Korean Electricity Market

1

• Korean Electricity Market
• Evolution and Perspectives

2007. 10. 15
Korea Power Exchange
2
Korean Electric Industry Overview(1)

• No Inter-Connection
• - Isolated electric power system
• Highly dependent on foreign
• energy resources (Gas, Oil)
• - Imported fuels 97
• Rapid growth in electricity demand (about
  6.8/year)
• - Recent 5 years (0105)
• - about 9.7 (9100)
• Peak Electricity Demand
• - 62,285MW(Aug. 21, 2007)
• Total Generating Capacity
• - 67,196MW(August, 2007)

3
Korean Electric Industry Overview(2)

• Area of South Korea 99,601 km2
• GDP 897.4 Billion USD(06, 12th Largest in the
  World)
• Population 49 million (Seoul Metro. Area
  24mil. 07)
• Electric Power Industry Overview

• 17.62 million customers (December, 06)
• 832 Generating Units (July, 07)
• 765kV/345kV/154kV/(66kV), DC180kV
• Installed Capacity 67,196 MW (August, 07)
• Electricity Consumption per Capita 7,191 kWh(06)

4
Electric Power Supply and Demand
5
Generation Capacity in South Korea
6
Power System Network in South Korea
??
??
???
???
??
??
???CC
??
??
??
??
???
??
???
??
??
???
???
???
??
??
???
???
??
???
???
???
??
??
??
???
???
???
???
??
??
LG??
??
???
??
??
???
??
???
??
??
???
???
??
??
???
??
??
??
???
??
??
??
???
???
??
???
???
???
??
???
???
???
??
??
???
???
???
???
??
??
???
??cc
??
??
??
???
( Unit km / Station)
???
7
Power System Facility Configuration
154/22.9 kV
Transmission Lines 765,345,154kV
HV Customers 22.9kV
Transformer
Eligible Customers 345kV,154kV
Generator
Captive Customers 220V, 380V
Transmission Network
Distribution Network
Generators
8
Electric industry liberalization in South Korea

• Industry structure before the liberalization
  start in 1999
• KEPCO monopolized 94 of installed generation
  capacity of 47,053MW, and 100 of transmission
  distribution (Government owned utility)
• A small number of IPPs sold electricity to
  KEPCO, a single buyer.
• Tariff based on usage (Residential, Commercial,
  Industrial, agricultural)
• Objectives of the liberalization
• To enhance the efficiency of the electricity
  supply industry
• To effectively finance new generation capacity
• To increase consumer benefits and improve service
  quality
• Guiding Principles of Electricity Industry
  liberalization
• Unbundling of electricity business into
  Generation, Transmission, Distribution, Supply
• Mandatory Pool
• Regulatory Body
• Independent System Market Operator

9
Electric Industry Liberalization Plan in 99
PHASE II
PHASE III
PHASE I
Wholesale Competition
Retail Competition
Generation Competition

• Split the generation sector into six Gencos and
  introduce competition

• Introduce competition into the distribution
  unbundled from KEPCO
• The transmission system serves as a common carrier

• The distribution will be privatized.
• Regional supply monopoly will be eliminated.

• KEPCO maintains transmission and distribution
  sector

2009
2001
2004
10
What has been done thus far in South Korea

• Liberalization process to date
• 1999. 01 The basic plan for restructuring of
  the electric power industry unveiled
• 2000. 12 Necessary Legislations were enacted
• 2001. 04 KOREC and KPX established, 6 Gencos
  were spun off
• 2004. 06 Distribution Spin-off suspended by Biz,
  Labor Government
• Impact of Electricity Market crisis in U.S.
  (California)
• Concern about Price Volatility and Unstable
  Supply in the future Wholesale Market
• 2006. 09 Transformed Regional Distribution
  Sales Branches of KEPCO into
• 9 Independent Business
  Divisions and Internal Competition among them
• Current State and Effects of the Liberalization
• Cost-Based Pool Model is being continued
• Gencos and Distribution Sales divisions are
  Not yet privatized
• Investments are not effectively on time
• Managerial efficiency in the Generation Sector
  has been improved
• Power System Quality has been improved than
  before

11
Industry role map in the electricity market

• MOCIE Minister for Commerce Industry
• KOREC(Korea Electricity Commission) was
  established on April 27, 2001, but have not
  been separated fromgovernment.

3) CES has right to supply electricity and heat
to the specific area and it should own
generation plant and can sell or buy
unserved or excessive electric power to/from KPX
or KEPCO
12
Market Structure Change in 2001

• Competition was introduced into generation sector
  which takes 6570 of electricity cost.

13
Current Electricity Market Structure

• Competition in generation (2001 )

• Gencos compete among themselves in the
  Generation Pool.
• Major Gencos are subsidiary companies of KEPCO
• KEPCO manages transmission and distribution
  sectors.
• Eligible customers can buy electricity directly
  from Gencos.

Gencos (KEPCO)
Gencos (Private)
Bid
Bid
Bid
Generation Pool
KEPCO(TD)
IPPs
PPA
Eligible Customers
Customers
14
Key Features of the Market(1)

• All generators and retailers should trade
  electricity through the market.
• Generators bid into the pool with their available
  capacity of each generator and each trading daily
• KEPCO is the only purchaser in the market
• Eligible Customers are allowed to buy electricity
  directly from the pool(2003.1)
• Some PPA holders do not participate in the market
• Dispatch schedule is made by the predetermined
  costs of each generator.
• Generation Cost Evaluation Committee(GCEC)
  determines the variable costs of each generator.
• GCEC evaluates the construction cost and fixed
  costs of each generator.

15
Key Features of the Market(2)

• Generators are paid by system marginal
  price(SMP) plus capacity payment
• SMP reflects actual production costs(start-up,
  no-load, incremental cost) of the latest
  generator brought into operation
• CP is paid to all generators offering, whether or
  not dispatched
• CP ensures capital costs recovery and underpins
  further investments

16
Electricity Market Business Process
17
Electricity Market Timeline
18
Market Volume by Fuel Type
As of 2006
Others 77
Hydro 536
Others 871
Hydro 4,843
0.3
2.7
0.4
1.3
LNG 57,251
(16.1)
Nuclear
LNG 6,340
Nuclear 42,114
(31.1)
5,829 (28.6)
Oil 15,305
Total 18,924Bwon
Total 20,357
Total 354.9 TWh
Total 354.9 TWh
(4.3)
(40)
Oil 1,925
( 9.5)
Coal 134,480
Coal 5,650
(37.9)
(27.8)
Traded Volume (Million US)
Traded Energy (GWh)
19
Market Participants (Trading Members)
Generation Type
Total 90 Members
Renewables 304 MW (0.4)
Distributed Gen 3,723 MW (5.5)
Total 67,196 MW
Associates(7)
PPA Generators(3)
Generators 63,169 MW(94.1)
Under Cosntruction(1)
Community Service3
As of 07.09.14
As of 07.09.14
20
Electricity Market Price in South Korea
21
Consumer(Retail) Price in South Korea
22
Issues in the Korean electricity Market

• Electric industry liberalization program has been
  stopped for long time
• Phase 1 model(Cost Based Pool) has been
  maintained for more than 6 years
• CBP was designed for simplicity and quick
  implementation during the
• transitory period (need some amendments to
  be a sustainable market)

• CBP has revealed the limitation as a temporary
  system lacking of
• detailed provisions in the market design
• Low efficiency due to the dual market structure
  (Base Non-base load markets)
• Lack of locational signal in consideration of
  transmission losses
• Possibility of over-investment with inappropriate
  capacity payment
• Lack of incentives to save fuel costs

• Extensive improvement works in market rules and
  trading arrangements were carried out in 2006 to
  make a sustainable electricity market

23
Recent Changes in Market Settlement

• Energy Payment
• Marginal Loss Factors are applied to price
  setting and settlement
• Adjusted settlement price for the Base-load
  (Nuclear, Coal) Energy
• Settlement prices of baseload power plants are
  negotiated with parties, based on the advice of
  an independent committee to protect Korean
  electricity consumers

• Ancillary Services Payment
• Regulation reserve services are compensated for
  their contribution

• Capacity Payment
• To further refine the signal, the payment amount
  is weighted to reflect the value of capacity
  across the year and the locations
• Locational(Seoul Metropolitan/ Non-Metropolitan/
  Jeju-island) and seasonal (Peak/Medium/Off-peak)
  reserve requirements are applied

24
Issues to be challenged in the future

• Introducing bilateral contracts in Energy Market
• Bilateral purchasing agreements between the
  generating
• companies and KEPCO(Vesting Contract,
  Off-Take Contract)
• Zonal Pricing in Energy Market
• Ex-post pricing for real-time market
• Multi-settlement with Day-ahead market and
  real-time only
• Ancillary Service settlement
• By Whom and how much should AS payment be paid?
• Real time cost offer or/and limited price bidding
• Forward Capacity Market

25
Thank You!
Byung Kyo Choi Tel [phone],
choibk_at_kpx.or.kr