Korea Electric Power Corp.'s operating profit in the third quarter of this year came to just 1.6442 trillion won, down 70.9% from the third quarter of last year. International fuel prices jumped due to the Middle East war that broke out in late February. As that burden was fully reflected in generation costs from the third quarter, profitability deteriorated sharply. On a standalone basis, which shows KEPCO's own results, the company posted a loss.
KEPCO disclosed on the 12th that its consolidated third-quarter revenue was 26.8518 trillion won, down 2.6% from a year earlier. Operating profit fell 4.0077 trillion won from a year ago. It was also 23.0% lower than the 2.1359 trillion won of the previous quarter. Operating profit, which stood at 3.7842 trillion won in the first quarter, kept falling every quarter, to the 2 trillion won range in the second quarter and the 1 trillion won range in the third.
The operating margin was 6.1%, down 14.4 percentage points from 20.5% in the third quarter of last year. Net profit was 835.9 billion won, 77.9% lower than 3.79 trillion won a year earlier.
The standalone results were even worse. The operating loss in the third quarter was 99 billion won. Since the company posted a profit of 2.6785 trillion won in the same quarter last year, it amounts to a swing to a loss. Standalone net income also turned from a profit of 1.8179 trillion won to a loss of 434 billion won.
The third-quarter slump also dragged down cumulative results. Consolidated revenue for January-September was 73.1691 trillion won, down 0.8%. Operating expenses over the same period rose 7.1% to 66.6122 trillion won. Cumulative operating profit was 6.5569 trillion won, down 43.2% from 11.5414 trillion won in January-September last year. The company maintained its profit trend, but the margin narrowed sharply. Cumulative net profit fell 50.4%, from 7.3281 trillion won to 3.6324 trillion won.
Rising costs pulled down earnings. Fuel costs at power generation subsidiaries for January-September were 17.0267 trillion won, 2.2007 trillion won (14.8%) more than a year earlier. Purchased power costs, spent on buying electricity from private power producers, were 27.5097 trillion won, up 903.4 billion won (3.4%). The combined increase in the two items reaches 3.1041 trillion won.
Coal-fired generation rose as output restrictions on coal power were eased. However, bituminous coal prices also rose during the same period. The January-September price of bituminous coal was $130.7 per tonne, 24.5% higher than $105 last year. The price of liquefied natural gas (LNG) per tonne also rose from 1,013,200 won to 1,040,100 won, an increase of 2.7%.
The higher LNG price became a factor pushing up the system marginal price (SMP). SMP rose 1.9% from 118.2 won to 120.4 won per kWh. The mandatory supply ratio under the renewable portfolio standard (RPS) rose from 14% to 15%. As a result, renewable energy certificate (REC) costs increased 27.6%, from 2.9 trillion won to 3.7 trillion won.
Revenue, on the other hand, declined. As industrial conditions weakened due to the Middle East war, electricity sales for January-September stayed at 415.3 TWh, 1.1% less than last year. The average selling price fell 0.4% from 170.4 won to 169.7 won per kWh. As a result, electricity sales revenue decreased by 1.1606 trillion won. With costs rising and sales revenue falling, profitability came under pressure from both sides.
The financial situation is also challenging. Consolidated liabilities at the end of the third quarter were 209.6 trillion won, up 4 trillion won from 205.6 trillion won at the end of last year. Borrowings increased 3 trillion won, from 129.8 trillion won to 132.8 trillion won. KEPCO has posted operating profits for 13 consecutive quarters. However, it has yet to fully shed the financial burden accumulated during the Russia-Ukraine war.
KEPCO said it achieved 1.9 trillion won in financial improvements through the third quarter. It cut costs by 1 trillion won through grid operation improvements and budget savings. Revenue gained by revising operation-related systems was 300 billion won. It also saved 600 billion won in investment costs by methods such as reprioritizing investment projects.
Demand for power grid expansion is growing rapidly due to artificial intelligence (AI) data centers and the development of advanced industrial complexes. The investment burden is expected to become heavier going forward. If the trend of shrinking profits from rising fuel costs persists, it will become harder to shoulder both financial structure improvement and large-scale grid investment.
KEPCO decided to maintain its emergency management system, which focuses on cutting costs and generating profit while keeping an eye on international energy price trends. It also plans to cooperate with government policies aimed at stabilizing the power market, such as raising the utilization rate of baseload power sources and lowering taxes on power generation fuel. It added that it will concentrate its capabilities on building the national power grid on time.