Renewables and the debt monster

Home > Opinion > Columns

print dictionary print

Renewables and the debt monster

Noh Jeong-tae
The writer is a philosopher and author.

“I feel it’s a mistake to close them down in order to focus on coal.” The comment on nuclear reactors did not come from a nuclear energy lobbyist, but from Swedish teenage activist Greta Thunberg in an interview with Das Erste, a TV channel of German broadcaster ARD, amid the ongoing hot debate in Germany about reversing course on nuclear power in the face of a dire energy shortage after Russia shut natural gas pipelines to Germany and other European countries in protest of sanctions following its invasion of Ukraine.

The outspoken teenage critic on nuclear energy changed her tone on nuclear energy after the Russian war with Ukraine. Russian state utility Gazprom has been responsible for supplying natural gas to nations across Europe. But supplies have been disrupted since international sanctions on Russia started. In the face of extreme shortages ahead of winter, Germany has pulled back on retiring its thermal power stations. The grand plan of winding down nuclear reactors and using renewables — like solar and wind power — to replace fossil fuels has been tested by the harsh reality. The teenage climate activist also has turned more accepting of nuclear energy as a realistic option to sustain green policies without stoking an energy crisis. Korea faces the same conundrum, as it also faces a backlash from an unrealistic energy approach.

Korea Inc. is facing a serious liquidity squeeze. Companies have been unable to sell their bonds to raise funds for operations and debt refinancing. The corporate debt market has become inundated by issues from top-tier public entity Korea Electric Power Corporation (Kepco). Its issuing of bonds from January to October totaled a whopping 24.5 trillion won ($18.5 billion), doubled last year’s total offerings. Since the power monopoly company’s bonds are rated AAA and bank bonds also trading as quasi-public bonds have been flooding the market, little demand is left for corporate bonds.

Kepco has turned an eager debt issuer due to its colossal deficit. It incurred 7.5 trillion won in operating losses in the third quarter and an overwhelming 5.86-trillion-won annual loss in 2021. This year’s annual loss is expected to near 40 trillion won. Kepco loses more money from selling power amid a surge in production costs from expensive fuel imports as a result of the nuclear reactor phase-out under the Moon Jae-in administration.

Kepco woes originate from both external and internal causes. The Russian war with Ukraine has spurred increases in the prices all fuels, from natural gas to coal. Korea relies on imports for 96 percent of its fuel resources. Since 80 percent of electricity prices are determined by raw materials, Kepco’s losses are inevitable. But its worsening financial condition resulted from the reckless drive to shut nuclear reactors and hurry with renewable replacements under the Moon administration. Kepco also is responsible for building a four-year university devoted to renewable energy with its own money. This is how Kepco became a regular in the debt market this year.

Solar panels do not work in cloudy weather or when the sun goes down. Wind turbines do not rotate if there is no wind. Because solar and wind energy are intermittent — not constant — they must be stored in a huge energy storage system (ESS) requiring a great number of batteries. As there are limits to the capacity of an ESS, no matter how big they are, power generation from LNG is needed as a backup.

Because the Moon administration pushed for renewables in line with its steadfast policy to phase out nuclear reactors, the share of LNG in power generation has risen sharply. The share jumped to 30.4 percent in 2021 from 22.6 percent in 2017. Power generation cost for LNG is five times the cost from nuclear reactors. In other words, the prices are extremely volatile as clearly seen in the skyrocketing natural gas prices after the Ukraine war started.

Natural gas prices would have jumped even if the Moon administration had not activated the nuclear phase-out policy. But if our energy mix has been sustained without cutting back the share of nuclear energy, Kepco’s losses would not have reached such a serious level.
 
In a recent interview with Das Erste, a TV channel of German broadcaster ARD, Swedish teenage activist Greta Thurnburg said it was a mistake for Germany to close nuclear reactors in operation. [JOONGANG PHOTO] 


Another problem was the liberal administration’s electricity bill policy. Rates should have increased incrementally to reflect the costlier energy mix. Authorities should have explained the intrinsic structure and the need for rate hikes. But the past government avoided any unpopular moves. It did not raise electricity rates and also ordered Kepco to build a four-year college in Naju, South Jeolla, which requires more than 1.6 trillion won over the next 10 years. As a result, Kepco has become a debt monster, helping to exacerbate the liquidity crisis in the bond market for other companies.

Environmentalists who cheered on the nuclear phase-out and renewable energy policy also share the liability behind the deepening woes of Kepco drying up the corporate debt market and pushing other companies toward insolvencies.

Ditching nuclear energy is a fantasy for Korea and others. Germany, which was the first to phase out nuclear reactors, regretted the decision. The famed teenage climate activist also has changed her position on nuclear energy.

But Korean environmentalists are still oblivious to the alarming international trend. They continue protesting the Yoon Suk-yeol administration under the banner of environmental protection even when the conservative government is going in the right direction to revive nuclear reactors. To borrow the famous line from the Games of Thrones, “Prepare yourselves because winter is coming.”

Translation by the Korea JoongAng Daily staff.
Log in to Twitter or Facebook account to connect
with the Korea JoongAng Daily
help-image Social comment?
s
lock icon

To write comments, please log in to one of the accounts.

Standards Board Policy (0/250자)