Korea Electric Power (KEP) - 2023 Q4 - Annual Report

Fuel Costs and Pricing - In 2023, fuel costs constituted 30.1% of the company's cost of sales, with the ratio of fuel costs to sales at 30.8%[36] - The average weekly spot price of Newcastle coal decreased from US$179.13 per ton in 2022 to US$106.38 per ton in 2023, and further to US$89.36 per ton as of April 5, 2024[36] - The average daily spot price of Dubai crude oil decreased from US$97.03 per barrel in 2022 to US$81.93 per barrel in 2023, and increased to US$91.71 per barrel as of April 5, 2024[36] - The maximum adjustment to the Fuel Cost Adjusted Charge is limited to Won ±5 per kilowatt-hour from the Base Fuel Cost[41] - 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 a portion of the increase in the Base Fuel Cost[46] Financial Performance - In 2023, the company incurred operating and net losses of Won 4,245 billion and Won 4,716 billion respectively due to rising fuel prices among other reasons[47] - In 2023, the company reported sales of Won 87,476 billion and a net loss of Won 4,716 billion, compared to sales of Won 70,546 billion and a net loss of Won 24,429 billion in 2022[170] - The company experienced net losses for the last three years due to significant increases in global energy prices and power purchase costs, leading to higher debt issuance to meet working capital needs[79] Government Policies and Regulations - The government announced plans to gradually increase the tariff to address the company's cumulative deficit by 2026, but there is no assurance that these plans will be realized[46] - The government plans to freeze utility rates, including the tariff, during the first half of 2024[46] - The Government's new tariff structure, effective January 1, 2017, changed from a six-tiered to a three-tiered system, reducing the highest rate to no more than three times the lowest rate[52] - The government may adopt policy measures affecting tariff rates, which could financially burden the company[52] - The government has suspended plans to privatize one of the non-nuclear generation subsidiaries due to market conditions[49] Energy Generation and Capacity - The Tenth Basic Plan aims to increase nuclear generation capacities from 26.1 gigawatts in 2023 to 31.7 gigawatts by 2036, while reducing coal generation capacities from 40.2 gigawatts to 27.1 gigawatts during the same period[55] - Domestic renewable energy generation capacity is projected to expand from 32.8 gigawatts in 2023 to 108.3 gigawatts by 2036[55] - The total coal-fired power plant capacity is projected to decrease from 40.2 gigawatts in 2023 to 27.1 gigawatts by 2036, reducing its share of total power generation capacity from 27.1% to 11.3%[67] - The company owns approximately 57.6% of the total electricity generation capacity in Korea, indicating a significant market position that may be threatened by new entrants[91] - The total installed generation capacity of the company and its subsidiaries is 83,235 megawatts, comprising 794 generation units[226] Environmental and Carbon Neutrality Initiatives - The company plans to contribute to achieving carbon neutrality by 2050 through power grid innovation and enhancing grid stability[172] - The company aims to expand clean energy supply and improve demand-side energy efficiency by collaborating with subsidiaries and independent power producers[177] - The company intends to transform its overseas business portfolio to focus on eco-friendly projects and end overseas coal-fired generation projects[177] - The company plans to secure core technologies necessary for achieving carbon neutrality through aggressive R&D investment[177] - The national target emission level for 2030 is set at 436.6 million tons, representing a 40% reduction compared to 2018 levels[66] Risks and Challenges - The company is exposed to risks related to ongoing sanctions, which may necessitate terminating relationships with Russian suppliers and finding alternative sources[136] - Unfavorable financial conditions in Korea and globally could adversely affect the company's business and financial condition, particularly due to dependence on Korean consumer demand for electricity[137] - Ongoing inflation and geopolitical conflicts may negatively impact the Korean economy, affecting the company's profitability[139] - The operation of nuclear power generation facilities involves numerous hazards, which could result in material losses or increased expenses[101] - Cybersecurity risks are increasing, with potential impacts on electricity availability and operational reliability due to sophisticated attacks[1] Corporate Governance and Ownership - As of December 31, 2023, the government owned 51.1% of the company's issued capital stock, which may complicate future equity financing without government participation[1] - The Korean government maintains a 51.1% ownership stake in the company, which influences corporate matters including dividend approvals[164][165] - Foreign investment in the company is subject to a 40% ceiling, with a 3% limit on individual foreign investors, which may restrict ownership[151][152] Labor and Employment - Approximately 74.1% of the company's employees were members of labor unions as of December 31, 2023[97] - The government has pledged to transition non-permanent workers to permanent positions, which may increase costs for the company[98] Strategic Initiatives - The company plans to maintain a controlling stake in its five non-nuclear generation subsidiaries despite considering minority share sales[50] - The company is actively pursuing overseas expansion opportunities, particularly in renewable energy, which may involve different risks compared to domestic operations[87] - The company is working to improve its risk monitoring and management system to prevent incidents similar to past occurrences[1]