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Transcript of 0 2005. 5 Strategies for the security of electricity supply.
1
2005. 5
Strategies for the security of electricity supply
2
Contents
1. Risk factors in the present Basic Plan of long term Electricity Supply & Demand, and Strategies
1. Risk factors in the present Basic Plan of long term Electricity Supply & Demand, and Strategies
2. Risk factors in the open market and countermeasures
2. Risk factors in the open market and countermeasures
3. The strategy for the stability of price in the open market
3. The strategy for the stability of price in the open market
4. Nuclear energy and governmental support4. Nuclear energy and governmental support
3
Contents
1. Risk factors in the present Basic Plan of long term Electricity Supply & Demand, and Strategies
2. Risk factors in the open market and countermeasures
3. The strategy for the stability of price in the open market
4. Nuclear energy and governmental support
4
1-1. The basic plan of long term electricity supply & demand
Electricity companies enjoy decent profitability considering the rules and
policies set by the government
The government is responsible for the Basic Plan
The government predicts electricity demands, and devises relevant policies
The basic plan covers 14 years, and is updated every two years
The basic plan reflects basic directions, demands prospects, and
construction plan of grid lines
Power companies refer to the basic plan, when they make decisions of new
investments.
5
1-2. The constructions in the Basic plan
The basic plan includes A, B, C1, classified by the degree of uncertainty.
A : under construction, imminent completion
B : in pre-construction stage after being approved
C1: in planning stage to construct, expected to be approved
within 2years (executions and processes are less certain)
C2: in planning stage, not included in the basic plan,
not expected to be approved within 2years
(some issues such as linkage to power network need further study)
Planning(no approval within 2years)
Under
construction
Preparing
to start construction
Planning(approval within
2years)
C2 C1 B A
6
1-3. The Plan of constructions by GenCos
State owned GenCos plan to commission 31,100 MW facilities (81% of total
construction) from 2004 to 2017
they will construct nuclear power plants and coal power plants,
which are very capital intnsive
Private GenCo plan to construct 7,100 MW facilities, 19% of capacity entries
they prefer to construct LNG power plants, which require less investment
21,200(55%)
4,000(11%)
9,900(26%)
3,100(8%)
31,100(81%)
7,100(19%)
State ownedGenco
PrivateGenCo
In preparation TotalUnder construction
Plan period : 2004~2017, unit : MW
25,200
13,000
38,200
7
1-4. Prospects of capacity reserve margin
Capacity reserve margin is expected to be more than 15~17%, the proper
margin level to guarantee supply, when the planned constructions are
successfully completed
capacity reserve margin is expected to reach 15 18% by 2006, afterwards 25%∼
0
20,000
40,000
60,000
80,000
100,000
(MW)
0%
10%
20%
30%
40%
Max Demand 51,260 26,260 59,280 61,930 64,280 66,600 68,740
Capacity 59,130 67,730 76,680 80,390 85,820 86,340 88,040
Reserve Margin 15.4% 20.4% 29.4% 29.8% 33.5% 29.6% 28.1%
2004 2007 2009 2011 2013 2015 2017
8
1-5. Risk factors in the execution of the plan
C1 constructions may not be executed if market condition changes unfavorablyThe government cannot force the private companies’ construction.State owned GenCos 9,900MW, private GenCos, 3,100MW
The constructions of nuclear power plants have many barriers to overcomeLow public acceptance (NIMBY) and opposition of NGOs while 6 nuclear power
plants (6,000MW) are scheduled for commissioning over the plan period
Prospects of capacity reserve margin by uncertainties
The delay of C1 may trigger a demand-supply emergency starting from 2015 The delay of 6 nuclear power plants may trigger an emergency starting from 2013
15.4%20.4%
33.5%29.6% 28.1%
18.8%
9.3%15.4%18.8%
24.3%
18.1%
11.3%
2.6%-0.6%
29.8%29.4%
12.8%
21.9%21.3%24.3%
15.4%
-5%
5%
15%
25%
35%
2004 2007 2009 2011 2013 2015 2017
C1 completed C1 delayed Nuclear delayed
9
1-6. Strategies to execute the construction plan
The Government (KEPCO) promotes C1 by state owned GenCos to meet the
capacity entries timeframeThe processes of constructions are cautiously evaluated by KEPCO
State owned GenCos will replace private GenCos in constructing C1 if the
private GenCos withdraw
No corporate investment risk exists in constructing nuclear power plants
because KEPCO holds 100% shares of the nuclear power company.
However, opposition of NGOs and citizens require continuous promotion to
increase public acceptance to nuclear power plants. safety first operation co-prosperity with regional communityadvertising the necessity of nuclear energy in Korea due to high dependence on
imported energy resources
10
Contents
1. Risk factors in the present Basic Plan of long term Electricity Supply & Demand, and Strategies
2. Risk factors in the open market and countermeasures
3. The strategy for the stability of price in the open market
4. Nuclear energy and governmental support
11
2-1. Risk factors to secure electricity supply in the open market
Investment decisions are made upon the price signals and predictability
in the open market, however, the price signals may not function well
when irrational market system distorts the signals
when price hike and abnormal volatilities are caused by manipulations of
any participants’ market power
The GenCos may fail to secure proper profitability for re-investment
when the market is interrupted by regulatory body for the purpose of price
stabilisation
12
2-2. Strategies to secure stable supply of electricity
Cost Based Pool (CBP) is the realistic best solution
CBP has proven to be the best way to keep the market stability in Korea
until effective solution is found:
effective promotion of competition for cost reduction
reasonable market price
stable supply of electricity
less distortion of market signal by irrational market system
less market manipulation by participants
less interruption by regulatory bodies
13
2-2. Strategies to secure stable supply of electricity
CBP has evolved through improvements such as adoption of BLMP and A/S Adoption of Base Load Marginal Price (BLMP)
In a signal market pool, the estimated market price set by System Marginal Price (SMP) used to be too high to be accepted resulting from the portfolio of fuel mix
Nuclear power plants and coal power plants determine BLMP LNG and oil power plants determine SMP
Payments for ancillary services for grid security and cycle maintenance to meet the market system
Promoting investments by continuously improving CBP systemThe CBP market system will be improved, i.e. differentiated capacity payment
(CP) will be linked to reserve margin
• low reserve margin, high CP• high reserve margin, low CP
To Be
• CP paid on the Pari passu basis to all available capacity
As Is
14
Contents
1. Risk factors in the present Basic Plan of long term Electricity Supply & Demand, and Strategies
2. Risk factors in the open market and countermeasures
3. The strategy for the stability of price in the open market
4. Nuclear energy and governmental support
15
3-1. Whole sale market and securing the stability of price
Oil and LNG generators determine 75~80% of market pricing at around 5.7¢/kWh under System Marginal Price (SMP) system
Oil and LNG generators produce 20% of annual generation volume.
KEPCO may suffer financial risks from high SMP and low tariff regulated at 6.5¢/kWh
Financial health of GenCos and KEPCO through price stabilization measures is essential.
Load Duration Curve
Nuclear
Coal
LNG / Oil
75~80%
8,760 hours
Reserve Margin
( MW)
100%
16
3-1. Whole sale market and securing the stability of price
Introduction of BLMP has secured price stability
The highest marginal price of base load generators is determined as BLMP
The highest marginal price of peak load generators is determined as SMP
The settlement prices have been maintained at around 4.2~4.4¢/kWh
NuclearCoal
CP : 1.79 ¢/kWhOil
LNG
CP : 0.63 ¢
Base Load Volume 78%
(Variable Cost)
1.64 ¢
3.44 ¢
4.19 ¢
4.80 ¢
5.43 ¢
0.35 ¢BLMP
SMPIntroduction of Separate Settlement
Peak Load 22%
17
3-2. Evaluation on the operation of the wholesale market
State owned GenCos have enjoyed significant increase of operating income
ratio (16.5% before separation → 20.9% after separation). They own base load generators (nuclear, coal), and enjoy reasonable profits
from market price.
Private GenCos in the market also have enjoyed reasonable profits. They own peak load generators (LNG), and are sufficiently compensated by the
CP to recover fixed costs.
Private GenCos having PPA with KEPCO are guaranteed reasonable
ROR(8%).
※ Operating income ratio of GenCos after separation
classification 2001 2002 2003 average
Operating income ratio 19.1% 21.7% 21.9% 20.9%
ROR 7.2% 8.0% 8.2% 7.8%
18
Contents
1. Risk factors in the present Basic Plan of long term Electricity Supply & Demand, and Strategies
2. Risk factors in the open market and countermeasures
3. The strategy for the stability of price in the open market
4. Nuclear energy and governmental support
19
4-1. The status and the prospects of nuclear generation
Prospects of nuclear generation The further construction of nuclear power plants is necessary for securing
stable supply of electricity as the demand is expected to highly increase in South Korea.
Korea imports most of its generation fuel (99%), and the prices of fossil fuel rocketed recently (56%).
‘The basic plan of long term electricity supply & demand’ stipulates that nuclear power plant generation will stay at 30% of the total generation capacity.
Expanding public acceptance to safe of nuclear power plants and promoting timely constructions are required.
28.4%
23.8%
30.9%
30.3%
28.8%
30.9%
25.7%
25.3%
26.2%
26.1%
26.8%
26.3%
16.6%
19.2%
16.6%
18.2%
0% 20% 40% 60% 80% 100%
2005
2010
2015
2017
Nuclear Coal LNG Others
20
4-2. The status of nuclear generation
Current status of nuclear energy in the electricity industry 20 nuclear generators (17,716MW) in operation compose 29% of total
capacity in Korea.
The generation by nuclear power plants reached 39 % of total generation volume and 32% of the total traded amount in 2004, the highest shares among generation types.
The low generation costs of nuclear power plants helped Korea not to increase retail prices in spite of recent price hikes of oil and coal.
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
0
4
8
12
(¢/kWh)
Generation Volume 39.0% 37.0% 2.0% 6.0% 15.0% 1.0% 0.5% 0.2%
Traded amount 32.0% 31.0% 2.0% 9.0% 24.0% 1.0% 1.0% 0.3%
Settllement Price 3.5 3.7 4.6 7.0 6.9 5.4 10.2 5.1
Nuclear Imp. Coal Dom. Coal B.C Oil LNG HydroPump
StorageOthers
21
4-2. The status of nuclear generation
The profitability of nuclear power plants in the market The operating income ratio of nuclear power plants (22.4%) was higher
than those of any thermal power plants.ROR of nuclear power (5.8%) was higher than the average ROR of GenCos
(5.3%) in 2004.
While thermal power companies suffer fuel cost increase by the coal price increase, the nuclear power company enjoyed market price increase without the increase of fuel costs.
No difficulty is expected in raising new investments in nuclear power plants with stable profitability under the current CBP market.
0
200
400
600
800
1,000
1,200
(Million US$)
0%
5%
10%
15%
20%
25%
Income before Taxes 1,017 184 256 201 123 118
Operating Income Ratio 22.4% 13.8% 16.3% 12.7% 6.9% 7.4%
Rate of Return 5.8% 4.5% 9.0% 8.2% 2.9% 2.4%
KHNP KOSEPCO KOMIPO KOWEPCO KOSPO KEWESPO
22
4-3. The governmental support to nuclear generation
Nuclear power plants need governmental support for securing construction site and disposal site, and for continuing operation
More constructions of nuclear power plants are inevitable in order to secure electricity supply and stable market price of electricity in Korea
Institutional Support for constructions of nuclear power plants
Economic benefits to local areas near power plants
$9~14mn/year by “special laws for the support of local area accepting location of low-medium radio active waste
$68mn/year by ‘special laws for the support of local area neighboring power plants
Reduction of risk of nuclear energy business by ‘laws for nuclear damages’.
Public relationship in support of nuclear power plants.