korean experience and future market cigre workshop study committee c5 market structures and...
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Korean Experience and Future MarketKorean Experience and Future Market
Cigre Workshop Study Committee C5
Market Structures and Institutions
Jong-Keun Park Jong-Keun Park Seoul National University
2003. 9. 22.
22Korean Experience and Future Market
Seoul National University
Table of Contents
I. Introduction to Korean power industry
II. Restructuring of power industry in Korea
III. Cost Based Pool Market
IV. Effect of competition in generation sector
V. Preparation for TWBP market
VI. Issues on successful restructuring
VII. Outstanding tasks to overcome
33Korean Experience and Future Market
Seoul National University
I. Introduction to Korean power industry
1. Growth of power industry in Korea
53,801
35,715
21,11118,060
367
45,773
32,282
19,124
9,915
3060
10000
20000
30000
40000
50000
60000
1961 1986 1991 1996 2002
Generating capacityPeak demand
(MW)
44Korean Experience and Future Market
Seoul National University
I. Introduction to Korean power industry
2. Ownership of generation capacity
PowerCompany
KEPCO &Affiliates
KIECO(Hanwha)
Total
Cap.(MW) 49,560 1,800 53,801
% 92.1 3.3 100.0
Others
2,441
4.5
LG2%
Others10%
KOWACO2%
KIECO3%
KEPCO &Affiliates
83%
(As of End 2002)
55Korean Experience and Future Market
Seoul National University
3. Capacity by fuels
Fuel Nuclear Coal LNG Oil Hydro TotalCap.(MW) 15,716 15,931 13,618 4,660 3,876 53,801
% 29.2 29.6 25.3 8.7 7.2 100.0
(As of End 2002)
Oil9%
Hydro7%
Coal30%
LNG25%
Nuclear29%
I. Introduction to Korean power industry
66Korean Experience and Future Market
Seoul National University
4. Capacity growth by E-Source (Gov’s plan)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
(MW)
35%
28%
12%
25%
27%
Nuclear Imported Coal LNG Heavy Oil Light Oil Domestic Coal Hydro
28%
25%
20%
I. Introduction to Korean power industry
77Korean Experience and Future Market
Seoul National University
5. Growth of peak demand and annual consumption
050,000
100,000150,000200,000
250,000300,000350,000
400,000450,000
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
(GWh)
Yearly Consumption(LHS)
Peak Demand(RHS)
Average growth : 5.4% 2.7% 2.0% (MW)
I. Introduction to Korean power industry
88Korean Experience and Future Market
Seoul National University
Public (3.7)
Residential(15.2)
Commercial (28.4)
Agriculture & Fishery (2.3)
Mining(0.4)
Manufacturing(50.0)
6. Electricity consumption
I. Introduction to Korean power industry
Total 281,872 GWh (Year of 2002)
99Korean Experience and Future Market
Seoul National University
7. Characteristics of Korean power network
765kV Route 345KV Route DC 180kV Submarine Cable 345KV Substation Power Plant
I. Introduction to Korean power industry
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/L’s are
765kV(662c-km), 345kV(7,496c- km) and 154kV(18,144c-km)
Kyoung-In area
1010Korean Experience and Future Market
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7. Characteristics of Korean power network
I. Introduction to Korean power industry
Power flow
1111Korean Experience and Future Market
Seoul National University
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
1212Korean Experience and Future Market
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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
1313Korean Experience and Future Market
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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
II. Restructuring of power industry in Korea
1414Korean Experience and Future Market
Seoul National University
5. Brief history of restructuring
’94.7~’96.6 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
II. Restructuring of power industry in Korea
* MOCIE : Ministry of Commerce, Industry and Energy
1515Korean Experience and Future Market
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6. Basic plan of restructuringPHASE I PHASE II PHASE III
Competition
in Generation
Wholesale
Competition
Retail
Competition
20092005
Gencos Gencos competecompete in in the cost-based poolthe cost-based pool
KEPCO manages traKEPCO manages transmission and distrinsmission and distribution sectorsbution sectors
Introduction of the Introduction of the TWBP(Two way bidding TWBP(Two way bidding pool) and unbundling of pool) and unbundling of distribution sectordistribution sector
Transmission system Transmission system serves as a common carrierserves as a common carrier
Distribution network Distribution network will be opened and will be opened and privatizedprivatized
Regional supply Regional supply franchise will be franchise will be eliminatedeliminated
2001.4
II. Restructuring of power industry in Korea
1616Korean Experience and Future Market
Seoul National University
7. Market structure
KPX(Cost-Based
Pool)
Genco
KEPCOKEPCO
CustomerCustomer
Genco Genco
Phase I (2001.4~)Generation Competition
Bidding
Bidding
Disco / Retailco
Disco / Retailco Disco /
Retailco
Disco / Retailco Disco /
Retailco
Disco / Retailco
CustomerCustomer
CustomerCustomer
CustomerCustomer
KPX(Two-way Bidding
Pool)
Genco Genco Genco
Phase II (2005.4~)Wholesale Competition
Phase III (2009.4~)Retail Competition
Bidding
Bidding
Disco / Retailco
Disco / Retailco Disco /
Retailco
Disco / Retailco Disco /
Retailco
Disco / Retailco
CustomerCustomer
CustomerCustomer
CustomerCustomer
KPX(Two-way Bidding
Pool)
Genco Genco Genco
II. Restructuring of power industry in Korea
1717Korean Experience and Future Market
Seoul National University
8. What has been done thus far?
Establishment of New Act on Promotion of Restructuring of
power industry
Division of generation sector into 6 Gencos (1 nuclear / 5 coal)
Plan for spin-off of distribution/retail sectors
Establishment of Korea Power Exchange(KPX)
Operation of the cost-based pool market
Establishment of Korea Electricity Commission in MOCIE
Commencement of Genco privatization (KOSEPCO)
Design of TWBP market rule and procedure (in progress)
II. Restructuring of power industry in Korea
1818Korean Experience and Future Market
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9. Korea Power Exchange (KPX)
II. Restructuring of power industry in Korea
Established in April 2001
non-profit independent organization
Core functions
Pool Governance
Market Operation
System Operation
1919Korean Experience and Future Market
Seoul National University
10. Korea Electricity Commission (KOREC)
II. Restructuring of power industry in Korea
Established in April 2001
Established as a division of MOCIE
Major functions
Restructuring of electric power industry
Deliberation and resolution (of matters in respect of the
granting of permission, establishment of fair trade system)
Arbitration of disputes
Investigation of matters in respect of protection of public
interests
2020Korean Experience and Future Market
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11. Overview of six Gencos
(MW, billion Won) KHNP KOSEPCO KOMIPO KOWEPO KOSPO KEWESPO
Installed capacity* under plan
16,251*6,000
5,565*4,000
6,993*1,000
7,346*1,600
5,765*3,206
7,500*1,000
Assets 19,953 2,941 2,883 3,282 3,642 4,333
Equity 10,578 1,679 1,743 1,773 1,910 2,373
Liabilities 9,375 1,262 1,140 1,409 1,732 1,959
(As of end 2002)
II. Restructuring of power industry in Korea
2121Korean Experience and Future Market
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12. Market share by generation
(For the year of 2002)
II. Restructuring of power industry in Korea
2222Korean Experience and Future Market
Seoul National University
13. Market share by sales
(For the year of 2002)
II. Restructuring of power industry in Korea
2323Korean Experience and Future Market
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III. Cost Based Pool (CBP) Market
1. Features of CBP
Operated from April 2001 Compulsory Pool Cost reflective market
Generation Cost Evaluation Committee Limited competition Multiple suppliers & Single purchaser Suppliers bidding (availability bidding) SMP determined in day-ahead market
Unconstrained Scheduling BLMP, SMP
Capacity payment Constrained on/off payment
2424Korean Experience and Future Market
Seoul National University
III. Cost Based Pool (CBP) Market
2. Market operation flow chart
2525Korean Experience and Future Market
Seoul National University
III. Cost Based Pool (CBP) Market
3. System Marginal Price (SMP)
BLMP : base load marginal price(nuclear & coal plant)
SMP : for non base load generators
influenced by maintenance schedule, demand, fuel price, etc.
SMP determination ratio by fuel type
0.10
8.40
15.80 16.20
59.50
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
Nuclear D.coal Oil Coal CC
%
2626Korean Experience and Future Market
Seoul National University
III. Cost Based Pool (CBP) Market
4. Settlement
Actual Electricity Generation
No Electricity Generation
SMP + CP(Scheduled energy
payment)
SMP – VC + CP(Constrained off)
VC + CP(Constrained on)
CP
OFFONPrice setting
schedule
2727Korean Experience and Future Market
Seoul National University
III. Cost Based Pool (CBP) Market
5. Uplift
Ancillary service cost
frequency control
reserve procurement
voltage control
Constrained on/off cost
2828Korean Experience and Future Market
Seoul National University
III. Cost Based Pool (CBP) Market
6. Demand vs. SMP
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
hour
dem
and[
MW
]
0
10
20
30
40
50
60
smp
[won
/kW
h]
demand smp2002-9-11 (Wed.)
2929Korean Experience and Future Market
Seoul National University
III. Cost Based Pool (CBP) Market
7. Settlement amount analysis (2002)
Uplift
11.49%
Capacity Payment
45.15%
Schedule Energy Payment
43.36%
3030Korean Experience and Future Market
Seoul National University
III. Cost Based Pool (CBP) Market
8. Schedule volume vs. trade volume (2002)
19,000
20,000
21,000
22,000
23,000
24,000
25,000
26,000
27,000
GWh
Scheduled Volume 24,188 20,976 23,382 22,158 22,635 22,076 23,708 23,387 21,662 23,332 24,088 25,965
Trade volume 24,402 21,133 23,625 22,252 23,026 22,545 24,475 23,560 21,968 23,647 24,834 26,401
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
3131Korean Experience and Future Market
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III. Cost Based Pool (CBP) Market
9. SMP, BLMP, Settlement price (2002)
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
won/
kWh
SMP 58.22 52.10 51.02 46.76 48.21 39.20 40.06 36.08 40.73 46.31 53.95 54.11
BLMP 18.90 18.68 18.88 18.84 18.80 18.18 18.21 17.59 17.95 18.62 18.95 18.80
Settlement Price 48.80 47.37 46.58 46.31 46.09 46.44 46.78 46.83 46.93 46.39 47.84 49.92
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
3232Korean Experience and Future Market
Seoul National University
III. Cost Based Pool (CBP) Market
10. Voltage & frequency maintaining rate
Voltage Maintaining rate
99.4
99.5
99.6
99.7
99.8
99.9
100
100.1
1 2 3 4 5 6 7 8 9 10 11 12
2000 2001 2002
frequency maintaining rate
98.2
98.4
98.6
98.8
99
99.2
99.4
99.6
99.8
100
1 2 3 4 5 6 7 8 9 10 11 12
2000 2001 2002
3333Korean Experience and Future Market
Seoul National University
III. Cost Based Pool (CBP) Market
11. number of disputes
0
2
4
6
8
10
12
14
16
J an Feb Mar Apr May J un J ul Aug Sep Oct Nov Dec
2001 2002 2003
3434Korean Experience and Future Market
Seoul National University
IV. 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
3535Korean Experience and Future Market
Seoul National University
IV. Effect of competition in generation sector
2. Increase of generation capacity
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
(MW)
KHNP KOSEPCO KOMIPO KOWEPO KOSPO KEWESPO
14.0%
0.0%9.4% 15.8%
2.3%10.3%
2001 2002
Total capacity has increased 11.2% since spin-off
3636Korean Experience and Future Market
Seoul National University
3. Increase of net profits
-400
-200
0
200
400
600
800
1000
(Wb)
KHNP KOSEPCO KOMIPO KOWEPO KOSPO KEWESPO
9.6% 2001 2002
IV. Effect of competition in generation sector
37.8% 53.3%31.7%
600.0%N/A
Total net profits has increased 42.0%
3737Korean Experience and Future Market
Seoul National University
4. Improvement of debt ratio
0100020003000400050006000700080009000
10000
(Billion Won)
KHNP KOSEPCO KOMIPO KOWEPO KOSPO KEWESPO
2001 2002
IV. Effect of competition in generation sector
-0.6%
0.3% -14.7% -3.6%-5.4%
-16.0%
Total debt has decreased 4.4% since spin-off
3838Korean Experience and Future Market
Seoul National University
5. Improvement of generation cost per kWh
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
(Won/kWh)
KHNP KOSEPCO KOMIPO KOWEPO KOSPO KEWESPO
2001 2002
IV. Effect of competition in generation sector
-0.3%
-5.1% -8.3%-7.2% -11.4%
-7.3%
Cost for generation has decreased 6.0%
3939Korean Experience and Future Market
Seoul National University
6. Improvement of labour productivity
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
(MWh/person)
KHNP KOSEPCO KOMIPO KOWEPO KOSPO KEWESPO
2001 2002
IV. Effect of competition in generation sector
4.0%
53.1%
15.6%
24.2%
26.6%
23.3%
Labor productivity has been improved by 23%
4040Korean Experience and Future Market
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7. Growth of electricity market (2001 vs. 2002)
7 regular members3 associate members
22 regular members8 associate members
Increase of members
Increase of market participating capacity
46,363MW(91% of the total)
49,921MW(95% of the total)
IV. Effect of competition in generation sector
4141Korean Experience and Future Market
Seoul National University
V. Preparation for TWBP market
1. Basic design principles
Supply and demand participation
Clearing price set by commercial offers from generators
Publication of market information
KPX contract for reserve
Trading of electricity only through the
TWBP
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
4242Korean Experience and Future Market
Seoul National University
V. Preparation for TWBP market
2. Features of TWBP KPX is the only market and system operator Generators and purchasers submit offers and bids with price an
d quantity Self-committed generators, self-dispatched demands Ancillary services are procured through contracts between KPX
and participants Single energy price Five-minute dispatch and pricing on the generation side Averaged thirty-minutes pricing on the demand side Individual participants’ prices consider TLFs and DLFs based on
their location Constrained on or off payments, No capacity payments
4343Korean Experience and Future Market
Seoul National University
V. Preparation for TWBP market
3. CBP vs. TWBP
CBP(Cost-based pool)
TWBP(Two-way bidding pool)
Bidding Supplier bidding onlyTwo way bidding
(supplier, purchaser)Content ofbids Supply availability Price and quantity
CompetitionLimited
(competitiveness predetermined )
Competitive(strategy)
Profitability Predetermined by structure(scale, generation mix)
Strategic decision(bidding strategy, risk management)
Market participants
Multiple suppliers /Single purchaser
Multiple suppliers /Multiple purchasers
4444Korean Experience and Future Market
Seoul National University
4. TWBP market opening schedule (modified)
2004
2003
20053/
44/4
1/4
2/4 3/4 4/4 1/4 2/4
Shadow operation based on cyber trading
Shadow operation based on cyber trading
Shadow operationwith virtual DiscosShadow operationwith virtual Discos
StandingBidding
StandingBidding
Opening of TWBPOpening 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.
Not fixed
CBP market TWBP
V. Preparation for TWBP market
4545Korean Experience and Future Market
Seoul National University
5. IT system for TWBP market (Overall)
MO
S
MO
SNEMSNEMS
Market Information
KPX
MOS
Interface
MOS
Interface
Bidding, Settlement, Market Information
Trading
Server / DB
Trading
Server / DB
Measure/
Settleme
nt
System
Measure/
Settleme
nt
System
Market/
Network
Simulato
r
Market/
Network
Simulato
r
Risk
Managem
ent
Risk
Managem
ent
RTURTU
Commitment, Measurement
Operation/ Measurement
information
Genco’s Energy Trading & Risk Management system
Generation station
Bidding/
Contract
Managem
ent
Bidding/
Contract
Managem
ent
V. Preparation for TWBP market
4646Korean Experience and Future Market
Seoul National University
6. 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 cha
nge Limited life – only for beginning of successful implementation Reasonable and agreeable contract price
V. Preparation for TWBP market
4747Korean Experience and Future Market
Seoul National University
7. 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)
V. Preparation for TWBP market
4848Korean Experience and Future Market
Seoul National University
8. Cross-subsidy between user groups
114.8
48.8
96.1
133.7
Residential
Midnight
CommercialIndustrial
Aggricultural
116.4
Educational
100
48.0
Relative price to cost (MOCIE)
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.
V. Preparation for TWBP market
4949Korean Experience and Future Market
Seoul National University
V. Preparation for TWBP market
9. Comparison of electricity tariffs
Tariff Korea Taiwan Japan USA UK
Residential87.01(118)
88.92(120)
228.71(310)
101.79(138)
125.03(169)
Commercial102.66(139)
89.61(121)
212.91(288)
93.15(126)
97.56(132)
Industrial59.02(80)
61.93(84)
143.93(195)
60.26(82)
75.77(103)
Composite(index)
73.88(100)
73.35(99)
191.13(256)
85.95(116)
100.2(135)
Base year 2002 2001 1998 2001 1999
(Won/kWh)
* Foreign exchange rates : as of end 2002
Price differences between user groups in Korea are much
bigger than other countries
5050Korean Experience and Future Market
Seoul National University
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
VI. Issues on successful restructuring
5151Korean Experience and Future Market
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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
VI. Issues on successful restructuring
5252Korean Experience and Future Market
Seoul National University
VII. Outstanding tasks to overcome
Recovering the confidence of investors eliminating uncertaintie
s.
Stable and realizable timetable to induce thorough preparation
of market participants
Elimination of factors hindering competition
1. Consistent policy and timetable
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
5353Korean Experience and Future Market
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VII.Outstanding tasks to overcome
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
3. Public acceptance of the viability of restructuring