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.
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.
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