Boldly Reducing Coal and Replacing It with Expensive LNG... "Electricity Rate Increase Unavoidable"

9th Basic Plan for Electricity Supply and Demand Draft Released
LNG Has High Price Volatility and Low Supply Stability
Experts Say "Need to Explain ESS Deployment and Safety Measures"
Criticism of "Lack of Realism" in Renewable Energy Expansion

[Asia Economy Reporters Kim Bo-kyung and Moon Chae-seok] As the draft of the 9th Basic Plan for Electricity Supply and Demand, which outlines the government's mid- to long-term energy policy direction, includes coal phase-out and nuclear phase-out policies, there are expectations that electricity rate hikes will be inevitable in the future. There are also calls for measures to address the instability of electricity supply and demand due to weather and seasonal factors, as well as the expansion of renewable energy.

Experts expressed concerns on the 8th that the draft of the 9th plan announced by the General Subcommittee, an advisory body for the Basic Plan for Electricity Supply and Demand, would find it difficult to resolve four key issues in electricity supply and demand: ▲stability ▲economic feasibility ▲environmental aspects ▲climate uncertainty.

First, regarding the most important criterion in the supply and demand plan?supply stability?it is pointed out that the high generation cost of liquefied natural gas (LNG) and its price volatility are problematic. According to the Korea Power Exchange’s Electricity Statistics Information System, as of February, the LNG settlement price per 1kWh was 114.6 won, which is more expensive than nuclear at 60.7 won and bituminous coal at 91.2 won. Due to LNG’s price being linked to international oil prices, its price volatility is high, which is considered a factor undermining stability from a supply and demand perspective. The plan is to cover the 4.7GW shortfall in generation capacity with LNG, pumped storage, and others, with the pumped storage settlement price at 136.7 won.

Because the power shortfall caused by coal phase-out is being filled with LNG, which has a high generation cost, it is expected that Korea Electric Power Corporation (KEPCO) will inevitably raise electricity rates. This is because the electricity wholesale price (SMP), which is the purchase price KEPCO pays to power producers, is influenced by the generation cost of energy sources. KEPCO recorded an operating loss of 1.3566 trillion won last year, struggling with losses for two consecutive years.

The expert working group under the General Subcommittee proposed legislating the Energy Efficiency Resource Standard (EERS) system this year to improve energy supplier efficiency and increasing the distribution of high-efficiency devices for demand management. In terms of load management, they plan to improve the demand response market and expand the use of energy storage systems (ESS) and non-electric energy facilities such as gas cooling.

Regarding this, Professor Joo Han-kyu of the Department of Nuclear Engineering at Seoul National University said, "The policy goals presented in the draft of the 9th plan are not much different from the 8th plan and the 3rd Basic Energy Plan," adding, "Due to increased LNG imports and ESS distribution, costs will rise, making it highly likely that KEPCO will raise electricity rates." Professor Lee Deok-hwan, emeritus professor of chemistry and science communication at Sogang University, pointed out, "If renewable energy generation is planned to increase about fourfold from 19.3GW to 78.1GW over 14 years, there needs to be a concrete explanation on how to address LNG supply volatility until then, how to handle the intermittency of renewable energy, and what safety measures for ESS will be implemented."

There are also criticisms that the plan to expand the renewable energy ratio to 40% lacks realism. Professor Jung Yong-hoon of the Department of Nuclear and Quantum Engineering at KAIST said, "If intermittency issues occur, such as no wind or no sunlight, LNG will have to be used as a substitute, but this is not very realistic."

Yoo Seung-hoon, chairman of the General Subcommittee, explained at a briefing that "an analysis of the impact on electricity rates due to energy transition such as LNG increase was not conducted," adding, "since the scope of review specified in the Electricity Business Act does not include electricity rate-related matters, the committee did not perform an analysis of electricity rates related to energy transition."

Professor Kim Jin-ho of Gwangju Institute of Science and Technology, who serves as the head of the demand management working group in the committee, stated, "The General Subcommittee is reviewing specific target quantities and levels for demand management such as ESS," and "I believe these will be sufficiently reflected in the future."

Meanwhile, the maximum power demand in 2034 was derived as 104.2GW, and the expected average annual growth rate of electricity demand from 2020 to 2034 was 1.0%, slightly lower than the 1.3% in the 8th plan. This forecast was based on economic growth rate projections from the Ministry of Economy and Finance, Korea Development Institute (KDI), Bank of Korea, and medium- to long-term temperature forecast statistics from the Korea Meteorological Administration. The economic growth rate for this year reflects the impact of the COVID-19 pandemic, and if revised economic growth forecasts are released in the future, they will be incorporated to finalize the electricity demand forecast.

The 9th plan also presented measures to achieve greenhouse gas emission reduction targets. Examples include the bold phase-out of coal power plants, demand reduction, and the seasonal fine dust management system implemented every December through March of the following year. Additional restrictions on coal power generation will be introduced if necessary.

The 9th plan was originally scheduled to be finalized by the end of last year. However, the introduction of the strategic environmental impact assessment procedure under the Ministry of Environment’s Environmental Impact Assessment Act has delayed the finalization by nearly half a year. Chairman Yoo said, "I understand that consultations with the Ministry of Environment on the strategic environmental impact assessment will begin soon based on the draft announced this time," adding, "the timing of the finalization will be determined according to the duration required for the strategic environmental impact assessment consultations."

This content was produced with the assistance of AI translation services.