Korea is the extreme version of this experiment. The government freezes retail tariffs on political cycles, and KEPCO absorbs the gap on its balance sheet. Between 2021 and 2023, that cost KEPCO roughly $33 billion in cumulative operating losses.
The pain didn’t stop there. Korea imposed a ceiling on the wholesale price itself, so generators couldn’t pass through fuel costs either. Few private generators had the balance sheet to absorb three years of losses.
That matters now because Korea needs tens of gigawatts of new capacity for semiconductor fabs and data centers, and generators are not rushing to commit capital. Korea already took on the long-dated price risk the UK is debating. The cost wasn’t just KEPCO’s balance sheet. It was the investment cycle that followed.
Thanks, though that's not quite what I'm saying - what you mention sounds like the Korean government posed a price cap before locking in supply, leading to losses (the UK did similar but the government ate the losses). My thinking is whether government needs to expand its procurement to lock in long-term predictable prices for customers, instead of leaving it to markets to hedge (or, in this case, not) and bailing them out when things go bad.
Fair point, and I should have led with this context. Korea has no long-term procurement mechanism equivalent to CfD on either side of the meter. Wholesale settles through a cost-based pool with no forward contracting, and retail tariffs are set administratively with no fixed-price product for consumers. Not renewables, not nuclear, not gas, not coal. So when the crisis hit, every participant was fully exposed, and the government’s only tools were freezing retail tariffs and capping wholesale prices reactively. That is exactly the bailout model you’re arguing against.
I’ll be honest, when I read your piece on retail price hedging, my mind automatically converted it into a wholesale market question. In Korea, retail tariffs are not shaped by supply and demand at all, so anyone working in this market defaults to thinking through the wholesale lens. It is the only part of the system that moves with any market logic. Either way, the absence of long-term procurement on both sides is what made the bailout inevitable.
Korea is the extreme version of this experiment. The government freezes retail tariffs on political cycles, and KEPCO absorbs the gap on its balance sheet. Between 2021 and 2023, that cost KEPCO roughly $33 billion in cumulative operating losses.
The pain didn’t stop there. Korea imposed a ceiling on the wholesale price itself, so generators couldn’t pass through fuel costs either. Few private generators had the balance sheet to absorb three years of losses.
That matters now because Korea needs tens of gigawatts of new capacity for semiconductor fabs and data centers, and generators are not rushing to commit capital. Korea already took on the long-dated price risk the UK is debating. The cost wasn’t just KEPCO’s balance sheet. It was the investment cycle that followed.
Thanks, though that's not quite what I'm saying - what you mention sounds like the Korean government posed a price cap before locking in supply, leading to losses (the UK did similar but the government ate the losses). My thinking is whether government needs to expand its procurement to lock in long-term predictable prices for customers, instead of leaving it to markets to hedge (or, in this case, not) and bailing them out when things go bad.
Fair point, and I should have led with this context. Korea has no long-term procurement mechanism equivalent to CfD on either side of the meter. Wholesale settles through a cost-based pool with no forward contracting, and retail tariffs are set administratively with no fixed-price product for consumers. Not renewables, not nuclear, not gas, not coal. So when the crisis hit, every participant was fully exposed, and the government’s only tools were freezing retail tariffs and capping wholesale prices reactively. That is exactly the bailout model you’re arguing against.
I’ll be honest, when I read your piece on retail price hedging, my mind automatically converted it into a wholesale market question. In Korea, retail tariffs are not shaped by supply and demand at all, so anyone working in this market defaults to thinking through the wholesale lens. It is the only part of the system that moves with any market logic. Either way, the absence of long-term procurement on both sides is what made the bailout inevitable.
What great work Lucy.
It puts my work on UK energy market to shame - similar interests - just a different perspective...