Coal news and updates

NPS’s coal phase-out policy poses financial risk of state utility firms

The latest move by South Korea’s largest institutional investor National Pension Service to seek to cut investment in power companies with high coal dependency under ESG principles is expected to aggravate financial woes of the country’s state-run utility firms.

The Korean national pension operator’s fund management committee is reviewing a plan to decide its investment in power companies based on the share of their coal business in total revenue, according to industry sources on Sunday. The committee currently is said to be considering setting the limit on coal-based power generation to between 30 percent and 50 percent, meaning that the NPS would not be allowed to invest in a power company that generates more than 30 to 50 percent of its revenue from coal-based power generation.

Its decision will be made around the end of this year.

The NPS’s new investment direction is expected to put five of Korea’s state-run power companies at risk of losing investment from the largest institutional investor in Korea and the world’s third largest pension service whose investment practice is closely followed by other investors.

As of June, Korea South-East Power earns 68 percent of its revenue from coal-fired power generation, Korea East-West Power 63 percent, Korea Western Power 57 percent, Korea Midland Power 51 percent, and Korea Southern Power 50 percent.

If the NPS sets its limit at 50 percent, all five state power companies would not be able to receive any investment from the public pension manager, which could worsen their financial health.

The Ministry of Health and Welfare, overseeing the NPS, is standing firm on its position to limit investment in coal companies under ESG principles.

Considering the ESG trend in investment, it is difficult to change the investment policy, said a health and welfare ministry officer. But the ministry will determine the investment limit with prudence as the local power companies still have high dependency on coal-fired power generation and bear the brunt of higher energy costs from the prolonged Russia’s war in Ukraine, added the official.

According to data from the Financial Supervisory Service, all five state power firms reported operating losses in the second quarter ended June this year due to softening system marginal prices, or wholesale electricity market prices.