KEPCO’s overseas business portfolio in question

05-Jun-2020 Intellasia | KoreaTimes | 6:02 AM Print This Post

Investors and researchers are calling into question the overseas portfolio of Korea Electric Power Corp. (KEPCO), as its continued investments in coal-based power generation outside of Korea will expose the state-run power company to greater risks, a report by an international research institution showed Thursday.

This is in line with a global trend of large institutional investors divesting from coal power projects. APG, a leading global pension fund based in the Netherlands, has divested its investments from KEPCO due to the company’s continued investment in overseas fossil-fuel power projects, while BlackRock sent a letter to KEPCO requesting full disclosure of KEPCO’s interests in coal-fired power plants outside Korea.

The Institute for Energy Economics and Financial Analysis (IEEFA) said in its recent report that “overseas investments add risk and unstable returns to KEPCO’s stressed financial outlook,” citing its coal and fossil fuel-centric overseas investment portfolio.

The IEEFA has drew attention last year as it warned of the financial risks of Doosan Heavy Industries & Construction, which has filed for a government bailout programme.

In the report, IEEFA director Melissa Brown said KEPCO is still heavily investing in coal-fire independent power producers in emerging markets, even though its domestic experience with energy transition is “highlighting the risks of making wrong bets” on large coal and nuclear power plants.

According to KEPCO, it is implementing 43 projects including thermal, nuclear, renewable and other power-related businesses in 27 countries as of June 2019. The IEEFA said 51.2 percent of KEPCO’s capacity in those projects is based on coal power. When oil, gas and diesel power are included, the total thermal capacity accounts for 79.7 percent, while that of renewable energies is standing at 9.7 percent.

KEPCO posted a consolidated 1.28 trillion won ($1.1 billion) operating loss last year, up from 208 billion won in 2018. This was largely interpreted as a hefty one-time cost for the company’s effort to lower its reliance on coal and nuclear power in accordance with President Moon Jae-in’s renewable energy-focused policies.

The IEEFA noted that KEPCO is “not acknowledging the reality that returns to IPP investors are increasingly at risk as finance drains away from carbon emissions-intensive coal investments.”

“The company has already embraced the optics of clean energy, but its investment decisions are strangely out of sync with this and still reflect the company’s legacy fossil fuel habits,” Brown said in the report. The institution cited KEPCO’s investment into Australia’s Bylong coal project.

After acquiring the coal mine in 2010, KEPCO has so far invested about 700 billion won into the project. In the third quarter of last year, however, the company disclosed a write-off of 616.8 billion won of the investment after it failed to win planning approval from the local government.

The IEEFA said KEPCO’s overseas operations “do not currently make a meaningful contribution to the company’s financial performance, despite tying up capital and exposing the company to operational, tax and foreign exchange risk.”

The IEEFA is not the only organisation worrying about KEPCO’s overseas coal investments. In February, APG said it was divesting from KEPCO due to its continued investment in overseas fossil-fuel power projects, saying “the global financial market is turning its back from the coal-fired power sector.”

BlackRock, the world’s largest asset manager, has recently sent a letter demanding KEPCO disclose its interests more transparently in coal-fired power plants outside Korea. This appears to be in line with BlackRock CEO Larry Fink’s January pledge that his firm would make environmental sustainability a core goal of its investment decisions.

“KEPCO must take note of the ways in which leading global investors such as BlackRock may react to the KEPCO’s current climate strategy and energy transition plans,” Brown said. “The disconnect between KEPCO’s strategy at home and its overseas investments exposes the company to scrutiny from international stakeholders and, more importantly, with investors who now associate climate risk with financial risk.”


Category: Korea

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