South Korea’s state-run utility company Korea Electric Power Corp. (KEPCO) is seeking to issue green bonds worth US$500 million (557.75 billion won), according to electric power industry sources on November 5. This is the fifth South Korean company and the first non-financial company or institution to issue green bonds.
As the KEPCO has decided to issue green bonds that are dedicated to financing environmental projects only, some market watchers say the company can directly participate in new renewable projects. The KEPCO plans to issue the bonds through discussion with the ministries concerned.
Green bonds have the same issue terms with general bonds but are debt instruments that their proceeds are used exclusively on environmental projects such as climate change response and new renewable energy development. Since a huge amount of investment is needed in the relevant industry and the need of private funds is growing, green bonds are used as the main route to attract private funds.
As more and more people are interested in climate change response and environmental projects are expanded, the global green bond market is rapidly growing. The global green bond market grew by nearly 20 times from US$4.58 billion (5.11 trillion won) in 2012 to US$81 billion (90.36 trillion won) last year. The market this year is expected to reach US$200.6 billion (223.77 trillion won).
Bond issuers have been diversified from international organizations to private interests. For issued bonds in 2015, private companies accounted for 27 percent, while commercial banks and international organizations took up 20 percent and 39 percent, respectively.
Meanwhile, green bonds were issued only four times over the past five years and the total amount of the bonds were US$1.7 billion (1.9 trillion won). Unlike other countries in where general businesses actively participates in, the four issuances of green bonds were all led by financial institutions and financial companies.
In Korea, state-run Export-Import Bank of Korea (EXIM bank) issued the country’s first green bonds worth US$500 million (557.75 billion won) in February 2013 and issued US400 million (446.2 billion won) bonds once a again in February last year. Hyundai Capital Services Inc. issued green bonds worth US$500 million (557.75 billion won) in March last year, while Korea Development Bank issued the US$300 million (334.65 billion won) green bonds in June this year.
All eyes are on why the KEPCO is seeking to issue green bonds worth $500 million (557.75 billion won). This is because the company can issue general bonds if it just wants to raise money.
The KEPCO is in charge of purchasing, transmitting and supplying electricity after power industry restructuring in 2001. Its power subsidiary and private have charge of power production. The KEPCO is participating in new renewable energy development projects indirectly through the establishment of special purpose corporations (SPC).
However, the government is planning to make new renewables account for 20% of the nation’s total energy by 2030. So, large companies, like the KEPCO, should take part in. Accordingly, some politicians say the KEPCO should directly take part in new renewable development projects. Hong Ik-pyo, a lawmaker of the biggest opposition Minjoo Party, proposed a revised electricity enterprise law that allows the KEPCO to participate in new renewables development projects.
Under the conditions, the KEPCO is trying to issue green bonds dedicated to only climate change response and new renewable energy development so the company is expected to directly jump into new renewable energy development business, according to industry sources.