Private-sector power generators are complaining mightily about the government's pressure on them to switch coal-fired power plants they are building into ones based on liquefied natural gas. That's largely because the government is mum about the sunk cost and other costs to retrofit the plants estimated to be as high as 2.6 trillion won.
According to private-sector power generation industry sources on September 17, the Ministry of Trade, Industry, and Energy requested to POSCO Energy, SK Gas, and others that are building thermal power plants in places like Samcheok (Gangwon) and Dangjin (South Chungcheong) to consider switching them to LNG-based ones.
The biggest obstacles to transition to LNG-fueled power plants are sunk cost and switch cost. For example, POSCO Energy has already spent 559 billion won for incorporation, plant design, and commissioning of environmental impact studies. The company will have to cough up another 70 billion won if it cancels the project and restore the construction site to an original state. For a company whose operating profit in the first half was only 97.7 billion won, this is something too burdensome to undertake.
As for SK Gas, it has already put up 413 billion won to building two "Eco-Power" plants. A POSCO Energy official said, "The government is not saying anything about our sunk cost. If the projects to build thermal power plants are cancelled, the fate of our company may be endangered due to possible capital impairment, rising demand for debt repayment, and downgrade in credit ratings."