KEPCO’s Five Subsidiaries Hit Over 2 Trillion Won in REC Purchases, Elevating RPS Pressures

Key Takeaways

KEPCO’s subsidiaries spent over 2 trillion won ($1.4 billion) on Renewable Energy Certificates (RECs) last year, marking a record high.
External REC purchases accounted for 90% of their Renewable Portfolio Standard (RPS) obligations, highlighting their high dependence on external sources.
REC prices rose due to falling LNG prices, contributing to a significant increase in KEPCO’s compliance costs, which surged 36% from 2024.

Record Spending on Renewable Energy Certificates

Korea Electric Power Corporation’s (KEPCO) five power generation subsidiaries have reported unprecedented spending on Renewable Energy Certificates (RECs) to meet their Renewable Portfolio Standard (RPS) quotas, with purchases exceeding 2 trillion won ($1.4 billion) for the first time. This surge in REC expenditure is expected to worsen KEPCO’s financial woes.

According to data from the Ministry of Climate, Energy and Environment and the power companies, around 90% of their RPS obligations last year were fulfilled by buying RECs from external producers. RECs certify that electricity is sourced from renewable energy and are tradable in the market.

Despite these companies’ efforts, their core business remains focused on coal-fired power, making it difficult to meet RPS regulations through self-generated renewable energy alone. Consequently, their reliance on purchasing RECs has continued to grow.

Korea East-West Power topped the REC purchase ratio at 90.34%, with only 9.66% of its RPS requirement met via direct renewable generation. Other companies, including Korea Midland Power (86.6%), Korea South-East Power (68.3%), Korea Western Power (66.4%), and Korea Southern Power (64.7%), also showed significant dependency on external RECs.

Total REC spending last year reached 2.06 trillion won, an increase of approximately 190.5 billion won (10.2%) from the previous year’s 1.87 trillion won. Even though the overall volume of RECs purchased dropped by around 2% from 37.1 million units in 2024 to 36.34 million last year, the average purchase price rose 11.3% from 50,920 won ($35.87) to 56,689 won ($39.93).

Rising REC prices can be attributed to the recent decrease in liquefied natural gas (LNG) prices. In contracts with fixed REC pricing, the REC cost, which is interconnected with the wholesale electricity price (System Marginal Price or SMP), rises when SMP decreases. SMP, influenced by the generation cost of the last power plant needed to meet demand, typically aligns with LNG generation costs.

An official from the Korea Power Exchange stated that as LNG prices began to normalize in 2023, SMP declined, inadvertently driving REC prices up. Following spikes in LNG costs after the Russia-Ukraine conflict in 2022, this stabilization has intensified pressure on REC prices.

These increased REC costs pose a direct challenge to KEPCO’s financial health, as it covers portions of these expenses through fees collected in electricity rates. In 2024, KEPCO’s total RPS compliance costs, encompassing 29 obligated entities, reached 4.48 trillion won ($3.2 billion), a notable 36% increase from 3.3 trillion won the previous year.

An energy industry expert emphasized that the primary issue lies in public power companies relying on REC purchases to meet RPS shortfalls. As the RPS system transitions to a government-led competitive bidding framework later this year, the pricing strategy for replacement RECs will be crucial for its successful implementation.

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