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By Park Jae-hyuk
POSCO Energy's deficit in its fuel cell business is blamed on a long-term service agreement (LTSA) signed with Gyeonggi Green Energy five years ago, according to industry analysts Tuesday.
In 2013, the energy-producing unit of POSCO agreed to sell its fuel cells to the world's largest fuel cell user at below cost for five years, in order to advance the fledgling market.
However, several defects were found in POSCO Energy's fuel cells while they were under warranty, and the operating losses at its business have accumulated due to repair costs.
Its fuel cell business suffered a 64.5 billion won ($57 million) operating loss in 2017 following a 92.5 billion won operating loss in 2016.
The company's cumulative deficit in the fuel cell business since 2007 has reached 330 billion won.
Gyeonggi Green Energy, on the other hand, has enjoyed benefits from the deal as it was able to win a Renewable Energy Certificate at lower costs.
Against this backdrop, POSCO Energy has been negotiating with the Korea Hydro & Nuclear Power (KHNP), the largest shareholder of Gyeonggi Green Energy, about the renewal of their LTSA, ahead of the five-year contract's expiration.
POSCO Energy seeks to supply its products at higher prices, while KHNP wants to maintain the current price.
Analysts say POSCO Energy will suffer an additional 50 billion won loss over the next five years, if it accepts the state-run company's demand.
They expect POSCO Energy will spend 140 billion won in operating costs, if it extends the five-year contract.
"POSCO Energy must be well aware that its agreement with Gyeonggi Green Energy will be the guideline for its future deals with other power generators," said an industry source who declined to be named. "POSCO Energy will continue to face a dilemma over renewal of the LTSA."
POSCO Energy CEO Park Ki-hong said during a National Assembly audit on Oct. 11 that his company has been working all out to reduce the losses in its fuel cell business.
