1

Korea Power ExchangeKorea Power Exchange

2007. 10. 152007. 10. 15

2

Korean Electric Industry Overview(1)

No Inter-Connection - Isolated electric power system Highly dependent on foreign energy resources (Gas, Oil)

- Imported fuels 97% Rapid growth in electricity

demand (about 6.8%/year) - Recent 5 years (’01~’05) - about 9.7% (’91~’00) Peak Electricity Demand - 62,285MW(Aug. 21, 2007) Total Generating Capacity

- 67,196MW(August, 2007)1

3

Area of South Korea : 99,601 km2

GDP : 897.4 Billion USD(’06, 12th Largest in the World)

Population: 49 million (Seoul Metro. Area : 24mil. ’07)

Electric Power Industry Overview

17.62 million customers (December, ‘06)

832 Generating Units (July, ‘07)

765kV/345kV/154kV/(66kV), DC180kV

Installed Capacity : 67,196 MW (August, ‘07)

Electricity Consumption per Capita: 7,191 kWh(‘06)

Korean Electric Industry Overview(2)

2

4

Electric Power Supply and Demand

3

5

By Generating Fuels

By Genco’s

(as of 2007.10, MW,%)

Oil8.8%

Hydro8.2%

Nuclear26.4%

CC,LNG26.9%

Private762 (11.3%)

5 Genco’s41,330 (61.5%)

KHNP 18,250 (27.2%)

67,196MW

Coal29.7%

Generation Capacity in South Korea

4

6

제주

해남

154kV : 20,242 / 561

해저케이블

( Unit : km / Station)

154kV345kV765kV

당진신안성

신서산

765kV : 755 / 5

신가평

신태백울진

Total : 6,720 / 832

Nuclear : 1,772 / 20Thermal : 2,527 / 220CC(Gas) :1,755 / 136

율촌

일산

LG 부곡

Hydro/PP: 656 / 456

신인천 CC

분당

서천

한종

영동

호남

영남

삼랑진

청평

345kV : 8,279 / 80

영광 신광주

신화순

신강진

광양

여수

의령

무주

동해

신포항월성

신온산울산

고리

신양산

신고성

신김해 남부산

북부산

울주

하동삼천포

신마산

산청

서대구

신경산신울산

보령 청양

군산

신옥천

신영주

신김제신남원

고령

선산

신계룡

태안

신당진아산

청원

신제천

신인천

의정부 양주

인천서인천

신시흥평택

동서울신부평

신양재서서울

성동

화성신성남

영서중부

영흥

미금

청송

양양

광양 cc

신용인곤지암

신온양

신덕은

Power System Network in South Korea

5

7

Generators

Transmission Network

Distribution Network

GeneratorTransformer Eligible

Customers345kV,154kV

Transmission Lines 765,345,154kV

HV Customers

22.9kV

Captive Customers220V, 380V

154/22.9

kV

Power System Facility Configuration

6

8

Electric industry liberalization in South Korea

Industry structure before the liberalization start in 1999– KEPCO monopolized 94% of installed generation capacity of 47,053MW, and 100%

of transmission & distribution (Government owned utility)– A small number of IPP’s sold electricity to KEPCO, a single buyer. – Tariff based on usage (Residential, Commercial, Industrial, agricultural)

Objectives of the liberalization– To enhance the efficiency of the electricity supply industry– To effectively finance new generation capacity– To increase consumer benefits and improve service quality

Guiding Principles of Electricity Industry liberalization– Unbundling of electricity business into Generation, Transmission, Distribution, Supply– Mandatory Pool– Regulatory Body– Independent System & Market Operator

7

9

PHASE I PHASE I PHASE II PHASE II PHASE III PHASE III

Generation

Competition

Wholesale

Competition

Retail

Competition

20092004

Split the generation seSplit the generation sector into six Gencos anctor into six Gencos and introduce competitiod introduce competitionn

KEPCO maintains transmission and distribution sector

Introduce competition into the Introduce competition into the ddistribution istribution unbundled unbundled from Kfrom KEPCOEPCO

The transmission system serves The transmission system serves as a common carrieras a common carrier

The distribution will The distribution will be privatized.be privatized.

Regional supply Regional supply monopoly will be monopoly will be eliminated.eliminated.

2001

Electric Industry Liberalization Plan in ‘99

8

10

Liberalization process to date– 1999. 01 “The basic plan for restructuring of the electric power industry” unveiled

– 2000. 12 Necessary Legislations were enacted

– 2001. 04 KOREC and KPX established, 6 Genco’s were spun off

– 2004. 06 Distribution Spin-off suspended by Biz, Labor & Government• Impact of Electricity Market crisis in U.S. (California)

• Concern about Price Volatility and Unstable Supply in the future Wholesale Market

– 2006. 09 Transformed Regional Distribution & Sales Branches of KEPCO into

9 Independent Business Divisions and Internal Competition among them

Current State and Effects of the Liberalization– Cost-Based Pool Model is being continued

– Genco’s and Distribution & Sales divisions are Not yet privatized

– Investments are not effectively on time

– Managerial efficiency in the Generation Sector has been improved

– Power System Quality has been improved than before

What has been done thus far in South Korea

9

11

1) MOCIE: Minister for Commerce & Industry2) KOREC(Korea Electricity Commission) was established

on April 27, 2001, but have not been separated fromgovernment.

Wholesale Market(KPX) - Market Operation - System Operation - Long-Term Adequacy

Wholesale Market(KPX) - Market Operation - System Operation - Long-Term Adequacy

Intra – NetworkIntra –

Network

Power & HeatPower & Heat

CHP

C E S3)(Community

Energy Supplier)Gencos IPPs Self-Gen

Transmission BusinessDistribution Business

Retail Business

KEPCO

End Users or Customers

Connection

OR

Government

MOCIE1)

KOREC2)(Regulator)

Electricity IndustryTeam

. ESI Policy

. Long-Term Adequacy (Generation and Transmission)

. Issue Licenses

. Control of KEPCO’s Manpower and Budget

. Approve the Tariffs

. Supervise Market & System Operations

. Approve Market Rule

. Approve Transmission & Distribution Code. Privatize state-own Gencos and et cetra

3) CES has right to supply electricity and heat to the specific area and it should own generation plant and can sell or buy unserved or excessive electric power to/from KPX or KEPCO

Industry role map in the electricity market

10

12

Transmission

Distribution

Retail

KPXKPXKPXKPX

KOMIPOKOMIPOKOMIPOKOMIPO

KOSEPKOSEPKOSEPKOSEP

KHNPKHNPKHNPKHNP

KOSPOKOSPOKOSPOKOSPO

KEWPKEWPKEWPKEWP

WPWPWPWP

Generation(65-70%)

Consumer

Transmission (10%)

Distribution (10%)

Retail (10~15%)

Consumer

Market Structure Change in 2001

Competition was introduced into generation sector which takes 65%~70% of electricity cost.

11

13

◈ Competition in generation (2001~ )

Genco’s compete among themselves in the Generation Pool.

Major Genco’s are subsidiary companies of KEPCO

KEPCO manages transmission and distribution sectors.

Eligible customers can buy electricity directly from Gencos.

PPA

Bid Bid

Generation Pool

KEPCO(T&D)

EligibleCustomers

IPPs

Gencos(KEPCO)

Gencos(Private)

Customers

Bid

Current Electricity Market Structure

12

14

Key Features of the Market(1)

All generators and retailers should trade electricity through the market. Generators bid into the pool with their available capacity of each generator

and each trading daily

KEPCO is the only purchaser in the market

Eligible Customers are allowed to buy electricity directly from the pool(2003.1)

Some PPA holders do not participate in the market

Dispatch schedule is made by the predetermined costs of each generator. Generation Cost Evaluation Committee(GCEC) determines the variable

costs of each generator. GCEC evaluates the construction cost and fixed costs of each generator.

13

15

Generators are paid by system marginal price(SMP) plus capacity payment SMP reflects actual production costs(start-up, no-load, incremental cost)

of the latest generator brought into operation CP is paid to all generators offering, whether or not dispatched

CP ensures capital costs recovery and underpins further investments

Key Features of the Market(2)

14

16

GeneratorsGeneratorsKPXKPX

Available Cap.Available Cap.Offer

Fixed CostFixed Cost

Gen. Ready Gen. ReadyNotify

Gen. Operation Gen. OperationDispatch Instruction

Payment PaymentInvoice Notification

SchedulingDay ahead

Fixed : YearlyFixed : Yearly

Settlement

After 26 days

Real-time Dispatch

Trading day

Var. : MonthlyVar. : MonthlyProd. CostEvaluationProd. CostEvaluation

• SMP• Commitment

Variable CostVariable CostSubmit

Demand Forecast

Historical data Weather data

Electricity Market Business Process

15

17

Electricity Market Timeline

16

18

Market Volume by Fuel Type

As of 2006As of 2006

Total Total 354.9 TWh354.9 TWh

Traded Energy (GWh)

LNG 57,251(16.1%)

Oil 15,305 (4.3%)

Nuclear42,114

(40%)

Coal 134,480(37.9%)

Others 871 0.4%

Hydro 4,843 1.3%

Total Total 18,924Bwon18,924Bwon

Traded Volume (Million US$)

Nuclear 5,829

(28.6%)

LNG 6,340(31.1%)

Others 77 0.3%

Coal 5,650(27.8%)

Oil 1,925( 9.5%)

Hydro 5362.7%

Total Total 354.9 TWh354.9 TWh

Total Total 20,35720,357

17

19

Generation Type

Renewables304 MW (0.4%)

Distributed Gen3,723 MW

(5.5%)

Generators63,169 MW

(94.1%)

Total

67,196 MW

As of ’07.09.14 18

Total : 90 MembersTotal : 90 Members

As of ’07.09.14

Associates(7)Associates(7)

PPA Generators(3)PPA Generators(3)

Under Cosntruction(1)Under Cosntruction(1)

Registered (83)Registered (83)

KEPCO (TAO + PSB) KEPCO (TAO + PSB)

Generators(54) - KEPCO Subsidiary(6) - Renewables (43) - IPP(5)

Generators(54) - KEPCO Subsidiary(6) - Renewables (43) - IPP(5)

Distributed Gen. (27) Distributed Gen. (27)

Community Service[1] Community Service[1]

Community Service[3]Community Service[3]

Market Participants (Trading Members)

20

3.703.633.943.93

4.214.06

5.35

4.72

6.12

5.04

9.30

6.31

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

US Cents/kWh

2001 2002 2003 2004 2005 2006

Average Market Price Average Settlement Price

Electricity Market Price in South Korea

19

21

10.50

5.79

10.18

5.55

10.15

5.67

10.38

5.66

10.42

5.66

10.75

5.82

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

11.00

12.00

13.00

US Cents/kWh

2001 2002 2003 2004 2005 2006

Residential Industrial

Consumer(Retail) Price in South Korea

20

22

Issues in the Korean electricity Market

Electric industry liberalization program has been stopped for long time o Phase 1 model(Cost Based Pool) has been maintained for more than 6 yearso CBP was designed for simplicity and quick implementation during the

transitory period (need some amendments to be a sustainable market)

CBP has revealed the limitation as a temporary system lacking of

detailed provisions in the market designo Low efficiency due to the dual market structure (Base & Non-base load markets)

o Lack of locational signal in consideration of transmission losses

o Possibility of over-investment with inappropriate capacity payment

o Lack of incentives to save fuel costs

Extensive improvement works in market rules and trading arrangements were carried out in 2006 to make a sustainable electricity market

21

23

Recent Changes in Market Settlement

Energy Paymento Marginal Loss Factors are applied to price setting and settlement

o Adjusted settlement price for the Base-load (Nuclear, Coal) Energy • Settlement prices of baseload power plants are negotiated with parties, bas

ed on the advice of an independent committee to protect Korean electricity consumers

Ancillary Services Paymento Regulation reserve services are compensated for their contribution

Capacity Paymento To further refine the signal, the payment amount is weighted to reflect the

value of capacity across the year and the locations

o Locational(Seoul Metropolitan/ Non-Metropolitan/ Jeju-island) and season

al (Peak/Medium/Off-peak) reserve requirements are applied22

24

Issues to be challenged in the future

Introducing bilateral contracts in Energy Market• Bilateral purchasing agreements between the generating

companies and KEPCO(Vesting Contract, Off-Take Contract)

Zonal Pricing in Energy Market

Ex-post pricing for real-time market• Multi-settlement with Day-ahead market and real-time only

Ancillary Service settlement• By Whom and how much should AS payment be paid?

Real time cost offer or/and limited price bidding

Forward Capacity Market

23

25

Thank You!

Byung Kyo Choi

Tel: 82-2-3456-6504, choibk@kpx.or.kr