Power industry laid a solid foundation for growth
By Choi Kyung-hwan
Korea’s power industry came into being in March 1887 with the installation of a seven-kilowatt coal-fired generator at Gyeongbok Palace in Seoul. Eight years earlier, Thomas Edison had invented the light bulb. Sadly, the new technology had an unforeseen result: Water from the palace’s pond was used as a coolant, and the sudden change in temperature killed all the fish.
More than a century later, Korea boasts large-scale generation facilities for nuclear, thermal and hydro power along with new and renewable energy sources such as wind and photovoltaic power. Its power industry is world-class, with an installed capacity of more than 73,000 megawatts.
On July 1, 1961, the Chosun, Kyungsung and Namsun electric companies merged to form the Korea Electric Company (KECO). Since that time, electricity consumption has increased exponentially in parallel with the nation’s economic growth. Only 790,000 households had power in 1961, compared with 18.7 million today; consumption per household has skyrocketed from 1,492 kilowatt hours to 21,064 kilowatt hours. Electricity sales have risen from 1,189 gigawatt hours to 394,475 gigawatt hours and peak demand has increased more than 200-fold from 306 megawatts to 66,797 megawatts. In 1982, KECO changed its name to the Korea Electric Power Corporation (KEPCO) and it remains Korea’s foremost electricity supplier.
Korea’s total supply capacity — that is, the amount of energy it could generate — was only 322 megawatts in 1961, but peak demand was 435 megawatts. Households only had electricity for a few hours a day. Factories had to close every other day. To establish the necessary infrastructure for industrial growth, the Korean government implemented the first in a series of six five-year energy resources development plans.
For the years between 1962 and 1966, the goal was a supply capacity of 607 megawatts, slightly less than the expected peak demand for 1966. Emergency measures enabled Korea to surpass this goal: The ship “Resistance” was stationed in the port of Busan and equipped with a 30,000-kilowatt portable power generation facility so it could travel around the country as needed. Diesel-powered internal combustion power plants, which cost less and could be built faster than hydro plants, were completed on an expedited schedule. As of April 1, 1964, Korea had an installed capacity of 769 megawatts. Electricity services became available every day, at all times.
The government’s next goal was to add 1,177 megawatts to the existing supply capacity; once again, Korea surpassed its target and succeeded in developing facilities with a combined supply capacity of 1,911 megawatts. By the end of 1971, the country’s reserve capacity was 610 megawatts — at last, Korea could generate more energy than it needed to meet its basic needs and was now in a position to grow its industries.
During this period, three privately-owned thermal power plants were established: Gyeongin Energy, Donghae Power and Honam Power. KECO acquired the latter two in the early 1970s.
For four years between 1972 and 1976, Korea’s additional target capacity was 3,404 megawatts; however, the oil shock of 1973 led to an overall change of the plan. Departing from its concentration on oil, the government now shifted its focus to embrace diverse fuel sources.
The expansion of such power development projects required a tremendous increase in investment funds, and KECO’s financial condition deteriorated under the strain. The government responded with various forms of institutional incentives for the struggling power company — it purchased shares, provided tax benefits, increased public funding, and improved the electricity pricing system.
By 1965, the national electrification rate was 25 percent, but the corresponding figure for Korea’s rural communities was only 12 percent and it was unprofitable for KECO to extend the service to sparsely populated areas. The Rural Electrification Promotion Act was enacted on December 30, 1965, as a means to address this disparity and improve service to rural areas. Electrification projects during those years eventually brought power to 2.76 million more homes and raised the rural electrification rate to 98 percent.
Korea opted for nuclear power
April 29, 1978 marked a turning point in Korea’s development: With the completion of its first nuclear power plant at Kori, Korea became the 21st country in the world to adopt nuclear power.
During the same five-year period, the Korean economy thrived and the nation worked hard to reinforce its power infrastructure. Electricity transmission became more efficient thanks to upgraded facilities that lose less energy in the process of transmission. The enactment of the Act on Special Cases Concerning Electric Energy Source Development facilitated the timely and efficient construction of new power facilities.
The country’s energy diversification policy saw nuclear power and coal gain greater prominence in Korea’s energy mix, and by 1981 its power generation capacity had more than doubled to 9,835 megawatts.
Today, Korea has 20 nuclear power plants and is the world’s No. 6 nuclear stronghold.
Electricity consumption increased sharply during the 1980s, which saw greater economic development and the wider use of electrical home appliances. A project to increase household electricity voltage to 220 volts had already begun in 1973; in 1982 the scale of the project was expanded.
Meanwhile, increased fuel costs and debts incurred from intensive investment in electric power development projects had taken their toll on KECO. In response, the government transformed KECO into a public company according to the 1982 Korea Electric Power Corporation Act.
Despite these efforts, concerns persisted regarding the stability of the power supply. The 1988 Seoul Olympic Games caused a 23.7 percent jump in demand for electricity, and Korea’s supply reserve capacity plummeted. In April 1989, the Korean government changed its policy direction: Having succeeded in building a solid foundation for industrial growth, it would now emphasize management of supply and demand with the long term in mind.
The 1990s brought an epoch-making progress in information technology, as well as in technologies specific to the power sector such as the introduction of the small-sized integrated gas turbine. Public opinion favored competition in the power industry to increase efficiency and reliability; accordingly, the government proposed a structural reform plan for the power sector.
Modeled on similar plans that had already been adopted in countries throughout the world, the reform plan involved the spinning off of KEPCO’s generation sector into six subsidiaries. The spin-off took place in April 2001 as stipulated by the Act on the Promotion of Power Industry Restructuring; the Korea Power Exchange (KPX) and the Electricity Regulatory Commission (ERC) were established the same month under the newly-revised Electric Utility Act. The ERC was authorized to decide policy matters, handle consumer protection issues, and oversee the restructuring with a view to fair competition.
Today KEPCO’s six subsidiaries still account for about 80 percent of total power generation and KEPCO functions as a retailer, providing power to the public after purchasing it through the KPX. Thirteen major electric power generation companies participate in KPX bids — the inclusion of smaller companies, including companies that generate power from renewable sources, would bring the total close to 1,700.
Once the reform of KEPCO’s power generation sector was complete, the next step was to separate the distribution and transmission functions from the parent company’s operations. However, the effects of the California energy crisis in 2000 and 2001 forced delays and finally in 2004, restructuring was suspended. The structure of Korea’s electricity industry stays, therefore, in a kind of transitional phase.
Since 2004, there have been numerous calls for change. The structure of Korea’s electricity industry must be adjusted to reflect climate change concerns, changes in the power sector, and the tendency toward globalization. The Korea Development Institute recently reviewed global and local trends in the power sector in an effort to come up with a future-oriented alternative. To ensure a stable power supply, an effective response to climate change, and maximum efficiency and industrial growth, the institute concluded that the industry should move toward ever-fierce competition.
Green growth, smart grids
Smart grid technology is more than the simple incorporation of information technology into electric power systems. It is a new, “green” convergence industry encompassing electronics, communications, construction, secondary batteries, automobiles and software. It is one of the core technologies and growth engines that will propel Korea to new heights in the global green market.
The Presidential Committee on Green Growth addressed this matter in February 2009 and identified smart grids as essential infrastructure for “green growth.” In line with the government’s progressive vision, efforts were made to create a test bed on Jeju Island. In January 2010, the government established a national plan that will govern the Jeju test bed project and facilitate the creation of new business models.
To support the development and dissemination of smart grid technology, the Korean government is cooperating with the U.S. state of Illinois to export Korea’s expertise to businesses in Chicago. We are also working to start a smart grid promotion center and introduce the Act on the Promotion of Intelligent Power Networks, which would establish a smart grid city and promote interoperability through harmonized standards.
Korea continues to expand its boundaries with respect to power generation. This trend began with the Malaya thermal power plant rehabilitation project in the Philippines, for which KEPCO bid successfully in February 1995. In 1996, KEPCO beat other global power companies for a contract to build and operate the Illijan combined cycle thermal power plant in the Philippines.
Since 2000, the government has spared no effort to support KEPCO in building on its experience in the Philippines and pursuing power generation, grid and consulting projects with a variety of overseas partners. Currently the company is active in China, Myanmar, Libya, Cambodia and Ukraine.
The power industry has contributed immensely to the national economy through diversified, value-added overseas projects such as the export of power equipment.
Exporting nuclear technology
Korea has gained impressive experience both in the construction of domestic nuclear power plants and in the construction of nuclear power plants for the Korean Peninsula Energy Development Organization. In 1998, Korea succeeded in developing an indigenous 1,000-megawatt nuclear reactor. Korea’s ongoing efforts to refine its nuclear technology paid off with a historic deal on December 27, 2009. KEPCO won a contract to build four nuclear power plants in the United Arab Emirates and supply fuel for three years, an $18.6 billion business deal that is the largest ever involving Korean plant exports. (The financial equivalent in the automotive industry would be the export of 1.6 million automobiles.) Korea became the fifth country to export nuclear technology and joined the ranks of nuclear powerhouses such as the United States and France.
The quality of a nation’s electricity service can be assessed using such parameters as voltage, frequency, and outage time per household. Average outage time per household in Korea was only 15.6 minutes in 2009, much lower than in other countries such as France (78 minutes), the United Kingdom (79 minutes) and the United States (138 minutes). This is the result of ongoing efforts to improve maintenance and to integrate information technology with distribution technology.
Furthermore, Korea showed a stellar performance of 99.9 percent in 2009 in its observation of voltage and frequency requirements — two variables essential to the lifespan and performance of precision machinery and electrical and electronic appliances. The nation’s transmission and distribution loss rate stood at 4.07 percent, considerably lower than the corresponding rates in Japan (5.1 percent), France (6.6 percent), the United States (6.8 percent) and the United Kingdom (8.6 percent). Voltage upgrading efforts and the wider use of low-loss appliances contributed to Korea’s good showing.
Korea’s electricity rates are very low. As of the end of 2009, the cost of electricity was less than 79 won per kilowatt hour — much lower than in Japan (242 won per kilowatt hour), the United States (123 won per kilowatt hour), France (149 won per kilowatt hour) and the United Kingdom (164 won per kilowatt hour). Unfortunately, because electricity costs are kept artificially low, consumers have no incentive to conserve energy and KEPCO frequently sees deficits.
The Korean power industry, one of the best in the world, has made it possible for Korea to achieve its milestones of $360 billion in exports and $20,000 per capita GDP. Now, faced with the threat of climate change and the need for new growth engines, Korea is standing at a critical juncture where the power sector must seek ways to innovate in terms of technology and business model.
Power industry — A new growth engine
To ensure the stability of the national economy, the Korean government has kept electricity rates lower than market levels for many years. Tariffs are calculated based on the actual cost of providing electricity in past years and adjusted infrequently. For this reason, they do not appropriately reflect changes in the cost of fuel or the need for utility companies to invest in the future growth of the power industry.
Starting in July 2011, therefore, electricity rates will be adjusted at shorter intervals to more accurately reflect changes in fuel costs. This new pricing system will alleviate the financial risks that fluctuations in fuel prices and foreign currency exchange rates present to utility companies. It will also encourage the public to conserve energy.
In addition, differential tariffs are in place to support certain industries — for example, the manufacturing and agriculture sectors pay less for electricity. This has led to problems such as overlapping subsidies and wasteful patterns of energy consumption. The government is looking at improvement in the tariff system that would address these problems and ensure that rates fairly reflect the amount of voltage that is required.
Green technology, low carbon
There is a pressing need for Korea to change the way it approaches economic growth — to discover new growth engines that will allow us to maintain competitiveness in the long term. It is equally important to pursue economic growth with sustainability in mind.
The government focuses on “low-carbon, green growth.” To realize this goal, Korea will need to increase energy efficiency, cut greenhouse gas emissions, increase the use of renewable energy sources, and develop environmentally friendly technologies.
Accordingly, the Korean government intends to increase the proportion of new and renewable energy sources in the nation’s energy mix — these include solar, wind and nuclear power. In addition, Korea will reduce greenhouse gas emissions by working to advance smart grid technology, carbon capture and storage technology, integrated gasification combined cycle technology, and other promising “green” technologies.
Faced with a slowdown in domestic demand for electricity, the Korean power industry is exploring ways to advance into global markets. The experience Korea has accumulated over the years and the excellent skills of its highly educated work force put Korea in an ideal position to overcome the challenges ahead. As the UAE nuclear deal attests, Korea’s power industry already enjoys global competitiveness.
Therefore, the Korean government plans to nurture the power industry as a growth engine for the national economy. In the past, the semiconductor, electronics and shipbuilding industries produced the nation’s major export items. As Korea moves through the 21st century, the power industry is certain to emerge as another key exporter and will undoubtedly help Korea achieve its target of $30,000 per capita GDP.
Exports of nuclear power plants
Korea became the second Asian country to acquire nuclear power in 1978. Korea has emerged as a nuclear powerhouse. With 20 nuclear power plants and a total capacity of 17,716 megawatts, Korea leads the world in the construction and operation of nuclear power plants.
Korea’s 20 nuclear power plants experienced six stoppages in 2009, an average of only 0.3 per plant. Capacity factor — that is, actual production measured against production potential — is another important indicator of reliability and of a plant’s level of technology. Korea’s capacity factor for 2009 was 91.7 percent, far above the world average of 76 percent.
The excellent performance of Korea’s nuclear power plants is the result of experience and expertise accumulated over three decades, and of Koreans’ diligent efforts to improve its nuclear facilities and human resources pool. In its entire history, Korea has never experienced a nuclear accident or any leakage of radioactive material.
Why Korea is competitive
The Chernobyl disaster of 1986 prompted most of the world’s countries, including the United States, to cease construction of new nuclear power plants. Countries such as the United States and Russia had alternatives to nuclear energy, but Korea was almost totally dependent on imports to meet its fuel needs. Forced as it was to push ahead with nuclear projects, Korea continued to build new plants without interruption and in the process it gained valuable experience, skills and technology. Eight additional nuclear power plants are currently under construction, and these are slated for completion by 2017.
Korea’s experience and expertise have enabled it to adopt the latest construction methods, standardize design and construction procedures, and complete construction projects at an accelerated pace. Korea expects each of the Korean nuclear power plants in the United Arab Emirates to be completed within 54 months — a construction period that is six months shorter than any of its competitors can deliver. Next-generation nuclear power plants built by other countries, such as the United States and France, are far more costly than Korean plants of comparable quality.
Korea is still working to make its nuclear technology No. 1 in the world. By 2012 Korea expects to localize core equipment, and experts say Korea’s nuclear industry will become even stronger once that happens. In other words, Korea is just a few steps away from the top spot.
Who is the writer?
Dr. Choi Kyung-hwan is the outgoing knowledge-economy minister.
He has followed a unique career path: He has been a government official, a journalist and a politician. He began his civil service career in 1978. His experience includes two years with the Economic Planning Board, nine months as assistant to the presidential secretary for economy, and a year as a legal affairs officer with the Ministry of Planning and Budget.
In 1999, after 20 years as a civil servant, he started a second career in journalism. He worked for a major business newspaper for five years, during which time he served as an editorial writer and as deputy editor-in-chief. He was re-elected as the lawmaker for the constituency of Gyeongsan and Cheongdo, South Gyeongsang Province in 2008.