SOUTH KOREA Law and Practice Contributed by: Michael Chang, Sang-Hyun Lee, Su-Yong Jung and Jae-Wook Ryu, Shin & Kim
The key policy directions are as follows. • Decommissioning ageing coal-fired power plants and converting them to LNG, co-generation, or hydrogen-based plants. • Promoting nuclear energy, including the construc- tion of two new nuclear reactors and one domestic SMR. • Expanding renewable energy deployment: (a) for offshore wind, focus on strengthening the supply chain; and (b) for solar, focus on strategic site allocation. • Improving the PPA regime: (a) establishing a new facility entry market based on government-led bidding; and (b) easing regulatory restrictions, offering low-in- terest financing, and creating a PPA brokerage platform. • Promoting zero-carbon power generation using clean hydrogen, supported by a hydrogen certifica- tion system and a bidding market. • Accelerating the roll-out of BESS starting with the Honam region, to address renewable output volatil- ity and enhance grid stability. • See energy mix – power generation quantity and proportion of power generation (unit: TWh) table . The 12th Basic Plan is expected to be significant because MCEE’s 2026 plan indicates that it will reflect a carbon-free generation mix and a coal phase-out roadmap for 2026–2040. It will therefore be a key pol- icy document for investors assessing the long-term role of renewables, nuclear power, clean hydrogen/ ammonia and BESS. 1.8 Unique Aspects of the Power Industry As mentioned in 1.1 Law Governing the Structure and Ownership of the Power Industry , the South Korean electricity market operates as a cost-based pool, where wholesale prices are not determined based on supply and demand, but on generation entities’ expected costs and demand. More specifically, gen- erators bid based on electric capacity without price bidding and KEPCO, having a monopoly on demand, accepts the bid of the generator with the lowest vari- able costs and adjusts based on costs, not price.
The adjusted unit price is reviewed and determined by the Costs Assessment Commission. The electricity price is constituted of the SMP, which reflects vari- able costs, and capacity payment, which reflects fixed costs. Electricity from new and renewable energy sources, like solar and wind, is also traded at the SMP for a particular point in time. To account for the variability of the SMP, a long-term, fixed-price contract system was introduced. In other words, when GENCOs pur- chase electricity generated from solar and wind pow- er, they sign a long-term contract for a contract term with approximately 20 years for a sum of the SMP and the renewable energy certificate price, and the power generation business operators are guaranteed to expect stable profits in the long term, even if the SMP varies from time to time. 2. Market Structure, Supply and Pricing 2.1 The Wholesale Electricity Market The Electric Utility Act also regulates the structure and functions of wholesale electricity. As noted previously, an operator of an electricity gen- eration business and an operator of an electricity sales business must carry out electricity transactions in the electricity market in accordance with the electricity market operational rules. A GENCO or a private oper- ator engaged in electricity generation business is in charge of electricity generation in accordance with the power supply instructions of the KPX, which, taking a neutral position, oversees the electricity market and the operation of the power system (including deter- mination of the electric power sales price). KEPCO supplies electricity to consumers by purchasing elec- tric power at the price determined by the electricity market. While the electricity generation market is competi- tive with private operators generating electric power, KEPCO maintains a monopoly in the transmission, distribution and sales of electricity, so the wholesale market is not fully competitive. Additionally, there is no nodal pricing system.
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