[Edaily Reporter Kim Hyung-wook] The government is pushing forward with a plan to merge five state-run power generation companies (Namdong, Nambu, Dongseo, Seobu, and Jungbu Power Generation) into a single entity.

While previous discussions on restructuring state-owned power generation companies have focused on consolidating them into two or three regions or by function, the plan to reorganize the five companies into a single entity is now expected to be given top priority.

If the “full integration” of the five power generation companies becomes a reality, it will mark the birth of a mega-sized state-owned power generation company—25 years after Korea Electric Power Corporation (KEPCO) spun off its power generation division into five thermal power subsidiaries and Korea Hydro & Nuclear Power in 2001.

While this represents a bold move by the government to shift the power generation industry from a coal-fired model to one centered on renewable energy sources such as offshore wind, concerns are also being raised about the bloating of the public sector due to the expansion of state-owned enterprises and the weakening of competition resulting from lax management.

◇Merging Five Companies into One to Reduce Executive Positions and Prevent R&D Duplication

On the 18th, the Ministry of Climate, Energy, and Environment held an interim briefing on the “Study on the New Roles of Public Power Companies During the Energy Transition” at the KEPCO Art Center in Seoul and released the interim results of a research project conducted by Samil Accounting Firm, which included these details.

To promote the consolidation of public institutions, the Lee Jae-myung administration commissioned Samil Accounting Firm in February of this year to conduct a study on plans to merge the five power generation companies. The aim is to consolidate the five coal-fired power-focused public enterprises into one, or two to three, in light of the decision to completely phase out coal-fired power generation by 2040, thereby strengthening the capacity for an energy transition centered on renewable energy.

The study concluded that while the current system of five power generation companies is suitable for operations centered on coal and gas-fired power generation, it has limitations in terms of flexibility—such as phasing out coal, expanding renewable energy, and the resulting workforce transition.

The analysis suggests that projects requiring trillions of won in capital investment over the long term—such as offshore wind power—are more efficiently managed by a single public enterprise acting in an integrated manner rather than being pursued separately by multiple public enterprises.

The report noted that consolidating the five companies into one would also promote overall organizational efficiency by reducing the number of executives and preventing duplicate investment in research and development (R&D). Samil Accounting Firm explained, “This structure allows a single entity to consistently drive the long-term, high-risk energy transition,” adding, “Based on a unified organizational and financial structure, large-scale projects can be carried out stably.”

There are numerous examples overseas of state-owned power companies being consolidated during periods of energy transition. Notable examples include Denmark’s Ørsted—which emerged from the 2006 merger of six energy companies and has become a global renewable energy developer—as well as Japan’s JERA, China’s CHN Energy, and France’s EDF.

◇Concerns Over Weakened Competition Due to the Creation of a Giant Public Enterprise

Meanwhile, concerns have been raised about potential negative effects resulting from the consolidation of state-owned power generation companies. Critics point out that the creation of a single, massive state-owned power generation company could weaken fair competition within the power generation market and lead to lax management or moral hazard.

In fact, the five power generation companies were spun off to break up KEPCO’s monopoly and promote competition. Some assessments suggest this move was effective in lowering power generation costs through competition in fuel procurement and in improving management efficiency by pursuing independent overseas projects and new business ventures.

Professor Heo Yoon-hee of the Graduate School of Energy and Environment at Korea University stated, “The main reason for the slow adoption of renewable energy was not the division of state-owned power generation companies, but rather significant regulatory and institutional shortcomings. Moreover, the competitive system among these companies has played a positive role by lowering fuel procurement costs and promoting entry into new overseas businesses.” She added, “We must bear in mind that the consolidation process could inadvertently weaken these positive aspects and lead to lax management.”

Kim Chang-hwan, a professor at Chung-Ang University, also said, “The mission of the integrated power company and the benefits to the public must be clearly defined.” He added, “If only a physical merger takes place while internal organizational cultures and work practices remain separate, it will be difficult to achieve the expected synergies.”

Based on the interim report released today, the Ministry of Climate Change plans to finalize the proposal in July after gathering input from experts and stakeholders.