate (to partially reflect fuel cost increases in 2022) and KRW1.7/kWh in renewable portfolio standard costs and greenhouse gas emission trading costs. Fuel cost adjustment rate remains unchanged at KRW5/kWh. The electricity rate hike should boost revenue by KRW7tn.

— The MOTIE will freeze electricity rates for the socially underprivileged this year at 2022 avg. electricity consumption. Also, in terms of electricity used for agricultural purposes, increases in electricity consumption rate will be spread over a period of three years.

— KEPCO and the MOTIE announced that they will work on reflecting remaining cost factors going forward. On Dec 21, 2022, the government stated in its 2030 Economic Policy Direction that it would rationalize rates in phases to address losses by 2026. 

Extent of electricity rate hike for full year yet to be confirmed

— The base fuel cost to be applied for the full year was not announced. As such, nothing has been confirmed in regard to (1) extent of increase in base fuel cost to be reflected for the year and (2) how many hikes in electricity rate will take place this year. In the 2022 electricity rate hike plan announced at end-2021, an increase in base fuel cost (KRW9.8/kWh) and timing of hikes (KRW4.9/kWh in both 2Q22 and 4Q22) were announced.

— Previously, KEPCO stated it needs to raise the electricity rate by KRW51.6/kWh this year to break even. Given this, we see gradual hikes in electricity rates each quarter, as was the case last year. To what extent remains to be seen amid a period of elevated CPI. 

Electricity rate hikes to improve earnings but not enough for turn to black

— We previously estimated an operating loss for 2023, with electricity rate hikes improving earnings yet not enough for a turn to black. A KRW51.6/kWh increase in electricity rate seems unlikely, as this would represent a surge of 44.8% YoY (vs. +9.2% YoY in 2022). An annual increase of KRW10/kWh in electricity rate should increase OP by KRW5.5tn. 

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