Korea Electric Power (KEP) - 2024 Q4 - Annual Report

Fuel Costs and Pricing - In 2024, fuel costs constituted 27.5% of the company's cost of sales, with the ratio of fuel costs to sales at 24.3%[33] - The company implemented a new cost pass-through tariff system on January 1, 2021, linking incurred costs to tariffs charged to customers[37] - The maximum adjustment for the Fuel Cost Adjusted Charge is limited to Won ±5 per kilowatt-hour from the Base Fuel Cost[38] - The company increased the Usage Charge by Won 11.4 and Won 8.0 per kilowatt-hour in January and May 2023, respectively, to reflect increases in the Base Fuel Cost[43] - Starting from October 24, 2024, the company will increase electricity tariffs on industrial consumers by an average of Won 16.1 per kilowatt-hour, representing an average increase of 9.7%[43] Energy Market and Supply - Approximately 97.2% of the bituminous coal requirements were purchased under long-term contracts in 2024, with the remaining 2.8% from the spot market[33] - The average weekly spot price of Newcastle coal decreased from $106.38 per ton in 2023 to $90.79 per ton in 2024, and further decreased to $70.50 per ton as of March 31, 2025[33] - The average daily spot price of Dubai crude oil decreased from $81.93 per barrel in 2023 to $79.67 per barrel in 2024, and further decreased to $73.38 per barrel as of April 3, 2025[36] Regulatory and Compliance Risks - The company is subject to various risks, including fluctuations in fuel prices and government regulations affecting electricity tariffs[30] - The government has discretion to not adjust the quarterly Fuel Cost Adjusted Charge in case of extenuating circumstances, which may impact profit margins[40] - The company may face significant compliance costs and operational liabilities due to various environmental regulations and initiatives[60] - The company intends to fully comply with environmental obligations, which may result in increased operating costs and liquidity requirements[61] - The company is exposed to potential claims for unpaid wages under the expanded scope of ordinary wages, which could lead to increased labor costs[119] Financial Performance and Losses - From 2021 to 2023, the company experienced substantial operating and net losses due to rapidly increasing fuel prices[44] - The company experienced net losses from 2021 to 2023 due to rising global energy prices and increased power purchase costs, leading to higher debt issuance[76] - The company’s debt ceiling was increased to five times the sum of share capital and reserves, effective until December 31, 2027, allowing for more debt securities to cover losses and finance capital expenditures[76] Energy Transition and Future Plans - The Eleventh Basic Plan announced in February 2025 aims to increase nuclear power capacity from 24.7 gigawatts in 2023 to 35.2 gigawatts by 2038[52] - Coal power capacity is expected to decrease from 39.2 gigawatts in 2023 to 22.2 gigawatts by 2038, while LNG power capacity is projected to increase from 43.2 gigawatts in 2023 to 69.2 gigawatts by 2038[53] - Renewable energy generation capacity is expected to increase from 30.0 gigawatts in 2023 to 121.9 gigawatts by 2038 as part of the Eleventh Basic Plan[53] - The company plans to establish an Eleventh Long-Term Transmission and Substation Facilities Plan in 2025 to meet increasing demand and achieve carbon neutrality[54] - KEPCO aims to achieve carbon neutrality by 2050 and plans to enhance grid capability for connecting renewable energy units through proactive construction of power facilities[169] Labor and Employment Issues - Approximately 73.5% of the company's employees are members of labor unions, which may pose risks of labor unrest affecting operations[95] - The company is transitioning non-permanent workers to permanent positions, which may increase costs and impact financial conditions[96] Cybersecurity and Operational Risks - The company is subject to increased risks from cybersecurity threats, including potential breaches that could materially impact operations and financial condition[126] - The company carries insurance for its nuclear generation units, but coverage is limited and may not cover all potential losses from serious accidents[115] Market and Economic Influences - The company is significantly dependent on the Korean economy, with most income generated from Korean consumers' demand for electricity, which is influenced by global economic conditions[135] - Political instability in Korea, including the impeachment of President Yoon Suk Yeol, may disrupt the economic landscape and adversely affect business operations[136] - Factors such as inflation, interest rate increases, and geopolitical conflicts could negatively impact the Korean economy and, consequently, the company's financial performance[138] Electricity Generation and Pricing - The price of electricity in Korea is determined by a cost-based pool system, with the system marginal price reflecting the variable cost of generating electricity[193] - The capacity price, which compensates for fixed costs, is determined by factors including reference capacity price and reserve capacity factor, with the current reference capacity price ranging from Won 11.00 to 14.41 per kilowatt-hour[203] - The performance capacity factor was introduced in June 2022 to incentivize operational flexibility of generation units, replacing the previous fuel switching factor[206] Corporate Governance and Ownership - The Government maintains a 51.1% ownership stake in KEPCO, ensuring control over significant corporate matters, including dividend approvals[162] - Foreign investment in the company is subject to a 40% ceiling, with a 3% limit on single investor acquisitions, potentially restricting capital inflow[149][150]