The Effect of the New Capacity Investment Behavior in the Korea Wholesale Electricity Market

摘要

Since 2001 the generation facilities used be owned by Korea Electric Power Company (KEPCO) have been divested to six independent firms as a part of industry restructuring. Market mechanisms are in place that there is a competitive bidding by these firms in the wholesale market, albeit strictly on a cost basis.Related, Korean government continues to make use of "Basic Plan of Long Term Electricity Supply & Demand" in order to insure (generation) resource adequacy. While the plan is to provide insights to nation's outlook on electricity supply capability, often addition of new generation capacities is controlled by this plan. It should be noted that if the restructuring is to be complete, generation companies should not bear any obligation to invest unless their profitability is guaranteed. Nevertheless, many experts argue that government intervention is still necessary to avoid the undesirable price spikes in the wholesale market.In this study, simulations for two scenarios are conducted to examine whether competitive market can help to stabilize the wholesale price in Korean market. The simulation results show that government intervention can prevent the price spike although the wholesale price in the competitive market turns out to be lower than that in the regulated market due to the additional new investment. The model used in this simulation has some significant limitations including the assumption that only gas power plants can respond the market price.