Korean Electricity Market(Current state and perspectives)

Yeom, Myong ChunCEO & Chairman of KPX(Korea Power Exchange)

Association of Power Exchange

17-19 October 2010

Power Industry Overview

Market Status and Challenges

Restructuring and its Barriers

2

Power Industry Overview

3

Electricity Market Overview

Jeju T/P

Yangju

Seo-Incheon

Youngheung T/P

Hanrim CC

NamjejuSeogwipo

AndukSin-Jeju

Hanla

Sungsan

Jocheon

Dong-Jeju

Sanji

Seo-Incheon C/C

Incheon T/P, C/C

Sin-Incheon

Sin-Sihung

Sin-Bupyung

Sin-Dukheun

ChungbuYoungdeungpo

Youngseo

Seo-seoul

Uijeongbu

Sungdong

Hwasung

Sin-suwonPyungtaek T/P, C/C

Ansan

Sin-DangjinDangjin T/P

Taean T/P

Sin-onyang

Boryeong T/P, C/CChungyang

Gunsan

Sin-Gimje

Youngwang N/P

Sin-Gwangju

Sin-Hwasun

Sin-Gangjin

Haenam C/SYeosu N/P

Gwangyang

Hadong T/P

Sin-Namwon Euiryong

Sancheong P/P

Muju P/P

Sin-OkcheonSinkaedong

Chungwon

Sin-Jincheon

Sin-Gosung

Samcheonpo T/P

In-Masan

Sin-Gimhae

Bukbusan

Pusan C/C Nam-Pusan

Kori N/P

Sin-Onsan

Ulsan TP, C/C

Wolseong N/PSeo-Daegu

Buk-DaeguSunsan

GoryeongDaegu

Sin-Kyeongsan

Ulju

Sin-Ulsan

Sin-Youngju

Sin-Youngil

Cheongsong P/P

Uljin N/P

Donghae

Yangyang P/P

Sin-Jecheon

Sin-Gapyung

Sin-Ansung

Sin-seosan

Sin-Yangje

Sin-Ansan

Sin-Taebaek

Sin-Yangsan

Sin-Youngin

Sin-Sungnam

Dong-Seoul

Migum

Gonjiam

CHARACTERISTICS

Isolated power gridHigh growth rates of power demand- Annual average increase rate

· ‘91-’95: 10.9%, ‘96-’00: 7.4%, ‘01-’05: 6.6%, ‘06-’09: 5.6%

Highly dependent on foreign resources- 96.4% of primary energy in 2008 (232 million toe)

* Primary energy proportion- Oil: 43.1%, Coal: 27.6%, LNG: 15.3%, Nuclear: 14.0%

KEY STATISTICS (2009)

People served (million) 49

Generating capacity (MW) 73,470

Peak loads (MW) 66,800

Total transmission lines (Km) 30,257

Electricity traded annually (TWh) 406

Generation sources(above 20MW) 372

4

Sites of Generators

Bundang

Seoul

Sanchung

Hapchun

Cheongsong

IncheonPucheon

Pyungtaek

Anyang

Youngkwang

Chungju

Chuam

Yeosu

Honam Kwangyang

Sumjinkang

Yongdam

Muju

SeocheonBoryeong

POSCO

Sin-IncheonPaldnag

Chungpyung

Euiam

ChuncheonHwachun

Hadong

Samrangjin

SamcheonpoBusan

Kori

Andong

Yangyang

Kangreung

Uljin

Imha

Youngnam

Wolseong

Small Hydro (Pocheon etc)

Soyangkang

Ilsan

Youngheung

Taean

LGBugok

Ulsan

Daechung

Dangjin

Seo-Incheon Youngdong

Donghae

Yulchon

Jeju

(Unit : 10 MW)

53

180

99

120

180

50

48

45 9050

45

180180

180

90

40

33

74

50

40

400300

180

300

400

40

247

140

39

400

115

53

590

278

314590

6

60

10011

12

8

7

20

2

3

2

9

59

60

41

40

6010

70

6

5Chungpyung

* As of December, 2009

Capacity by Fuel Type

(Unit : MW)

Nuclear

17,720(24.1%)

Oil

5,840(8.0%)

Hydro

5,440(7.4%)

Renewable

1,220(1.7%) Coal

24,680

(33.6%)

LNG

18,590

(25.3%)

5

Transmission System Network

Characteristics

Direct Current Line

- Connect the main land

to Jeju Island

345kV

Main transmission system

Distribution system

- Connected to major

areas of consumption

154kV

Jeju T/P

Yangju

Seo-Incheon

Youngheung T/P

Hanrim CC

NamjejuSeogwipo

Anduk Sin-Jeju

Hanla

Sungsan

Jocheon

Dong-Jeju

Sanji

Seo-Incheon C/C

Incheon T/P, C/C

Sin-Incheon

Sin-Sihung

Sin-Bupyung

Sin-Dukheun

Chungbu

Youngdeungpo

Youngseo

Seo-seoul

Uijeongbu

Sungdong

Hwasung

Sin-suwonPyungtaek T/P, C/C

Ansan

Sin-DangjinDangjin T/P

Taean T/P

Sin-onyang

Boryeong T/P, C/CChungyang

Gunsan

Sin-Gimje

Youngwang N/P

Sin-Gwangju

Sin-Hwasun

Sin-Gangjin

Haenam C/S

Yeosu N/P

Gwangyang

Hadong T/P

Sin-Namwon Euiryong

Sancheong P/P

Muju P/P

Sin-Okcheon

Sinkaedong

Chungwon

Sin-Jincheon

Sin-Gosung

Samcheonpo T/P

In-Masan

Sin-Gimhae

Bukbusan

Pusan C/CNam-Pusan

Kori N/P

Sin-Onsan

Ulsan TP, C/C

Wolseong N/PSeo-Daegu

Buk-Daegu

Sunsan

Goryeong

Daegu

Sin-Kyeongsan

Ulju

Sin-Ulsan

Sin-Youngju

Sin-Youngil

Cheongsong P/P

Uljin N/P

Donghae

Yangyang P/P

Sin-Jecheon

Sin-Gapyung

Sin-Ansung

Sin-seosan

Sin-Yangje

Sin-Ansan

Sin-Taebaek

(Unit: c-km/ substations)

154kV : 20,700 / 613

345kV : 8,552 / 86

765kV : 755 / 5

Gwangyang Steel

Sin-Yangsan

Sin-Youngin

Sin-Sungnam

Dong-Seoul

Migum

Gonjiam

Second HVDC Line between

main land and Jeju island is

being built by 2011

( 300MW ⇒ 700MW)

765kVMass transmission system

6

Peak Demand and Reserve

A peak demand of 70GW occurred on August 20, 2010 4.6% increase compared to the last year‘s peak demand

Lower than the expected load due to the frequent rain in August

Reserve rate was just around 6.5% (the lowest since 2001) Has gradually decreased due to the low investments in generation sectors

Expected to be increased from 2012 with the growth of generator constructions

45,000

50,000

70,000

(Unit:MW)

65,000

60,000

55,000

’04 ’05 ’06 ’07 ’08 ’10

62,790(0.8%)

62,290(5.6%)

54,630(6.6%)51,260

(8.2%)

58,990(8.0%)

Reserve margin

* As of August of 2010 69,890(4.6%)

Peak demand(Growth rate)

12.2%11.3%

10.5%

7.2%

9.1%

6.5%

66,800(6.4%)

7.9%

’09

7

Market Status and Challenges

8

Trend of Electricity Trade

Trade Amount

(Unit : TWh)

Trade Volume

(Unit : Billion Dollar)

’07 ’08 ’09 ’07 ’08 ’09

18

23 23

Number of Member Companies

(Unit : No.)

’07 ’08 ’09

* As of December, 2009

104

302411

374

392406

Number of KPX members increased due to the growing renewable energy sources (104 members in 2007 ⇒ 411 members in 2009)

All generators over 1 MW capacity should participate in power market for trading

Despite global economic recession, trade amount has increased steadily

Trade amount is 406TWh (Average increase rate for the last 6 years: 5.7%)

Trade volume is $23 Billion (Average increase rate for the last 6 years: 12.6%)

* 6 Gencos, KEPCO’s subsidiaries, take 95.8% of the total trade amount

9

Market Price and Retail Price

Market Price

Steadily rising since the establishment

of electricity market

Had a big jump in market price from 2008

due to the increase of global fuel prices

Market price went up11% as of August

this year (since the end of 2009) due to

the persistent high fuel prices

Retail price

Rising due to the global fuel cost hike

Increasing rate is less than that of market

price

Retail price control policy by government

has resulted in a financial loss to

distributor, KEPCO

* All retail price is regulated by government

< Retail price by contract type >

39 42 46

52

66 70

102

88

98

39 41 41 43 44 47 57 55

63

0

20

40

60

80

100

120

'02 '03 '04 '05 '06 '07 '08 '09 '10

Market price

Purchasing Price

<Market Price/Purchasing Price>($/MWh)

10

Renewable Energy Status

0.7% (3TWh / 406TWh) of total trade amount

Coal

(33.6%)

LNG

(25.3%)

Nuclear

(24.1%)

Oil

(8.0%)

Hydro

(7.4%)

R.E.

(1.7%)

Coal

(45.9%)

Nuclear

(34.8%)

LNG

(14.2%)

Oil

(3.2%)

Hydro

(1.3%)

R.E.

(0.7%)

Waste Wind Landfill Gas Solar Hydro Fuel Cell Bio

854

(32%)

678

(26%)

418

(16%)

390

(15%)

213

(8%)

81

(3%)

8

(0.3%)

Accounts for 1.7% (1,221MW / 73,470MW) of total capacity in power industry

Solar Wind Waste HydroLandfill

Gas

Fuel

CellBio

406

(33%)

347

(28%)

272

(22%)

85

(7%)

83

(7%)

23

(2%)

5

(0.4%)

(MW)

(GWh)

Government plan for renewables in terms of primary energy 2.98% in 2010 ⇒ 6.08% in 2020 ⇒ 11.0% in 2030

11

Renewable Energy Policy – RPS

RPS (Renewable Portfolio Standard) will be operated in 2012

Imposes compulsory renewable capacity to the generation companies

To be enacted in 2012

Major details

This obligation will be applied to the companies above 500MW of total capacity

(i.e.,14 generation companies today)

RECs(Renewable Energy Certificates) will be traded in the electricity market

Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022∼

Ratio(%) 2.0 2.5 3.0 3.5 4.0 5.0 6.0 7.0 8.0 9.0 10.0

Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022∼

Generation

(GWh)158 315 486 657 841 1,038 1,248 1,472 1,708 1,958 2,221

* Solar has special target within total RPS schedule

< Renewable Energy Supply Schedule>

Extra cost by RPS will be shifted to distributor through market system12

Load Management

마스터 제목 스타일 편집

Overview : Secure system stability by cutting peak load and reimbursement

Programs in operation1. Load Reduction with one month’s Notice

KEPCO notifies the necessary period with one month’s prior to operate Reduce the consumption through a vacation and overhaul period

2. Load Reduction with one week’s Notice

KEPCO notifies the necessary period with one week’s prior to operate Reduce the consumption voluntarily during the chosen days

3. Demand resource market

①Day-ahead and ②Hourly-ahead markets are in operation

Activated in case that the reserve falls to 5,000MW or less

Main targets: consumers, easily adjustable in consuming amount, i.e.

cement, steel, and petrochemical industries

ProgramsLoad Reduction with

one month’s Notice

Load Reduction with

one week’s Notice

Demand Resource

MarketTotal

Average Load

Curtailment1,392MW Not operated 406MW 1,798MW

Reimbursement $1.13 Million - $0.4 Million $1.53 Million

Operational Results: Cut 2.5% of load in 2010 summer peak

13

Restructuring and its Barriers

14

1st stage (2001～ )Generation competition

Split the generation sector into 6 Gencos and introduce competition

KEPCO maintains Trans. and Dist. Sector

Power Industry Restructuring Plan

< The Restructuring Plan in 1999 >

2nd stage (2004～ )Wholesale competition

Introduce competition to distribution sector

The transmission system serves as a common carrier

3rd stage (2009～ )Retail competition

Distribution to be privatized.

Regional supply monopoly to be eliminated.

Gen. Bids

Market (KPX)

KEPCO(Trans/ Dist/Sales)

Consumer

6 Public Gencos IPPs

Gen. Bids

Market (KPX)

DisCo

Consumer

6 Public Gencos IPPs

Transmission

Consumer

DisCo

As

so

cia

tion

of

co

nsu

me

rs

15

Consumer

One

K

E

P

C

O

Generation

Transmi-ssion

Distribu-tion

Sales

Before restructuring

1961 – 2000

one monopoly

public company

(KEPCO)

Restructuring Process

2000

2001

The Gov’t established the master plan for restructuring of electricity industry

The Nat’l Assembly legislated for restructuring plan

Established KOREC(Korean Electricity Commission) and KPX(Korean Power Exchange)

Separated generation sector of KEPCO into 6 Gencos- 46% of labor force and 55% of assets liabilities of KEPCO were transferredto Gencos

Completion of 1st stage restructuring plan

2002

2003

2004

Set the detailed restructuring plan for the 2nd stage- Tried to privatize one of the 6 Gencos- Tried to unbundle the distribution sector from KEPCO

Stopped privatizing a Genco due to economic recession- The market value of stock estimated less than the face value

The Gov’t announced suspension of the 2nd restructuring plan

Suspension of 2nd stage restructuring plan

2008

2010

Declared not to privatize power industry by Gov’t

The Gov’t announced 「The Advanced Plan for Power Industry」- Present a direction to strengthen a competitive and open-door policy

- It will be implemented gradually considering political environment16

Barriers on Restructuring(1)

Labor Unions

In the initial stages of restructuring, labor union concentrated its

efforts on opposing privatization of a Genco

- A 38-day general strike in 2002

- Concerns over reduction of workers, dismissals, etc.

Continually demanded re-merging of 6 Gencos with KEPCO

* The political sector and the press are influenced by electricity labor

unions, who are supported by the Korean Confederation of Trade Unions

DivisionFederation of Korean Trade

Unions

Korean Confederation of Trade

Unions

Members 870,000 700,000

Foundation Aug. 1961 Nov. 1995

Members of union 3,2001,800

(includes most public utilities)

Tendency Moderate Progressive, pro-worker

< Comparison of 2 associations of Trade Unions in Korea >

17

Barriers on Restructuring(2)

The public & consumers Very satisfied with current electricity service in terms of tariff, stability

and the quality of electricity

- Concerned about the rise of electricity tariffs by privatization

- Worried about degrading of the stability and quality of electricity

NGOs

The competition will weaken public services for the lower income group

Privatized electricity company will focus only on pursuing profit

Privatized company would not much care about the damage to the

environment and the increase of CO2 emissions

Government policy Insufficient consistent drive on the policies, due to the frequent change of

the administrations (5 years of the presidential tenure, one term only)

Politicians and the press are too easily swayed by the labor unions

18

Recent Restructuring Plans(1)

Government announced「The Advanced Plan for Power Industry」 (Aug.24,2010)

Maintain the current competitive and open-door policy in power

industry

Prepare the retail competition infrastructures

• 2011 : Operating「The Fuel Cost Adjusted Tariff Mechanism」• 2012 : Operating「The Voltage Based Tariff System」• Sorting the accounts of KEPCO to transmission, distribution, and

sales parts, etc.

An introduction of the retail competition has not been definitely

decided yet

19

Recent Restructuring Plans(2)

Government announced「The Advanced Plan for Power Industry」 (Aug.24,2010)

Strengthen the competitions in the generation sectors

• Increase the autonomy and the responsibility to the management of

the Gencos

• Facilitate the competition among the 6 Gencos

• The 6 Gencos will be supervised by the government directly, not by

KEPCO

Consistently develop the electricity market along with the current

framework

Prospects Current government doesn’t want abrupt change of the industry

framework now

Restructuring will be gradually implemented in the long term

20

Recent Restructuring Plans(2)

Government announced「The Advanced Plan for Power Industry」 (Aug.24,2010)

Strengthen the competitions in the generation sectors

• Increase the autonomy and the responsibility to the management of

the Gencos

• Facilitate the competition among the 6 Gencos

• The 6 Gencos will be supervised by the government directly, not by

KEPCO

Consistently develop the electricity market along with the current

framework

Prospects Current government doesn’t want abrupt change of the industry

framework now

Restructuring will be gradually implemented in the long term

21

Thank you so very much