LNG operators to benefit from coal plant shutdown

POSCO Energy and GS Energy will be the beneficiaries of President Moon Jae-in’s decision to close coal-fired power plants, analysts said Thursday, as the two generate electricity by burning liquefied natural gas (LNG).

Private electricity firms have been grappling with sluggish sales in recent years, as the Korea Electric Power Corp. (KEPCO) buys less electricity from them amid stable demand for power. The state-run utility firm has bought much electricity from nuclear or coal-fired power plants because burning LNG is more expensive to produce electricity.

But President Moon’s pledge to close 10 aged coal power plants over the next five years to reduce fine dust is expected to help private power firms increase the operation rate of their LNG plants and generate larger sales.

The government has said it will close eight coal plants, which have been in operation for more than 30 years, temporarily in this June, and from March to June in 2018 and beyond. The measures are aimed at tackling the increasingly worsening fine dust problem.

According to industry data, LNG power plants here operated at an average rate of 38.8 percent in 2016, down from 41.1 percent in 2015 and 67.1 percent in 2013.

Following a nationwide blackout in the summer of 2011, the government encouraged private energy companies to build and operate LNG power plants, promising to purchase electricity from them.

As the power demand stabilized, however, KEPCO has been buying electricity from cheaper nuclear and coal-fired plants, rather than from LNG plants.

The lackluster electricity market has been weighing down on POSCO, GS and other private electricity generators, which have to run at lower operation rates.

“We have been struggling to deal with falling sales over the past few years as the country uses less power generated from burning LNG,” said an official at POSCO Energy, which runs seven LNG plants here.

“We hope the new government’s eco-friendly energy policies will help us increase the operation rate of our LNG plants and bolster our bottom line.”

POSCO Energy’s sales declined to 1.7 trillion won in 2016 from 2.6 trillion won in 2014. Its operating profit fell to 90 billion won from 119 billion won over the same period.