Nuclear plant utilization raised to 80% amid oil price surge, with supplementary budget to fund renewable energy investment

[Financial News] The Democratic Party of Korea and the Lee Jae-myung administration decided on the 16th to raise the operating rate of nuclear power plants to 80% in response to a sharp rise in oil prices caused by the Iran War. They also agreed to expand energy transition investment focused on renewable energy, aimed at strengthening long-term energy security, through a supplementary budget bill.
The Democratic Party Middle East Crisis Economic Response Task Force met that day at the National Assembly Members' Office Building for a policy consultation with the Lee Jae-myung administration. They discussed measures to address energy supply and demand, inflation, and industrial risks stemming from the oil price surge.
After the task force meeting, lawmaker Ahn Do-geol told reporters that liquefied natural gas (LNG) reserves cover only nine days of demand, and additional volumes secured are only enough for use through the end of the year. He explained, "We will increase coal and nuclear power generation and reduce LNG-based power generation," outlining plans that include lifting the 80% cap on coal-fired power plant capacity utilization and completing maintenance on six nuclear reactors by May to raise the overall nuclear utilization rate from the high-60% range to 80%.
The immediate increase in nuclear and coal power utilization reflects how tight the oil supply situation has become. While crude oil reserves currently cover 208 days of demand, the government is squeezing out additional supply by agreeing with the International Energy Agency (IEA) to release 22.46 million barrels of strategic oil reserves in stages over four months and by bringing in 3.35 million barrels of overseas production from the Korea National Oil Corporation (KNOC) by June.
Measures to ease cost burdens such as logistics expenses caused by the oil price spike will also be strengthened. To stabilize the price ceiling system, gas stations that significantly lower prices will receive incentives such as public recognition, while violators will have their licenses revoked immediately without prior warning.
The Export Voucher Program, which helps cover international shipping costs, will see its limit doubled from 30 million won to 60 million won. In addition, emergency logistics support vouchers totaling 10 billion won will be provided to about 1,000 exporters to the Middle East. Companies suffering from the Middle East crisis will receive 670 billion won in management stabilization funds, and the maturity of policy loans will be extended by one year without any additional interest spread.
Funding for these support measures will be secured through a supplementary budget driven by President Lee Jae-myung of South Korea. The government plans to submit the supplementary budget bill to the National Assembly by the end of this month and begin deliberations. The size will be set within the projected 20 trillion won in excess tax revenue for this year, with the goal of passing it in the National Assembly as early as April. The supplementary budget will include compensation for losses incurred by oil refining companies due to the operation of the price ceiling system, as well as funding for the Energy Voucher Program and logistics cost support for exporting companies.
A notable component of the budget is the expansion of investment and financing for energy transition centered on renewable energy. As the oil price surge has shaken energy security and forced a renewed reliance on nuclear and coal power, the government intends to accelerate the expansion of renewable energy to bolster future energy security.
Regarding the exchange rate, which is rising in tandem with oil prices, the government and ruling party agreed to swiftly pass the Three Currency Stabilization Bills, aiming for a vote at the plenary session of the National Assembly on the 19th. The bills to amend the Restriction of Special Taxation Act include measures such as reducing capital gains tax when individual investors sell overseas stocks and reinvest in the domestic stock market, easing capital gains tax on overseas stock investments when individuals use currency-hedging derivatives to hedge exchange rate risks, and raising the non-taxable portion of dividends from overseas subsidiaries from 95% to 100% to encourage repatriation of funds. The National Assembly Finance and Economic Committee has already begun deliberations on these bills in its Legislation Review Subcommittee.
The government is also moving to address raw material supply issues, not just oil. Supplies of naphthenic acid and naphtha, a quarter of which are imported from the Middle East, have become strained, putting the already struggling petrochemical industry under even greater pressure. In response, the government will freeze exports of domestically produced naphtha at last year's levels and seek alternative import sources.
In particular, the government is considering designating the Yeosu Petrochemical Industrial Complex as an Industrial Crisis Special Response Zone. This designation, made by the Ministry of Trade, Industry and Energy of the Republic of Korea when major industries face crisis and local economic conditions deteriorate, would enable the government to provide financial support, loans, and contributions to companies and small business owners, as well as employment stabilization support for laid-off and retired workers.
uknow@fnnews.com Kim Yoon-ho, Kim Hyung-gu Reporter