Concerns rise over debt-ridden Kepco following Ulsan blackout

Industry

Published: 08 Dec. 2023, 18:47 Updated: 08 Dec. 2023, 18:53

Concerns rise over debt-ridden Kepco following Ulsan blackout

A power outage causes traffic congestion in Ulsan on Wednesday. [YONHAP]

Ulsan experienced a major blackout on Wednesday that impacted more than 155,000 homes. The incident, a result of aging equipment at a local substation, was Korea's first large-scale power outage in six years.

The event has raised concerns about obsolete facilities within Korea's power supply infrastructure. The uncertainties are not likely to wane any time soon, as Korea's state-run utility, Korea Electric Power Corporation (Kepco), grapples with a massive debt burden.

The two-hour blackout disrupted more than 100 traffic lights and left elevators nonoperational until electricity was restored at 5:40 p.m. that day.

It was the most extensive power outage since 2017, when a similar incident affected approximately 200,000 households in Seoul and Gyeonggi.

An electrical breakdown in a switchgear at a nearly 30-year-old substation is suspected to have caused Wednesday's incident, according to Kepco.

The substation, located in Ulsan’s Nam District, has been running since 1995.

Kepco explained that “a switchgear that has been used for more than 25 years can be used for longer if no problem is found during inspection.”

But experts still find it likely that obsolescence was the major factor behind the latest blackout. “At this point, it seems like either the obsolete equipment or a mistake that occurred during operation was the cause,” said Jeon Young-hwan, an engineering professor at Hongik University.

A similar incident took place in Yeoju, Gyeonggi, in November 2017, when a malfunction in an old switchgear resulted in a power outage that impacted some 50,000 households.

Some consider the latest Ulsan event to be a result of Kepco's financial struggles.

Kepco’s cumulative deficits since 2021 amount to 45 trillion won ($34.4 billion), with its debts standing at 200 trillion won as of the first half of this year.

“Since the financial crisis last year, Kepco’s tendency not to replace old parts has grown worse,” said an anonymous source who is the CEO of a Kepco contractor company. As orders coming in from Kepco decrease, the source said, “it is getting increasingly challenging to produce high-quality equipment,” with profitability declining.

Another source, who runs a company that supplies equipment to Kepco, said that “Kepco needs to specify the exact use period of equipment, but there are no such guidelines yet.

“A blackout is highly unlikely as long as the replacement is done in advance, but the risk has grown bigger because they keep using equipment until it breaks,” said the source, adding that “with Kepco’s current financial status, it would be difficult for them to replace equipment that seems to be working just fine.”

The pace of Kepco’s investments in power transmission and distribution facilities has been slowing as of late.

Kepco invested some 2.58 trillion won in power transmission in 2019, but the figure dropped to 2.5 trillion won last year. Investments in power distribution declined from 3.63 trillion won to 3.52 trillion won during the same period.

Expenses spent on equipment procurement are also declining, with purchases falling from 151 million in 2020 to 112 million last year. This year’s figure stood at 85 million as of October.

In a massive 25-trillion-won restructuring plan announced in May, Kepco promised to cut down 1.3 trillion won by delaying the construction of power facilities including substations.

Moreover, Korea’s high concentration of electricity demand particularly in the greater Seoul area tends to put heavier pressure on power facilities in the region compared to countries with a more even distribution of power demand across the land. The growing power consumption, driven by new data centers and large-scale industrial complexes, is also adding concern.

“The consequence of putting off capital expenditure may cost [Kepco] a bigger price than the expenditure itself,” said Park Jong-bae, electrical engineering professor at KonKuk University.

“Had the incident in Ulsan occurred in downtown Seoul or a huge industrial complex, the consequence would have been much grave,” said Park.

But increasing the electricity rate, which is considered the fundamental solution for Kepco’s dire financial status, seems unlikely to happen. The electricity rate for households has been frozen for two consecutive quarters, and only bills for industrial uses were raised by 6.9 percent on average in the fourth quarter.

“At this rate, I’m afraid we may have massive blackouts in a few years,” said Yoo Seung-hoon, dean of the College of Creativity and Convergence Studies at Seoul National University of Science & Technology.

“The investments are being delayed due to the accumulated deficits, so the only answer is adjusting the electricity rate,” said Yoo.

Kepco said that it will “continue with facility investments,” adding that “improving the current financial status by reducing the accumulated debts is necessary in order to facilitate a stable capital expenditure.”

BY JEONG JONG-HOON, YI WOO-LIM [shin.hanee@joongang.co.kr]