Even 73 Trillion Won Is Not Enough for Grid Expansion...Undergrounding Raises KEPCO's Debt Burden

12th Plan to Add Grid Reinforcement for AI, Semiconductors, and Renewables

Cost of Undergrounding 345kV Lines Is Eight Times That of Overhead Lines

Electricity Rates Frozen for the Fourth Quarter...Securing Funding Remains a Key Challenge

As Korea Electric Power Corporation (KEPCO) pushes to expand the national power grid to keep pace with the era of artificial intelligence (AI) and semiconductors, concerns are mounting that its debt, which has already surpassed 210 trillion won, may increase further. Currently, 72.8 trillion won will be required just for grid and substation investments that have already been confirmed through 2038, and new electricity demand from AI data centers and semiconductor clusters continues to be added. If the undergrounding of transmission lines is expanded to improve local acceptance, the actual investment cost may exceed existing plans.

72.8 trillion won for grid and substation infrastructure is just the start...12th plan will require even more investment

According to the government and KEPCO on September 21, KEPCO plans to invest a total of 72.8 trillion won in power grid and substation expansion from 2024 to 2038 under the 11th Long-Term Power Transmission and Substation Facility Plan. This represents an increase of 16.3 trillion won (28.8%) from the 56.5 trillion won planned under the 10th plan. The rise in material prices since the Russia-Ukraine war, as well as the increase in underground transmission lines, have been cited as the main reasons for the higher investment cost.

The problem is that the 72.8 trillion won is not the end of grid investment. The government and KEPCO plan to establish the 12th Long-Term Power Transmission and Substation Facility Plan to align with the 12th Basic Plan for Electricity Supply and Demand. The new plan is expected to reflect large-scale new electricity demand that has materialized for AI data centers and semiconductors, as well as grid reinforcement needs arising from the expansion of renewable energy.

Through the 12th Long-Term Power Transmission and Substation Facility Plan, the government intends to further install grid stabilization facilities to match the outlook for renewable energy deployment and to optimize both the timing and scale of construction for the West Coast high-voltage direct current (HVDC) lines. The location and scale of transmission lines needed may also change depending on where large power consumers such as semiconductor plants and AI data centers are established.

In fact, last month the government granted exemptions from preliminary feasibility studies for a series of power grid-related projects in order to support the nation’s three major megaprojects. The 15 exempted projects include five alternating current (AC) transmission projects, four direct current (DC) transmission projects, and six substations, with a combined project cost of 14.2 trillion won. Specifically, 1.9 trillion won will be invested in the Shin Haenam–Seo Incheon Combined Power Plant HVDC link, and 1.5 trillion won in the Shin Haenam–Dangjin Thermal Power HVDC connection.

Investment costs are rising, but electricity rates remain frozen

KEPCO’s capacity to secure independent funding is also limited. On this day, KEPCO announced it would keep the fuel cost adjustment fee for the fourth quarter of this year at +5 won per kilowatt-hour (kWh). The rate has remained unchanged for 18 consecutive quarters since the third quarter of 2022. Basic electricity charges, consumption-based charges, and climate environment charges have also not been adjusted, resulting in no change to overall electricity rates for the fourth quarter.

In particular, based on price calculations using figures for bituminous coal, liquefied natural gas (LNG), and bunker fuel, KEPCO’s calculated necessity adjustment rate for the fourth quarter was +7.3 won per kWh. However, since the fuel cost adjustment fee is capped at ±5 won per kWh, only +5 won can be reflected in the actual rate. This results in a gap of 2.3 won per kWh between the calculated adjustment and what is actually applied.

Since electricity rates are composed not only of the fuel cost adjustment charge but also of basic charges, consumption-based charges, and climate environment charges, the gap cannot be seen as a direct loss for KEPCO. However, the inability to pass increases in international energy prices immediately through the rate system is a constraint on KEPCO’s financial flexibility ahead of massive investments. In the past, whenever international energy prices spiked, KEPCO’s deficits and debt soared because it was unable to reflect the increased costs in rates in a timely manner.

Underground transmission up to eight times costlier than overhead lines is another variable

The growing demand for undergrounding transmission lines to increase local acceptance during power grid construction is another factor that could push up overall investment costs. Burying transmission cables underground is significantly more expensive than installing pylons above ground.

According to KEPCO’s standard construction costs, for 154kV transmission lines, underground cable installation using a conduit method costs approximately 10 billion won per kilometer—about seven times the cost of an overhead line, which comes to 1.52 billion won per kilometer. For 345kV transmission lines, underground cable installation using a tunnel method costs approximately 25.8 billion won per kilometer—about eight times the 3.22 billion won per kilometer required for overhead lines.

There has even been an estimate that it would cost about 89 trillion won to convert all 3,887 kilometers of new national backbone transmission lines to underground cables. However, the government announced in June that it is not considering undergrounding all new transmission lines. The policy is to pursue undergrounding only in certain sections, based on technical and economic feasibility. Still, even without full undergrounding, if the length of underground transmission installed in densely populated areas increases, project costs could rise above initial estimates.

Surplus, but debt hits 210.7 trillion won...The key question is funding

KEPCO’s financial capacity is already being stretched. For the first half of this year, consolidated operating profit stood at 4.9127 trillion won, allowing the company to remain in the black, but as of the end of June, debt stood at 210.7 trillion won, up 5.1 trillion won from the end of the previous year. Borrowings rose from 129.8 trillion won to 133.3 trillion won during the same period. Interest expenses for the first half alone reached 2.1 trillion won, averaging about 11.5 billion won every day.

This situation prompted the government to bolster KEPCO’s equity base. Last month, the ruling party and the administration outlined a plan for the government to inject capital into KEPCO. This will be the first government equity injection in 15 years, since 2011. While the specific amount has not been determined, measures are being considered to enhance KEPCO’s investment and borrowing capacity by strengthening its capital base.

KEPCO is also searching for funding options outside of corporate bonds. The company has proposed a system in which Samsung Electronics and SK hynix would prepay their next five years’ worth of electricity fees, totaling around 25 trillion won, to be used for power grid construction.

An industry source said, "To respond to new electricity demand from semiconductors and AI data centers, transmission grid investment is not optional—it must be implemented in a timely manner. Considering KEPCO’s current financial situation, covering such massive investments with only its own funds or bonds would be very burdensome, so it is necessary to prepare stable funding measures, including government support."

This content was produced with the assistance of AI translation services.