South Korea’s private liquefied natural gas (LNG)-fueled power plant operators are mired in downturn from overcapacity and uncompetitive production cost amid depressed demand in slow-moving economy.

Six private power grid operators - Posco Energy Co., GS EPS Co., SK E&S Co., Pocheon Power Co., Dongducheon Dream Power Co., and Pyeongtaek Energy Service Co. - saw their combined net profit sink as much as 93 percent on year to 43.7 billion won ($37 million) for the first quarter ending March 31, 2016. Their operating income shrank 60 percent to 104.7 billion won on total sales of 1.27 trillion won, according to local industry sources on Tuesday. Currently, the companies operate 17 power stations running on natural gas.

Posco Energy and GS EPS with long-term procurement arrangement with state-run utility company Korea Electric Power Corp (KEPCO) were slightly better off. Posco Energy and GS EPS saw their operating profit fall by 58.19 percent and 33.82 percent, respectively.

SK E&S and Pocheon Power lost more than 70 percent in operating income compared with year-ago period. Pocheon Power, Dongducheon Dream Power, and Pyeongtaek Energy Service fared more poorly because of higher debt load.

In contrast, KEPCO’s operating profit jumped 61 percent on year to 3.6 trillion won in the first three months this year.

The industry can hardly be happy as their troubles stemmed from upsurge in licensing in private power grids from state authority to bump up power supply after experiencing blackout and electricity shortage in 2011.

The operation rate of local LNG-based power plants slipped to 40 percent in the first quarter from 67.8 percent in February 2014. In March the ratio slipped to 38.6 percent, which means six out of 10 LNG-powered generators were idle. According to demand and supply data, supply exceeds demand by about 30 percent.

High generating cost in private power grids took bigger toll on the companies amidst poor demand. As of March this year, the unit cost for generating 1 kilowatt-hour (kW⋅h) was 50.53 won from a LNG plant, whereas it costs just 5.43 won to make the same power from a nuclear reactor and 34.42 won from a coal-fueled plant. The LNG suppliers sold the power to KEPCO at system margin price (SMP) at 87.31 won per kW⋅h in March. KEPCO purchases cheaper power to save cost, further darkening business prospects for LNG players.

By Chung Wook

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