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.