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Korean Electricity Market Evolution and Perspectives

Korean Electricity Market Evolution and Perspectives. 2007. 10. 15. Korea Power Exchange. 1. Korean Electric Industry Overview(1). No Inter-Connection - Isolated electric power system Highly dependent on foreign energy resources (Gas, Oil) - Imported fuels 97%

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Korean Electricity Market Evolution and Perspectives

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  1. Korean Electricity Market Evolution and Perspectives 2007. 10.15 Korea Power Exchange

  2. 1 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 (’01~’05) - about 9.7% (’91~’00) • Peak Electricity Demand - 62,285MW(Aug. 21, 2007) • Total Generating Capacity - 67,196MW(August, 2007)

  3. 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 2 Korean Electric Industry Overview(2) • 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 3

  5. (as of 2007.10, MW,%) By Generating Fuels Oil 8.8% Hydro 8.2% Nuclear 26.4% CC,LNG 26.9% 67,196MW Private 762 (11.3%) Coal 29.7% KHNP 18,250 (27.2%) 5 Genco’s 41,330 (61.5%) By Genco’s 4 Generation Capacity in South Korea

  6. 신가평 신태백 765kV 해저케이블 345kV 154kV Nuclear : 1,772 / 20 CC(Gas) :1,755 / 136 Thermal : 2,527 / 220 해남 765kV : 755 / 5 Hydro/PP: 656 / 456 345kV : 8,279 / 80 154kV : 20,242 / 561 Total : 6,720 / 832 제주 5 Power System Network in South Korea 일산 영동 신덕은 양주 의정부 양양 신인천CC 미금 성동 중부 서인천 동해 영서 신부평 인천 청평 동서울 신인천 신양재 한종 영흥 서서울 곤지암 분당 신시흥 신용인 신성남 울진 평택 화성 신제천 신당진 신영주 신안성 아산 당진 LG부곡 청원 신온양 태안 선산 신서산 청송 신옥천 청양 보령 서대구 신계룡 서천 울주 신포항 군산 월성 영남 신경산 무주 울산 고령 신김제 신울산 산청 신남원 신온산 북부산 고리 삼랑진 신마산 신양산 의령 영광 남부산 신광주 신김해 삼천포 광양 하동 신고성 광양cc 호남 여수 율촌 신화순 ( Unit : km / Station) 신강진

  7. Power System Facility Configuration 6 154/22.9 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 IPP’s 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 7

  9. Electric Industry Liberalization Plan in ‘99 8 PHASE II PHASE III PHASE I Wholesale Competition Retail Competition GenerationCompetition • 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 9 • 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 Genco’s 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 • Genco’s 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 Self-Gen Gencos IPPs Government C E S3) (Community Energy Supplier) MOCIE1) CHP Electricity IndustryTeam Wholesale Market(KPX) - Market Operation - System Operation - Long-Term Adequacy . ESI Policy . Long-Term Adequacy (Generation and Transmission) . Control of KEPCO’s Manpower and Budget KEPCO Intra – Network KOREC2) (Regulator) Connection Transmission Business Distribution Business . Issue Licenses . Approve the Tariffs Retail Business . Supervise Market & System Operations Power & Heat . Approve Market Rule . Approve Transmission & Distribution Code . Privatize state-own Gencos and et cetra End Users or Customers OR 10 • 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 KOMIPO WP Generation (65-70%) KOSEP KOSPO KPX KHNP KEWP Transmission (10%) Transmission Distribution (10%) Distribution Retail (10~15%) Retail Consumer Consumer 11 • Competition was introduced into generation sector which takes 65%~70% of electricity cost.

  13. Current Electricity Market Structure 12 • Competition in generation (2001~ ) • Genco’s compete among themselves in the Generation Pool. • Major Genco’s 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 IPPs KEPCO(T&D) PPA Customers Eligible Customers

  14. 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. 13 Key Features of the Market(1)

  15. 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 14 Key Features of the Market(2)

  16. Electricity Market Business Process KPX Fixed Cost Fixed : Yearly Prod. Cost Evaluation Generators Demand Forecast Var. : Monthly Variable Cost Submit Day ahead Available Cap. Offer Scheduling • SMP • Commitment Gen. Ready Notify Real-time Dispatch Trading day Dispatch Instruction Historical data Weather data Gen. Operation After 26 days Invoice Notification Settlement Payment 15

  17. Electricity Market Timeline 16

  18. Market Volume by Fuel Type 17 As of 2006 Hydro 536 Others 77 Others 871 Hydro 4,843 2.7% 0.3% 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 20,357 Total 18,924Bwon 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) Registered (83) KEPCO (TAO + PSB) Generators(54) - KEPCO Subsidiary(6) - Renewables (43) - IPP(5) Distributed Gen. (27) Community Service[1] 18 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 Service[3] As of ’07.09.14 As of ’07.09.14

  20. 19 Electricity Market Price in South Korea

  21. 20 Consumer(Retail) Price in South Korea

  22. 21 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. 22 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. 23 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: 82-2-3456-6504, choibk@kpx.or.kr

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