Executive Summary / Key Takeaways

• Korea Electric Power Corporation (KEP) demonstrated a significant financial turnaround in the first half of 2025, with consolidated operating profit surging to W5,889 billion on a 5.5% revenue increase, driven by strong nuclear generation performance and tariff adjustments.
• The company is strategically pursuing nuclear power expansion, including a positive review of potential entry into the U.S. market, aligning with global nuclear capacity growth, and advancing domestic nuclear projects.
• KEP is actively working to stabilize its financial position through a KRW30 trillion stabilization plan (2022-2026), which is exceeding targets, alongside efforts to implement a regionally differentiated retail tariff system by early 2026.
• While facing macroeconomic headwinds impacting electricity sales and managing a high debt-to-equity ratio of 297.56%, KEP's state-backed stability and extensive infrastructure provide a competitive moat.
• The evolving direct power purchase market and ongoing negotiations with the government on tariff adjustments and climate-related costs remain critical factors for future profitability and market positioning.

A Powerhouse Transformation: Setting the Scene for KEPCO's Future

Korea Electric Power Corporation (KEPCO), established in 1898 and formally incorporated in 1982, stands as the backbone of South Korea's energy infrastructure. It operates as an integrated electric utility, encompassing the entire value chain from the development of electric power resources to the generation, transmission, and distribution of electricity. This foundational role in a developed economy, coupled with its listing on both the Korea Stock Exchange and the New York Stock Exchange, underscores its significance. KEPCO's strategic evolution, notably the 2001 spin-off of its power generation divisions into six specialized subsidiaries, has shaped its current diversified operational model, which includes nuclear, thermal, and hydro generation, alongside critical engineering, maintenance, ICT, and nuclear fuel processing services.

The global energy landscape is in flux, characterized by increasing demand, the imperative for decarbonization, and technological advancements. KEPCO's overarching strategy is to navigate these dynamics through financial stabilization, a diversified energy mix, and targeted international expansion. This strategy is underpinned by its inherent strengths: a state-owned status that provides regulatory stability and long-term contracts, and an extensive infrastructure network that ensures reliability and scale.

KEPCO's competitive standing is defined by its integrated utility model and state backing. Compared to global peers like Tokyo Electric Power Company Holdings (TKECY) or Électricité de France (ECIFY), KEPCO's diversified energy portfolio offers a broader operational base and potentially greater resilience in volatile markets. Its extensive transmission and distribution network creates significant barriers to entry, differentiating it from competitors by ensuring consistent service. While KEPCO may not always lead in specialized technological innovation compared to companies like Enel SpA (ENLAY), which emphasizes renewables and smart grids, its operational scale and comprehensive service offerings provide a strong competitive moat. However, KEPCO's high debt levels and potential technological gaps in rapidly evolving renewable sectors present vulnerabilities that require strategic attention.

Technological Edge and Operational Excellence

KEPCO's technological differentiation lies not in a single proprietary invention, but in its integrated system and operational scale across diverse generation sources and advanced grid infrastructure. The company leverages a sophisticated mix of nuclear, thermal (coal, LNG, oil), and hydro power generation, complemented by emerging renewable sources. This diversified approach is a core technological advantage, providing base-load stability and operational flexibility crucial for a national grid.

For instance, KEPCO's nuclear generation segment, operated by Korea Hydro Nuclear Power (KHNP), is a cornerstone of its energy supply. For the full year 2025, nuclear utilization rates are projected to be in the mid-80% range, demonstrating high operational efficiency. This high utilization, coupled with the introduction of new nuclear power plants, directly contributes to stable and cost-effective electricity supply. In contrast, coal generation is expected to operate in the upper 40% range, and LNG in the mid-20% range for 2025, reflecting their roles in the overall energy mix and market dynamics.

KEPCO is also investing in advanced transmission and distribution (T&D) infrastructure. The approval of the 11th long-term plan for power transmission and substation facilities on May 23, 2025, highlights ongoing efforts to modernize and expand the grid. A key initiative is the connection of Shin Hanul and other east coast plants with High Voltage Direct Current (HVDC) technology, scheduled for completion between 2025 and 2026. This HVDC connection aims to enhance generation capacity and improve transmission to metropolitan areas, addressing historical limitations in transmitting all generated electricity.

In terms of research and development, KEPCO contributes to the Korea Institute of Energy Technology (KENTECH), established in April 2020. This collaboration underscores KEPCO's commitment to future energy technologies, even if specific quantifiable targets for KENTECH's research are not publicly detailed. The "so what" for investors is clear: KEPCO's integrated operational technology and continuous infrastructure upgrades provide a robust foundation for reliable power supply, enhance grid efficiency, and support the integration of future energy sources, thereby strengthening its competitive moat and long-term growth strategy.

Financial Resurgence: A Deep Dive into Recent Performance

KEPCO's financial performance in the first half of 2025 signals a significant turnaround, reflecting the impact of strategic adjustments and favorable operational dynamics. Consolidated sales for the six-month period ended June 30, 2025, reached W46,174 billion, marking a 5.5% increase from W43,766 billion in the same period of 2024. More impressively, operating profit surged by 130.94% to W5,889 billion from W2,550 billion, and net income saw a substantial increase from W710 billion to W3,538 billion.

This resurgence was largely propelled by the nuclear generation segment, which saw sales rise from W6,094 billion to W8,206 billion, and a dramatic increase in operating profit from W188 billion to W2,396 billion for the six-month period ended June 30, 2025. The Transmission and Distribution segment also contributed significantly, with operating profit reaching W2,857 billion. Conversely, thermal generation sales decreased by 10.17% to W13,052 billion, and its operating profit declined by 24.26% to W565 billion, indicating a shift in the profitability mix.

The company's efforts to adjust tariffs have also played a role. Electricity sales unit prices for industrial customers, for instance, increased from 162.67 Won/kWh in January-June 2024 to 179.23 Won/kWh in January-June 2025. This demonstrates KEPCO's ability to pass on some costs, albeit with limitations.

Looking at liquidity, net cash flows provided by operating activities for January-June 2025 improved to W11,350 million, up from W8,030 million in the prior year. However, net cash flows used in investing activities increased to W12,220 million, reflecting ongoing capital expenditures. Net cash flows provided by financing activities saw a significant positive swing to W455,165 million, a notable change from the net cash outflows in the previous period.

Despite the improved profitability and cash flow, KEPCO's financial structure still reflects a high debt burden. As of June 30, 2025, total borrowings and debt securities stood at W131,860 million, resulting in a debt-to-equity ratio of 297.56%. The company is actively addressing this through a KRW30 trillion financial stabilization plan (2022-2026), which management reports is exceeding its targets. This plan includes measures such as asset sales, reducing investment costs, and increasing non-power sales income.

Strategic Initiatives and Forward Outlook

KEPCO is actively pursuing several strategic initiatives to solidify its market position and ensure long-term growth. A key focus is the expansion of its nuclear power footprint. The company is positively evaluating and reviewing circumstances for a potential entry into the U.S. nuclear power market, a move that aligns with the U.S. policy to increase its nuclear capacity fourfold by 2050 (from 100 GW to 400 GW). This international ambition is complemented by domestic projects, such as the capital contribution for the Jafurah combined heat and power plant in Saudi Arabia (Phase 2), approved on March 21, 2025.

Tariff adjustments remain a critical component of KEPCO's financial recovery strategy. While there is limited room for further industrial tariff hikes due to past increases, the company is actively reviewing potential increases for non-industrial sectors. KEPCO is in close consultation with the government to determine the appropriate level and timing of these adjustments, balancing financial stability with economic burden. Furthermore, KEPCO is researching and designing a regionally differentiated retail tariff system, targeting its introduction by early 2026, with stakeholder consultations planned for the first half of next year. The Korea Power Exchange (KPX) is also preparing a wholesale system for introduction within 2025.

For the full year 2025, KEPCO projects a slight decrease in overall electricity sales due to a downward adjustment of the economic growth rate and a downturn in the manufacturing sector. The generation mix outlook for 2025 anticipates a slight decrease in nuclear generation, stable coal generation, and a slight decrease in the LNG mix. Expected utilization rates are mid-80% for nuclear, upper 40% for coal, and mid-20% for LNG.

The evolving competitive landscape, particularly the trend of large industrial consumers directly purchasing power from the power exchange (e.g., LG Chemicals (LGCEY)), is prompting KEPCO and KPX to improve the direct power purchasing system. Key changes include extending the mandatory transaction period for direct purchasers from one year to three years and ensuring that welfare-related special costs are borne by all relevant stakeholders.

Risks and Challenges

Despite the positive momentum, KEPCO faces several pertinent risks and challenges that could impact its investment thesis. Regulatory risk remains significant, as changes in government policies regarding national power supply schemes and electricity billing rates directly affect KEPCO's revenue and profitability. The ongoing negotiations with the government regarding the reflection of climate and environment costs in tariffs, which have not been fully passed on due to surging fuel costs since 2024, highlight this vulnerability.

Fuel price volatility and foreign exchange risk also pose a continuous challenge. While KEPCO hedges its borrowings to mitigate foreign exchange risk, the cost of fuel purchases (LNG, oil) remains exposed to currency fluctuations and global commodity price movements. Project execution risk, particularly in large overseas ventures, is another concern. Discussions regarding prolongation costs and liquidated damages for the UAE nuclear power plant project, and restrictions on disclosing information for the UAE and Egypt Eldaba projects due to potential breach of contract lawsuits, underscore the complexities and financial exposures in international operations.

Macroeconomic headwinds, such as sluggish exports and a downturn in the manufacturing sector, are projected to lead to a slight decrease in electricity sales for the full year 2025, directly impacting revenue. Furthermore, geopolitical events, such as the ongoing armed conflict in Ukraine, introduce unquantifiable financial impacts and uncertainties. Finally, despite progress in its financial stabilization plan, KEPCO continues to manage a substantial accumulated deficit and high debt burden, which could limit its financial flexibility and investment capacity in the long term.

Conclusion

Korea Electric Power Corporation is undergoing a pivotal transformation, marked by a strong financial rebound in the first half of 2025. The company's core investment thesis rests on its indispensable role as South Korea's integrated electric utility, its strategic pivot towards nuclear power expansion, and its proactive efforts to realign tariffs and stabilize its financial foundation. The significant surge in operating profit, driven by robust nuclear generation and initial tariff adjustments, demonstrates KEPCO's capacity for recovery and operational efficiency.

Looking ahead, KEPCO's pursuit of opportunities in the U.S. nuclear market and its commitment to domestic grid modernization underscore a forward-looking strategy aimed at sustainable growth. While macroeconomic pressures and the inherent regulatory complexities of the utilities sector, coupled with a substantial debt load, present ongoing challenges, the company's state-backed stability and extensive infrastructure provide a formidable competitive advantage. The successful implementation of regionally differentiated tariffs and adept management of evolving market dynamics, including direct power purchases, will be crucial in translating KEPCO's operational strengths and technological capabilities into enhanced shareholder value and a more resilient financial future.