Electricity Regulation in South Korea

Legal framework

Policy and law

What is the government policy and legislative framework for the electricity sector?

Legislative framework

The Electricity Business Act (sometimes referred to as the Electric Utility Act) and its subordinate presidential and ministerial decrees comprise the key legislation regulating the electricity sector in South Korea. The Act broadly provides for the following: the granting of licences to engage in specified electricity businesses (including, in particular, generation, transmission, distribution and retail sales), protection of electricity customers, prohibition of certain unfair activities, a wholesale electricity market, constitution and responsibilities of the electricity regulatory body, and safety management relating to electricity equipment. The framework of the Electricity Business Act is based on the Korean government’s original policy initiatives to liberalise the Korean electricity market in the late 1990s, which was sidetracked by the political backlash against liberalisation in the mid-2000s, as discussed below.

A number of other specialised statutes are also relevant to the overall legislative framework. The Act on the Development, Use and Diffusion of New and Renewable Energy, which is intended to promote development of new and renewable energy, provides for feed-in tariff (FIT) programmes and renewable portfolio standards (although the FIT programme is no longer available to new and renewable sources entering the market after 2012 except small-scale solar power generation facilities; see ‘Update and trends’ for further details) and other schemes to incentivise development of new and renewable sources. The Integrated Energy Business Act is also applicable to enterprises wishing to supply combined heat and power to customers, although the Electricity Business Act still governs electric power supply. Finally, in relation to nuclear energy, the construction and operation of nuclear power plants must comply with the requirements of the Nuclear Safety Act.

Government policy

Since 1999, the Korean government has implemented policy initiatives to liberalise the Korean electric power industry. As part of these initiatives, in the early 2000s, the government established the Korea Power Exchange (KPX) in order to enable wholesale electricity trading, split off the generation arm of the state-owned Korea Electric Power Corporation (KEPCO) into a number of separate power generation companies (GenCos) in order to promote competition in the electricity generation sector, and adopted a plan to privatise one of the five GenCos engaged in thermal generation.

However, owing to a political backlash against liberalisation during the mid-2000s which has resulted in the suspension of further liberalisation initiatives, various market and non-market factors continue to co-exist side-by-side in the electricity sector. For example, the installation of power plants is in principle permitted only when the capacities resulting from the introduction of such power plants would be compatible with the national electricity supply and demand forecasted by the Ministry of Trade, Industry and Energy (MOTIE), and wholesale electricity trading prices are not determined through supply and demand, but rather in accordance with a specially designed pricing mechanism set forth in the Electricity Market Operation Rules (Market Rules) of the KPX, over which the MOTIE exercises de facto control. At this point, it remains uncertain whether the government will resume its plans for liberalisation or pursue alternative initiatives.

Under the Electricity Business Act, the MOTIE is vested with the responsibility of, inter alia, forecasting long-term electricity supply and demand, preparing basic directions on such supply and demand, and planning the installation of utilities relating to generation, transmission and distribution of electricity, which is notified every two years via a Basic Plan on the Long-Term Supply and Demand of Electricity (Basic Plan).

The 7th Basic Plan for 2015-2020, that was issued during former President Park Geun-hye’s administration, focused on: ensuring a stable supply of electricity as its top priority; low carbonisation in the country’s power mix; active consumer demand management; and diffusion of distributed generation. To achieve low-carbonisation of the generation sector, the MOTIE suggested the following: withdrawing certain coal-fired power plant projects from the 7th Basic Plan, replacing obsolete thermal power plants with more environmentally friendly ones, building up of new nuclear power plants and increasing the overall share of new and renewable energy sources. Following a marked deterioration in air quality in the spring of 2016, thermal power plants have faced the brunt of the (public and political) backlash, resulting in the MOTIE’s announcement of a policy to retire obsolete coal-fired power plants earlier than originally planned in the 7th Basic Plan.

In recent years, the Korean public has frequently raised complaints regarding the issue of air quality in Korea, with coal-fired power plants blamed for being a major source of fine particles within the atmosphere. In addition, the Fukushima Daiichi nuclear disaster in 2011 has resulted in the weakening of political momentum in support of nuclear power as well as raising public awareness of safety concerns associated with nuclear power generation. In response to such public sentiment, current President Moon Jae-in vowed during his election campaign to do away with nuclear and coal-fired power plants and substitute them with liquefied natural gas (LNG) and clean, renewable energy sources, and has since indicated his intent to deliver on his promises. The MOTIE: called for the closure of 10 coal-fired power plants with an age of 30 years or more during Moon’s term of office (2017-2022); announced a plan to comprehensively reassess all coal-fired power plants under construction and has requested the conversion of such coal-fired power plants into LNG-fired power plants; and indicated its intention to reject any licence applications for coal-fired power plants in the future. Nuclear energy sources have also been affected, with the government announcing that it would not grant a licence for any new nuclear power project. On the other hand, the Moon administration plans to utilise renewable sources more aggressively in order to achieve the goal of raising the share of renewable energy in electricity generation from around 5 per cent to 20 per cent, while reducing emissions of polluting materials by 50 per cent, by 2030.

In response to these trends, the 8th Basic Plan for 2017-2031, issued on 29 December 2017 under President Moon Jae-in’s administration, mainly addresses the environment and public safety, as well as the economic efficiency of the electricity market. In order to achieve environmental protection policy goals in energy production, the MOTIE suggested withdrawing nuclear power plant construction, reducing the proportion of coal-fired power generation in the mix of power generation sources, replacing certain obsolete coal-fired power plants with more environmentally friendly LNG plants, and (as mentioned above) expanding the share of renewable energy in electricity generation to 20 per cent by 2030. The MOTIE projects an increase in renewable generation from 34.4TWh in 2017 to 125.8TWh in 2030. Solar and wind power generation capacity is expected to account for 87.6 per cent of total renewable energy generation capacity by 2030. The Korean government plans to reduce the cost gap between coal and LNG power generation by reflecting environmental costs and further adjusting tax rates applicable to coal and LNG power generation.

The Electricity Business Act was amended in March 2017, effective from June 2017, to take into account the economic, environmental and safety impacts of future national planning for electricity supply and demand in Korea. Under the amendment, KPX must give comprehensive consideration to these impacts in the operation of the electricity market and power generation systems in Korea.

This policy aim of the Moon administration has sparked controversy in Korea, especially among industries directly or indirectly affected. In particular, many concerns have been raised regarding possible increases in electricity bills and the security of power supply.

2Organisation of the market

What is the organisational structure for the generation, transmission, distribution and sale of power?

Even after splitting off the GenCos, KEPCO still remains an integrated electricity utility company having an effective monopoly over the transmission, distribution and retail sale of electricity in South Korea.

As of the end of 2017, the power production industry in South Korea consisted of KEPCO’s six wholly owned generation subsidiaries (ie, the GenCos) and 17 independent power producers (excluding renewable energy producers). GenCos generate the substantial majority of electricity in the country, and, as of the end of 2017, held approximately 70.3 per cent of the total installed generation capacity.

Regulation of electricity utilities – power generation

Authorisation to construct and operate generation facilities

What authorisations are required to construct and operate generation facilities?

Under the Electricity Business Act, the MOTIE possesses the power to authorise new power plant projects through the granting of generation business licences. Such power is delegated to provincial authorities for power plants having capacity of 3MW or less. In principle, a generation business licence will not be granted for a proposed power plant project if its installed capacity amount would be inconsistent with the MOTIE’s forecasted national electricity supply and demand. The criteria that the MOTIE applies in granting licences include, among other things, bankability of the proposed project, credit ratings of sponsors, feasibility of construction and operation plans, qualifications of human resources or contractors, social receptiveness in project areas, securing project sites, ensuring interconnection and transmission and water and fuel supply, and reliability of sponsors.

Notably, a power producer’s failure to meet construction schedules in terms of both commencement and completion of construction might result in the cancellation of an already issued licence.

On Jeju island, the Jeju provincial authority is also empowered to authorise wind power projects, although it must discuss with the MOTIE in respect of wind power projects having capacity of 20MW or more.

The Electricity Business Act was amended in June 2018, effective from December 2018, establishing a licensing regime for small-scale electricity brokerage businesses and electric vehicle charging businesses in order to promote the establishment of new electricity businesses. Small-scale electricity brokerage businesses collect electricity produced or stored in: new or renewable energy facilities; energy storage devices (ESS); and electric vehicles, and trade electricity on the KPX. Electric vehicle charging businesses provide electricity to electric vehicles. Both types of business must be registered with the MOTIE.

Grid connection policies

What are the policies with respect to connection of generation to the transmission grid?

Under the Electricity Business Act, tariffs for grid connection services are subject to review of the Electricity Regulatory Commission (ERC) and approval from the MOTIE. The Act also requires transmission service providers not to discriminate among their customers. The operation of generation facilities must abide by the Standard on the Electric Power Grid and Electricity Quality promulgated by the MOTIE.

Alternative energy sources

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

As mentioned in question 1, the Act on the Development, Use and Diffusion of New and Renewable Energy promotes the development of alternative energy sources, which are classified into new and renewable energy sources. New energy sources include power production from hydrogen fuel, fuel cells and integrated gasification combined cycles, and renewable energy sources include solar power, wind power, hydro power, geothermal power, bioenergy power and waste energy power. Owing to the increasingly heavy burden on governmental budgets, feed-in-tariff programmes are no longer available to new and renewable sources entering the market after 2012, which may instead apply for renewable portfolio standard programmes.

Although the 2nd National Energy Master Plan in 2014 showed a blueprint for distributed generation (mostly consisting of combined heat and power) as a response to social unease over long-distance transmission lines, there have not been any further initiatives to implement this blueprint. The government, however, announced in the 8th Basic Plan that it will promote the development of new and renewable energy sources more aggressively. See question 1 for further details.

Climate change

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

At the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21), the South Korean government agreed to reduce the country’s nationwide greenhouse gas emissions by 37 per cent, or from 314.8 million tons to 536 million tons, from the business-as-usual (BAU) level, by 2030. According to the 2030 Greenhouse Gas Reduction Road Map announced in December 2016, the South Korean government was considering achieving this objective through a combination of domestic policies (accounting for 25.7 per cent of reductions) and utilisation of international market mechanisms (accounting for 11.3 per cent). However, the South Korean government has been criticised for its weak will to prevent greenhouse gas emissions and for failing to provide specific action plans for international market mechanisms. On 24 July 2018, the South Korean government announced the revised 2030 Greenhouse Gas Reduction Road Map. According to the revised road map, the overseas greenhouse gas reduction target using international market mechanisms has been decreased dramatically and the electricity generation sector has been allocated 57.8 million tons to cut by reflecting the goals and targets set in the 8th Basic Plan and the Renewable Energy 3020 Implementation Plan. As discussed in question 1, the MOTIE has also announced its policy to retire or replace obsolete coal-fired power plants earlier than originally planned. The upshot is that domestic wholesale and retail electricity prices are likely to increase, because liquefied natural gas, which is far more expensive than coal, will comprise a greater portion of the country’s overall power mix going forward.

Storage

Does the regulatory framework support electricity storage including research and development of storage solutions?

The Korean government is presently implementing various initiatives to facilitate the development and use of energy (or electricity) storage systems (ESS). For example, the government promotes the use of ESS equipment to improve grid connection conditions for renewable energy by assigning a higher weighted ratio to ESS equipment linked to wind (4.5 in 2018 and 2019, and 4.0 from 2020) and solar power projects (5.0 in 2018 and 2019, and 4.0 from 2020) than for wind and solar power projects without ESS equipment (2.0-3.5 and 0.7-1.5 respectively), in issuing renewable energy certificates (REC). The government has also established a demand response market where ESS facilities may function as peak shaving facilities. Meanwhile, a government fund raised for the domestic electricity industry plans to subsidise various energy-independent island projects under which renewable sources linked to energy storage facilities will replace existing small-scale diesel-based power plants on various islands. Finally, the government is also supportive of KEPCO’s development of ESS equipment for frequency regulation in the grid. See ‘Update and trends’ for further details.

Government policy

Does government policy encourage or discourage development of new nuclear power plants? How?

South Korea relies heavily on imports of energy sources to satisfy most of its electricity demand. To achieve the goal of economic dispatch of electricity as well as to counter greenhouse gas emissions, the government has encouraged the development of new nuclear power plants. The 7th Basic Plan suggested that the construction of two new power plants was needed during 2028 and 2029 to fill forecasted deficiencies in installed capacities. However, the Fukushima Daiichi nuclear disaster in 2011 has given rise to increased political opposition to nuclear power in Korea in addition to a substantial decline in public receptiveness towards nuclear power plants. Consequently, the Moon administration decided to suspend construction of the two new nuclear power plants mentioned in the 7th Basic Plan. As discussed under question 1, nuclear power generation capacity is expected to decrease from 22.5GW in 2017 to 20.4GW in 2030, and the proportion of nuclear power in the mix of power generation is expected to decrease from 30.3 per cent in 2017 to 23.9 per cent in 2030.

Regulation of electricity utilities – transmission

Authorisations to construct and operate transmission networks

What authorisations are required to construct and operate transmission networks?

A transmission business licence is required to engage in the provision of transmission services. The MOTIE has authority to grant transmission business licences, although none have been granted so far except to KEPCO, the monopolistic operator of the nationwide transmission line.

Eligibility to obtain transmission services

Who is eligible to obtain transmission services and what requirements must be met to obtain access?

Power producers may access transmission lines after contracting with the transmission service provider (ie, KEPCO) in accordance with the terms and conditions of KEPCO’s Rules on the Use of Transmission and Distribution Facilities, which is subject to the MOTIE’s approval.

Government transmission policy

Are there any government measures to encourage or otherwise require the expansion of the transmission grid?

The 8th Basic Plan suggests the following four directions in terms of planning of transmission lines: improvement of power grid receptiveness owing to the expansion of renewable energy generation, timely expansion and improvement of the stability of the power grid to support stable electricity supply, promotion of social and environmental receptiveness towards transmission lines, and overcoming the limitation of independent grid systems through the Northeast Asia Super Grid. See ‘Update and trends’ for further details.

To address the increasing rise of the not-in-my-back-yard (NIMBY) phenomenon against transmission lines in the country, which has at times hampered the development of new generation sources, the government enacted the Act on Compensation and Assistance for Areas Adjacent to Transmission and Transformation Facilities in 2014 to bolster support to adjacent neighbourhoods affected by transmission lines and increase compensation for economic losses caused by transmission lines crossing private properties.

Rates and terms for transmission services

Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?

The Electricity Business Act requires that tariffs for electricity transmission services be subject to the ERC’s review and the MOTIE’s approval. The Act also requires that transmission service providers not discriminate among their customers.

Entities responsible for grid reliability

Which entities are responsible for the reliability of the transmission grid and what are their powers and responsibilities?

The KPX is primarily responsible for day-to-day operation of the country’s power grid. The Electricity Business Act requires the MOTIE to promulgate standards to maintain the reliability of the power grid which the KPX and electricity utilities must follow, and has empowered the MOTIE to oversee, assess and investigate whether the grid, as maintained, is reliable.

Regulation of electricity utilities – distribution

Authorisation to construct and operate distribution networks

What authorisations are required to construct and operate distribution networks?

A distribution business licence is required to engage in the provision of distribution services. The MOTIE has authority to grant distribution business licences, although none have been granted so far except to KEPCO, the monopolistic operator of the nationwide distribution network.

Access to the distribution grid

Who is eligible to obtain access to the distribution network and what requirements must be met to obtain access?

KEPCO, as the sole retail seller in the country, may access the distribution networks which are owned and operated by it. Community electricity business licence-holders are also eligible for access to distribution networks.

Government distribution network policy

Are there any governmental measures to encourage or otherwise require the expansion of the distribution network?

In terms of smart grids, under the Act on Construction and Facilitation of Use of Smart Grids, the government is in charge of developing and implementing a five-year plan for constructing and facilitating the use of smart grids. Research and development funds may be accessible for developers of smart grid technologies, depending on the government’s budget.

Rates and terms for distribution services

Who determines the rates or terms for the provision of distribution services and what legal standard does that entity apply?

The Electricity Business Act requires that tariffs for electricity distribution services be subject to the ERC’s review and the MOTIE’s approval. The Act also requires distribution service providers not to discriminate from among their customers.

Regulation of electricity utilities – sales of power

Approval to sell power

What authorisations are required for the sale of power to customers and which authorities grant such approvals?

A retail sale business licence is required to engage in the retail sales of electricity. The MOTIE has authority to grant retail sale business licences, although none have been granted so far except to KEPCO, the monopolistic retail electricity seller.

Power sales tariffs

Is there any tariff or other regulation regarding power sales?

The Electricity Business Act and the Price Stabilisation Act set forth the procedures for the approval of tariffs for the retail sales of electricity. The MOTIE has power to approve proposals on tariffs, following consultation with the Ministry of Strategy and Finance and review by the ERC. Under the Electricity Business Act and the Price Stabilisation Act, electricity tariffs are in principle established at levels that would enable KEPCO to recover its costs attributable to its basic electricity generation, transmission and distribution operations as well as receive a fair investment return on capital used in those operations. Electricity tariffs also vary depending upon the voltage, season, time of usage, rate option and other factors.

KEPCO classifies electricity usage into nine categories - residential, general, educational, industrial, agricultural, street lighting, midnight power, electric vehicle, demand management optional - with a different tariff applying to each usage.

Effective from 1 January 2017, the government revised the previous rate structure for the purposes of easing the burden of electricity tariffs on residential consumers. Under the revised scheme, the progressive rate structure previously applicable to the residential sector was changed from a six-tiered structure into a three-tiered structure with the highest rate now being no more than three times the lowest rate (previously the highest rate was 11.7 times the lowest rate).

Rates for wholesale of power

Who determines the rates for sales of wholesale power and what standard does that entity apply?

Cost-based pool system

Since April 2001, wholesale electricity trades have been occurring at the KPX. The KPX has responsibilities under the Electricity Business Act for determination of wholesale electricity prices under the cost-based pool system as set forth in the Market Rules, and processing the trades and their settlements. Wholesale electricity prices have two principal components: system marginal price (largely representing variable costs of generation under the merit order system) and capacity payment (largely representing fixed costs of generation). Because variable costs and capacity payments are determined in advance by the Cost Evaluation Committee (mostly comprised of interested parties, government officers and industry experts), power producers as well as KEPCO have no effective control over the pricing in the wholesale electricity market. The system marginal price is adjusted on the basis of factors including the distance of a generation facility to supplied areas, network and fuel constraints and the amount of power loss such as transmission loss.

In order to prevent wholesale electricity trading resulting in excessive financial imbalances between KEPCO and its subsidiaries which sometimes arise from windfall profit taking by base-load generation facilities and upward fluctuations in fuel prices, the wholesale electricity prices applicable to such related party trades are determined using the following formula: variable cost + [system marginal price - variable cost] x adjusted coefficient. The adjusted coefficient is determined by the Cost Evaluation Committee based on considerations of, among other things, retail electricity tariff rates, the differential generation costs for different fuel types and the relatively fair rate of returns on investment.

In addition to system marginal price, power plants are entitled to capacity payments to compensate for their construction costs. The reference capacity price is determined annually by the Cost Evaluation Committee based on the construction costs and maintenance costs of a standard generation unit, and is paid to each generation company for the amount of available capacity indicated in the bids submitted the day before trading, subject to such capacity being actually available on the relevant day of trading. Previously, the same reference capacity price applied uniformly to all generation units regardless of fuel type. However, since October 2016, the reference capacity price applies differentially to each generation unit depending on the start year of its commercial operation, and ranges from 9.15 won to 10.07 won per kilowatt hour, subject to: the reserve capacity factor relating to the requirement to maintain a standard capacity reserve margin range of 15 per cent to prevent excessive capacity build-up and to induce optimal capacity investment at the regional level; hourly and seasonal adjustments in order to incentivise power producers to operate their generation facilities at full capacity during periods of peak demand; the transmission loss per generation unit in order to favour transmission of electricity from a nearby generation unit; and the fuel switching factor in order to promote environmental sensitivities to climate change and to encourage reduced carbon emissions by penalising generation units for excessive carbon emissions, especially thermal units.

Vesting contract system

The Electricity Business Act introduced a vesting contract system effective from November 2014, under which the difference between strike prices and market prices of traded electricity are settled for specified quantities. The vesting contract system’s primary objective was to prevent windfall profit-taking by low-cost power producers (such as nuclear, coal, hydro and by-product gas-based power producers), and to replace the adjusted coefficient as the basis for determining the guaranteed return to generation companies. The system was also expected to provide more transactional certainties, economic dispatch of electricity and efficient operation to the parties relative to market trading, by requiring long-term contractual arrangements and providing incentives and penalties depending on the extent to which generation companies could supply electricity at costs below the contracted electricity prices. The contractual terms were subject to approval by the MOTIE in order to ensure fair and standardised application of the system to all power producers. In order to minimise disruptions to the electricity trading market in Korea, the vesting contract system was to be implemented in phases starting with by-product gas-based electricity in 2015, which accounted for 1.8 per cent of electricity purchased by KEPCO during that year. Owing to the recent backlash against coal-fired power plants and changes in the electricity business environment, however, the government has opted to apply the electricity pricing adjustment mechanism to independent coal-fired power plants instead of the vesting contract system. Under the electricity pricing adjustment mechanism, independent coal-fired power producers are entitled to recover associated investment costs and a fair rate of return on their investment.

Public service obligations

To what extent are electricity utilities that sell power subject to public service obligations?

The Electricity Business Act specifically provides for electricity utilities’ obligations to contribute to universal supply of electricity. In this respect, a power producer or retail seller may not refuse to supply electricity to a customer without justifiable reasons. To date, the presidential decree of the Act has failed to provide for universal supply of electricity in detail. However, the MOTIE’s regulated retail electricity rate gives relative benefits to certain customers by way of cross-subsidies. No supplier of last resort has been appointed, as KEPCO, having effective monopoly over retail sales, assumes the de facto burden as supplier of last resort.

Regulatory authorities

Policy setting

Which authorities determine regulatory policy with respect to the electricity sector?

The MOTIE is primarily responsible for determination of regulatory policy in the electricity sector. The Electric Policy Council of the MOTIE is also involved in reviewing the draft Basic Plan, etc.

Scope of authority

What is the scope of each regulator’s authority?

The MOTIE has primary regulatory responsibility over the electricity sector in South Korea, including, among other things:

• granting of electricity business licences;
• registration of small-scale electricity brokerage businesses and electric vehicle charging businesses;
• approval of business transfers, mergers, split-offs and changes in control of electricity business enterprises;
• cancellation of business licences, suspension of operations, and imposition of sanctions or other disciplinary measures;
• approval of various tariffs relating to transmission lines, distribution networks and retail sales;
• setting ceiling amounts on wholesale electricity prices;
• approval of the Market Rules;
• approval of vesting contracts between power producers and retail sellers; and
• restructuring of the electricity industry, including introduction of a competitive system.

The Electricity Business Act requires the ERC to review the foregoing agendas before the MOTIE takes action.

Establishment of regulators

How is each regulator established and to what extent is it considered to be independent of the regulated business and of governmental officials?

The ERC is a statutory regulatory body established pursuant to the Electricity Business Act and comprises qualified professionals and experts. However, the ERC is not an entirely independent body, as the MOTIE is known to have substantial influence over the ERC.

Challenge and appeal of decisions

To what extent can decisions of the regulator be challenged or appealed, and to whom? What are the grounds and procedures for appeal?

Any legal stakeholder may file an administrative appeal or lawsuit to invalidate decisions rendered by the MOTIE. Grounds for challenge include violations of constitutional principles (fundamental human rights, equal treatment, due process and so on) or laws.

Acquisition and merger control – competition

Responsible bodies

Which bodies have the authority to approve or block mergers or other changes in control over businesses in the sector or acquisition of utility assets?

The MOTIE has authority to approve mergers, split-offs, business transfers or changes in control of electric business enterprises. The ERC will review proposed transactions beforehand, but the final decision rests with the MOTIE.

Review of transfers of control

What criteria and procedures apply with respect to the review of mergers, acquisitions and other transfers of control? How long does it typically take to obtain a decision approving or blocking the transaction?

Regulators will look to a number of high-level considerations, such as whether the transferee, assignee or successor can satisfy the criteria required for the issuance of a generation business licence, and whether there are any concerns that the transaction in question may adversely impact national electricity demand and supply or lessen the quality of electricity.

There is no statutory limit on the review period, and cases are very few so far in terms of thermal power plants.

Prevention and prosecution of anti-competitive practices

Which authorities have the power to prevent or prosecute anti-competitive or manipulative practices in the electricity sector?

The MOTIE has primary oversight responsibility over the electricity sector in South Korea, and has authority to implement sanctions or other disciplinary measures in respect of illegal activities. In addition, the Korean Fair Trade Commission (KFTC) is empowered under the Monopoly Regulation and Fair Trade Act (MRFTA) to regulate anticompetitive practices across all sectors.

Determination of anti-competitive conduct

What substantive standards are applied to determine whether conduct is anti-competitive or manipulative?

The Electricity Business Act prohibits:

• a power producer from providing false information to the KPX for the purpose of price manipulation;
• a transmission or distribution service provider from:
• unduly discriminating among its customers;
• failing to perform its transmission or distribution obligations; and
• utilising another electricity business enterprise’s information to harm such other enterprise or a third-party;
• a retail electricity seller from unduly calculating electricity tariffs; and
• an electricity business enterprise from harming the benefits of end users, and not complying with instructions from the KPX relating to its power grid operation.

Furthermore, the MRFTA prohibits various types of anticompetitive activities including, inter alia, price-fixing, market or customer sharing arrangements, bid collusion and abuse of market dominance. However, because the domestic transmission, distribution and retail markets are permitted to exist as virtual monopolies, instances of the KFTC’s enforcement of the anticompetitive laws in the sector have been historically low in number.

Preclusion and remedy of anti-competitive practices

What authority does the regulator (or regulators) have to preclude or remedy anti-competitive or manipulative practices?

See questions 28 and 29.

International

Acquisitions by foreign companies

Are there any special requirements or limitations on acquisitions of interests in the electricity sector by foreign companies?

Yes. Under the Electricity Business Act and the Foreign Investment Promotion Act and its subordinated regulation, foreign investments into a nuclear power generation sector are prohibited. Foreign investments into other power generation sector are permissible only where the total amount of installed capacities acquired by foreign investors from KEPCO or its subsidiaries is 30 per cent or less of the total installed domestic capacity.

In terms of transmission and distribution sectors (currently applicable only to KEPCO), foreign investments are permissible only where the total shareholding ratio of foreign investors is below 50 per cent and voting shares owned by foreign investors do not outnumber those owned by the largest domestic shareholder (as of the end of March 2018, the largest domestic shareholder of KEPCO was Korea Development Bank with a 32.9 per cent stake and Korean Government owns a 18.2 per cent stake). In this connection, the Korea Electric Power Corporation Act requires the government to directly or indirectly own at least 51 per cent of KEPCO’s shares.

In addition to the foregoing restriction on foreign ownership of KEPCO’s shares, the Financial Investment Services and Capital Markets Act and KEPCO’s articles of incorporation set a 3 per cent ceiling on acquisition of KEPCO’s common stock by a single investor, whether domestic or foreign.

Authorisation to construct and operate interconnectors

What authorisations are required to construct and operate interconnectors?

Cross-border electricity trades are not possible in South Korea as its power grid is isolated owing to its geography (being a peninsula) and having North Korea (with which South Korea is still technically in conflict) as its neighbour.

Interconnector access and cross-border electricity supply

What rules apply to access to interconnectors and to cross-border electricity supply, especially interconnection issues?

See question 32.

Transactions between affiliates

Restrictions

What restrictions exist on transactions between electricity utilities and their affiliates?

The Electricity Business Act does not specifically restrict transactions between an electricity utility company and its affiliates. However, the Market Rules, which strictly regulate wholesale electricity trades, apply to trades between KEPCO and its subsidiary companies (ie, GenCos). Meanwhile, the MRFTA and its subordinate presidential decree and regulations strictly prohibit ‘unfair’ transactions between affiliates in general.

Enforcement and sanctions

Who enforces the restrictions on utilities dealing with affiliates and what are the sanctions for non-compliance?

The KFTC is responsible for the enforcement of anticompetitive laws and regulations governing restrictions on affiliate transactions. Typical sanctions imposed for non-compliance are administrative measures such as correction orders and monetary penalties.

Update and trends

Update and trends

Are there any emerging trends or hot topics in electricity regulation in your jurisdiction?

Renewable Energy 3020

The MOTIE released the Renewable Energy 3020 Implementation Plan on 20 December 2017, that declared that it will aim to expand the share of renewable energy in electricity generation from 7 per cent in 2016 to 20 per cent in 2030 by newly providing 48.7GW in renewable generating capacity (30.8GW in solar power and 16.5GW in wind power). In order to achieve this goal, the MOTIE intends to expand solar energy for personal use in urban areas and farmland, and plans to introduce a feed-in tariff system for solar power generation facilities with a capacity of less than 100kW owned by cooperatives or farmers or with a capacity of less than 30kW owned by private business operators for up to five years.

In addition, the MOTIE plans to set up large-scale offshore wind farms as part of its Renewable Energy 3020 Implementation Plan. According to the amended Guidelines on the Management and Operation of Obligatory Renewable Energy Supply Programme and Renewable Fuel Standard Programme announced on 25 June 2018, the REC weighted ratio applicable to offshore wind farms has been increased from a range of 1.5 to 2.0 to a range of 2.0 to 3.5.

Northeast Asia Super-Grid

The 8th Basic Plan suggests overcoming some limitations of independent grid systems by obtaining supply of electricity and peak demand relief in the Northeast Asia area through the Northeast Asia Super Grid (China-Korea-Japan line and Korea-Russia line). According to the 8th Basic Plan, some sections are targeted to be constructed by 2022.