Shares of South Korean state-owned utility, Korea Electric Power, experienced their strongest daily percentage gain in more than seven months, rising 4.7% to close at 19,980 won ($15.31) on Tuesday. This follows the news that the wholesale electricity price in the country fell below the retail price for the first time in 19 months in May.
The drop could lead to an earnings recovery for the company after partially blamed higher fuel-purchase costs and suppressed tariff increases kept it in the red for nearly two years since Q2 2021. The Korea Power Exchange showed that the SMP was KRW143.6 per kilowatt-hour in May, below the country’s estimated retail power price of KRW154.6 per kWh.
Analysts K.R. Park and M.W. Choi from Shinhan Securities have predicted that Korea Electric Power’s operating loss will reduce during Q2 on the back of lower fuel-purchase costs and recently increased tariffs. However, focus remains on whether the company will manage to turn a profit in H2.
Positive Sign for Korea Electric Power
The drop in wholesale electricity prices is good news for Korea Electric Power, as the state utility purchases electricity from private power suppliers at this rate before selling to household and other consumers at the retail price. This recent development should help ease the company’s cost burden and reduce operating losses.
Analysts Predict Improved Performance in Coming Months
Shinhan Securities has predicted that Korea Electric Power’s operating loss will narrow over Q2, following a reduction in fuel-purchase costs and the rise in tariffs. However, analysts are waiting to see if the company will manage to swing to a H2 profit.
Conclusion
A recent drop in wholesale electricity prices in South Korea could lead to Korean Electric Power finally posting an earnings turnaround, following nearly two years of red figures. Recent increases in tariffs and reduction in fuel-purchase costs will help narrow the company’s Q2 operating loss, but focus remains on whether it will turn a profit in H2.
