Global Energy Foresight

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Global Energy Foresight- the Case of Korea
2004. 5. 27.
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Table of Contents

• Introduction of Korean power industry
• Restructuring of power industry in Korea
• Effect of competition in generation sector
• Privatization/Liberalization of Gencos
• Preparation for competitive market
• Issues on successful restructuring
• Outstanding tasks to overcome
• Energy Forecast Case of Korea

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I. Introduction of Korean power industry
1. Growth of power industry in Korea
(MW)
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I. Introduction of Korean power industry
2. Ownership of generation capacity
(As of End 2002)
5
I. Introduction of Korean power industry
3. Capacity by fuels
(As of End 2002)
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I. Introduction of Korean power industry
6. Electricity consumption
Residential (15.2)
Public (3.7)
Manufacturing (50.0)
Commercial (28.4)
Total 281,872 GWh (Year of 2002)
Agriculture Fishery (2.3)
Mining (0.4)
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I. Introduction to Korean power industry
7. Characteristics of Korean power network

• Regional concentration of supply
• (coastal area) and demand(Seoul)
• Kyoung-In area demand
• 42.6
• Northward loadflow causing
• network congestion
• Cheju island is connected
• through HVDC system (154MW)
• Nominal voltages of T/Ls are
• 765kV(662c-km), 345kV(7,496c-
• km) and 154kV(18,144c-km)

Kyoung-In area
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II. Restructuring of power industry in Korea
1. Objectives

• Raising the general efficiency of the power
  industry by
• promoting competition
• Effective financing of upcoming capital
  expenditure
• Increasing consumer benefits

2. Principles

• Unbundling of generation, transmission and
  distribution sectors
• Introduction of competition into generation and
  retail sectors
• Gradual introduction of competitive market to
  reduce shocks

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II. Restructuring of power industry in Korea
3. The necessity of restructuring

• Steep increase of electricity demand ?
  additional 45,000MW
• should be built until 2015.
• Lack of capital due to retail price regulation
• Fund of 67 T Won is required by 2015 and 9 T
  Won/annum.
• Needs private or foreign funds to build new
  power facilities.
• International trend to deregulation and
  competitive market
• Apply global rules in management of the public
  sector
• Adopt the competition principle to utility field

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II. Restructuring of power industry in Korea
5. Brief history of restructuring

• 94.796.6 Management performance evaluation of
  KEPCO
• 97.6 Establishment of Electric Power Industry
  
• Restructuring Committee
• 99.1 Basic Plan of Restructuring(MOCIE)
• 00.12 Act on Promotion of Restructuring of
  power industry
• 01.4 Spin-off of generation sector from KEPCO
• 02.10 Commencement of KOSEPCO (one of six
  Gencos)
• privatization

MOCIE Ministry of Commerce, Industry and
Energy
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II. Restructuring of power industry in Korea
6. Basic plan of restructuring
PHASE II
PHASE III
PHASE I
Competition in Generation
Wholesale Competition
Retail Competition

• Introduction of the TWBP(Two way bidding pool)
  and unbundling of distribution sector
• Transmission system serves as a common carrier

• Distribution network will be opened and
  privatized
• Regional supply franchise will be eliminated

• Gencos compete in the cost-based pool
• KEPCO manages transmission and distribution
  sectors

2009
2005
2001.4
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II. Restructuring of power industry in Korea
7. Market structure
Phase I (2001.4) Generation Competition
Phase II (2005.4) Wholesale Competition
Phase III (2009.4) Retail Competition
Genco
Genco
Genco
Genco
Genco
Genco
Genco
Genco
Genco
Bidding
Bidding
KPX (Two-way Bidding Pool)
KPX (Cost-Based Pool)
KPX (Two-way Bidding Pool)
Bidding
Bidding
KEPCO
Disco / Retailco
Disco / Retailco
Disco / Retailco
Disco / Retailco
Disco / Retailco
Disco / Retailco
Customer
Customer
Customer
Customer
Customer
Customer
Customer
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III. Effect of competition in generation sector
1. Improvement of efficiency through competition

• Encouraging management innovation and
  competitiveness
• Reducing generation cost due to the improvement
  of the
• purchasing process of fuels and materials
• Trying to improve the supply ability by
  shortening the
• overhaul period
• Curtailing operation of high-cost generator
• Reduction of labor cost through automation

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III. Effect of competition in generation sector
2. Growth of electricity market (2001 vs. 2002)

• Increase of members

7 regular members 3 associate members
22 regular members 8 associate members

• Increase of market participating capacity

46,363MW (91 of the total)
49,921MW (95 of the total)
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IV. Privatization of Gencos
1. Brief history

• 02.07 Selection of KOSEPCO as the first Genco
  to be sold
• 02.09 Detailed plan for KOSEPCO privatization
• 02.11 Submission of LOI (10 companies
  submitted)
• 03.01 Submission of bids (5 companies
  submitted)
• 03.03 Suspension of KOSEPCO stake sales due to
  lack of
• investors and low bids
• 03.06 New plan for KOSEPCO privatization
• Listing 1020 of stake on the counter
• Stake sales based on the market price
• Finish to sell the stake of 5 Gencos until 2009

LOI Letter of Intent
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V. Preparation for TWBP market
1. Basic design principles
Supply and demand participation
Trading of electricity only through the TWBP
Clearing price set by commercial offers from
generators
KPX contract for reserve
Publication of market information
KPX contract for ancillary services
Compensation for being constrained-on or
constrained-off
Settlement based on clearing price
Based on 15 basic design principles for TWBP
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V. Preparation for TWBP market
2. CBP vs. TWBP
TWBP (Two-way bidding pool)
CBP (Cost-based pool)
Bidding
Supplier bidding only
Two way bidding (supplier, purchaser)
Content of bids
Price and quantity
Supply availability
Limited (competitiveness predetermined )
Competitive (strategy)
Competition
Strategic decision (bidding strategy, risk
management)
Predetermined by structure (scale, generation mix)
Profitability
Market participants
Multiple suppliers / Multiple purchasers
Multiple suppliers / Single purchaser
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V. Preparation for TWBP market
3. TWBP market opening schedule (modified)
Not fixed
2004
2003
2005
3/4
4/4
1/4
2/4
3/4
4/4
1/4
2/4
Standing Bidding
Shadow operation based on cyber trading
Shadow operation with virtual Discos
Opening of TWBP

• The result of shadow operation and consultation
  may influence the detailed schedules for the
  spin-off of distribution sector and opening of
  TWBP market.

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V. Preparation for TWBP market
4. IT system for TWBP market (Overall)
Generation station
KPX
Commitment, Measurement
Market Information
MOS
NEMS
RTU
Operation/ Measurement information
Bidding, Settlement, Market Information
MOS Interface
Trading Server / DB
Bidding/ Contract Management
Measure/ Settlement System
Market/ Network Simulator
Risk Management
Gencos Energy Trading Risk Management system
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V. Preparation for TWBP market
5. IT system for TWBP market (Gencos view)
? MCP ? demand forecast ? metering ? settlement ?
dispatch
Bidding strategy
Market price analysis
Demand forecast analysis
? generation status ? emissions
Calc. of generation capacity
Internet
Emission analysis
Monitoring control system
Cost analysis
? Technical Data ? Capacity ? Availability ?
Optimization
bidding simulation strategy(price/volume)
Bidding system
Generation management
LT ST Scheduled Generation
Generation planning
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V. Preparation for TWBP market
6. Installation of IT system for TWBP (KPX)

• General project management(02. 1, PwC)

• Designing TWBP market rules

• Supervision of Market Operating System
  installation

• Market operating system(MOS) (KDNABB)

• Main system(02.12) and backup system(03.7) were
  installed
• by KDN and ABB consortium

• New Energy Management System (NEMS)

• Installed by Alstom (01.09)

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V. Preparation for TWBP market
7. Vesting contract for pool-price stabilization

• Background
• Market price in the TWBP is influenced by
  changes in
• market environment
• Buyers and sellers are exposed to financial risk
• Reduce risk exposure in early stage of TWBP
• Designed by Freehills consortium
• Factors to be considered
• Optimal allocation of profits among market
  participants
• Adjustable contract price to reflect market
  environmental change
• Limited life only for beginning of successful
  implementation
• Reasonable and agreeable contract price

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V. Preparation for TWBP market
8. Transmission network access rules fees

• Open access to the transmission and distribution
  network for
• all market participants without any
  discrimination
• Imposing the cost for connecting the generator
  to common
• network on the owner of generator
• Levying fares based on MW sold
• Regionally different tariff to provide signals
  to reduce
• transmission and distribution cost
• Access rules for both transmission and
  distribution network
• have been approved by MOCIE(2002.12)

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V. Preparation for TWBP market
9. Cross-subsidy between user groups

• Profits of Discos will
• significantly differ without
• eliminating cross-subsidy
• between user groups
• Government announced the
• plan to reduce the cross-
• subsidy (gradual reduction for
• 4 years)
• Tariff system should be
• readjusted in a way that the
• customers in industrial sector
• bear the reasonable price of
• power and energy.

Relative price to cost (MOCIE)
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V. Preparation for TWBP market
10. Comparison of electricity tariffs

• Price differences between user groups in Korea
  are much
• bigger than other countries

(Won/kWh)
Foreign exchange rates as of end 2002
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VI. Issues on successful restructuring
1. Conflicts between labor and management

• Nurturing for employees including labor unions
  on paradigm shift.
• Win-win Strategy for both shareholder and
  employees .
• Job Creation/Maintenance for the matured
  relationship
• with Labor Union.

2. Public acknowledgement

• Enlightening the public about the possibility of
  tariff hike due to
• continuing suppression of tariff, NOT due to
  restructuring
• Retail tariff should be floated depending upon
  the fuel prices
• in the international market just like
  petroleum price in Korea

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VI. Issues on successful restructuring
3. Restructuring of LNG industry

• Currently LNG import is regulated and
  monopolized by KOGAS
• In the competitive market LNG generators will
  show very low
• profitability due to high import price and
  luxury tax
• LNG industry should be deregulated for the users
  to be able
• to purchase LNG at competitive basis
• Reasonable profitability of LNG generators will
  promote the
• investment of private-owned companies and,
  thus, the lower
• electricity price

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VII. Outstanding tasks to overcome
1. Consistent policy and timetable

• Recovering the confidence of investors
  eliminating uncertainties.
• Stable and realizable timetable to induce
  thorough preparation
• of market participants
• Elimination of factors hindering competition

2. Enhanced opportunities of participating in
market design by market participants

• Increasing the understanding of market operation
  by
• participants
• Enhancing the smoothness of market operation

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VII.Outstanding tasks to overcome
3. Public acceptance of the viability of
restructuring

• Compromise with labor union
• Public acceptance
• Better services to customers
• Enhancing the role of competitive market
• Increasing social welfare by the guarantee of
  autonomous
• management and operation

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VII. Outstanding Issue of power industry
4. The roadmap of the restructuring

• A competitive generation sector consisting of
  private generation
• companies
• An electricity market operated by a Korea Power
  Exchange
• (KPX) as an independent market operator
• Single national transmission company and
  multiple distribution
• companies
• Retail competition for endowing all customers
  with choices
• A regulatory framework based on an independent
  regulator

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VIII. Energy Foresight in Korea
1. Capacity growth by E-Source (Govs plan)
(MW)
90,000
80,000
12
70,000
60,000
25
50,000
20
40,000
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25
30,000
28
20,000
35
10,000
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0
00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
Nuclear
Imported Coal
LNG
Heavy Oil
Light Oil
Domestic Coal
Hydro
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VIII. Energy Foresight in Korea
2. Growth of peak demand and annual consumption
Average growth 5.4
2.7
2.0
(GWh)
(MW)
450,000
80,000
400,000
70,000
350,000
60,000
300,000
50,000
250,000
40,000
200,000
30,000
150,000
20,000
100,000
10,000
50,000
0
0
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
Yearly Consumption (LHS)
Peak Demand (RHS)
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?
VIII. 3. Energy Foresight Economic Index ( Case
of Korea)
Unit Mtoe
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?
VIII. 4. Power Capacity by Energy Source (MW)
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VIII. 5. Annual Forecast of Power in Korea