Power Generation, Transmission & Distribution 2024 Comparisons

The principal law governing the ownership and structure of the power industry in South Korea is the Electric Utility Act. It defines electricity business as including the electricity generation business, electric transmission business, electric distribution business, electric sales business and district electricity business. The Electric Utility Act also provides for permits and approvals required by each business, structure of the electricity market, permits, approvals and safety requirements for electric facilities.

A distinctive feature of the South Korean electricity market is that it is a cost-based pool, with market prices reflecting variable costs. The market price is determined not by price bidding but by summing the increase in actual variable costs for additional electricity supply (the system marginal price, known as SMP) plus a capacity price to cover fixed costs.

The Korea Electric Power Corporation (KEPCO) exercised a monopoly over the South Korean electricity generation market until 2001, when the competitive market structure was implemented. Currently, independent power producers, including six power generation public corporations (GENCOs), are engaged in the electricity generation business. Generally speaking, entities engaged in the electricity generation business and electricity sales business must trade electricity through the Korea Power Exchange (KPX) in accordance with the Rules on the Operation of the Electricity Market. In South Korea, although the generation, transmission, distribution and supply segments of the power industry are unbundled, KEPCO has a monopoly over the transmission, distribution and sales markets, in contrast to other countries that have adopted a district monopoly system for the transmission and distribution markets or a competitive system for electricity sales.

As noted in 1.1 Law Governing the Structure and Ownership of the Power Industry, KEPCO has a monopoly over the transmission, distribution and sales markets, and GENCOs are the principal entities in the generation market.

KEPCO, a publicly listed market-based company, was established for electric power in South Korea. Its major shareholders are the Korean Development Bank (about 33%), a 100% government-owned bank, and the South Korean government (about 18%), collectively holding 51% of the shares.

The GENCOs are:

• Korea South-East Power Co Ltd, Korea Midland Power Co Ltd, South Korea;
• Western Power Co Ltd, Korea Southern Power Co Ltd and the Korea East-West Power Co Ltd (thermal generation companies); and

• Korea Hydro & Nuclear Power Co Ltd (hydro and nuclear generation company).

GENCOs are wholly-owned by KEPCO.

General Restrictions

Foreign investment in South Korean entities is generally not restricted and unless otherwise provided under relevant laws, foreign investors are treated equally to domestic investors. The Foreign Investment Promotion Act offers certain incentives, such as tax reductions or exemptions and lease subsidies, to foreign investors that meet certain requirements.

However, foreign investment in certain industries may be restricted by designation or public notice if foreign investment:

• threatens national security and public order;
• harms public health and sanitation or environmental preservation;
• is against South Korean morals and customs; or
• violates any South Korean laws or regulations.

Restrictions on Foreign Investment in the Power Industry

The following restrictions apply to foreign investment in the power industry.

Under the Electric Utility Act, if an investment in a nuclear power generation business qualifies as a foreign investment under the Foreign Investment Promotion Act (investment amount of KRW100 million or more and 10% or more shareholding), the Ministry of Trade, Industry and Energy (MOTIE) must revoke the nuclear power business licence. The Integrated Public Notice of Foreign Investment provides restrictions on the acquisition of shares issued by generation businesses that operate nuclear power generators (generally these restrictions apply to a 10% or more shareholding) and foreign-investment entities cannot obtain newly issued electricity business licence (an EBL) for nuclear power generators.

Under the Financial Investment Services and Capital Markets Act, a foreign entity cannot acquire more than 3% of equity securities of a listed entity in certain industries essential to the national economy (the listed entities are known as “Public Purpose Corporations”). Even if a foreign entity acquires more than 3% of the equity securities of such listed entities, its voting rights are capped at 3%. As KEPCO is designated a Public Purpose Corporation, the foregoing restrictions apply to the acquisition of KEPCO’s shares.

General

Apart from any merger control issues that may arise under the Monopoly Regulations and Fair Trade Act (the “Fair Trade Act”), the following activities require the approval of the Minister of MOTIE under Article 10(1) of the Electric Utility Act (the “MOTIE approval”).

• Acquisition of all or part of an electricity business.
• Division or merger of an electricity business.
• Acquisition, for the purpose of exercising control, of:
1. 20% or more of the voting shares of an electricity business with generation facilities that have a power generation capacity of 20 MW or greater, becoming the largest shareholder, with shares owned by jointly owned companies counted together to determine whether the voting-share ownership surpasses 20%;
2. 20% or more of the total issued voting shares of a company that holds shares as described in the bullet point above, if by acquiring such shares, the purchaser will become the largest shareholder; or
3. of shares where that acquisition enables dominant influence over the management of an electricity business, such as the power to appoint or dismiss the representative directors or over 50% of the directors of such electricity business.

The acquirer must obtain MOTIE approval before the closing of the relevant transaction. The approval is granted after passing the deliberation of the Electricity Regulatory Commission (ERC), a commission established under MOTIE under the Electric Utility Act. The processing time for the approval is typically more than two months from submission of the application.

The ERC considers the following factors during its deliberation:

• whether the entity has the financial and technological capacity necessary to operate the electricity business;
• whether the entity will be able to carry out the electricity business as planned;
• for the distribution business and district electricity business, whether the business territory of two or more distribution business entities or the supply territory of two or more district electricity business entities will not fully or partially overlap;
• for the district electricity business, whether the entity will have the supply capacity of at least 60% of the total electricity demand in the particular supply district and the entity’s district electricity business will not cause any disruptions in the electricity supply by other electricity business entities that supply to users residing in neighbouring districts;
• whether the concentration of electric power stations or fuels in a specific district will interfere with electric power systems;
• whether concentration in a specific fuel will interfere with electricity supply;
• compliance with the master plan for electricity supply and demand; and
• whether the achievement of the greenhouse gas (GHG) reduction target will not be interfered with.

Although the Electric Utility Act does not explicitly provide for minimum requirements, such as capital requirements, for an acquirer of a generation business, during its deliberation, the ERC comprehensively considers the largest shareholder’s financial and technological capacity as well as whether the acquisition will affect the sustainable and stable operation of the generation business.

Photovoltaic Power and Minimum Requirements

In the case of photovoltaic power generation business, in addition to the above requirements, “the generation business shall have commenced in the preparatory period for the electric business”. This means that, in principle, a photovoltaic power generation business cannot obtain the MOTIE approval until the generation business has commenced. As a result, transferring an electric business for photovoltaic power generation is difficult, except for transactions exempt from the above approval requirement (eg, a share transfer involves an electric business operator whose power generation facility has a capacity of less than 20 MW).

The Ministry of Trade, Industry and Energy

MOTIE (mainly the Electric Power Division) is the central authority that oversees and administers the government’s electricity supply policy. To stabilise electricity supply, MOTIE establishes the master plan for electricity supply and demand every two years (it announced the 10th Basic Plan in early 2023, and proposed the Draft 11th Basic Plan in May 2024), which includes:

• general direction for the supply and demand of electricity;
• long-term prospects for the supply and demand of electricity;
• plans for generation facilities and major transmission and substation facilities;
• management of electricity demand;
• evaluation of the previous master plan; and
• other matters deemed necessary for the supply and demand of electricity.

MOTIE must establish and publicly notify standards to maintain the credibility of the electric power system. If the credibility is not maintained according to such standards, harming the interest of consumers, the Minister of MOTIE, through the deliberation of the ERC, may order the KPX or electricity business entities to take necessary measures.

The Electricity Regulatory Commission

The ERC has the authority to deliberate on the following matters:

• an EBL;
• approval of sale and acquisition of electricity business;
• approval of charges for use of transmission and distribution facilities;
• approval of electric sales entity’s terms and conditions;
• maximum electricity trading price;
• approval of the Rules on the Operation of the Electricity Market;
• annual plan and results of the management of the credibility of the electric power system and establishment, amendment and repeal of related regulations; and
• reorganisation of the electricity industry, such as introduction of competitive systems.

The Korea Power Exchange

The KPX was established as a separate entity under the Electric Utility Act to manage the electricity market and electric power system. It is engaged in establishing and operating the electricity market, electricity trading, calculating the volume of electric power traded and operating the electric power system.

On 1 August 2023, MOTIE implemented amendments to Specific Standards for Electricity Business Licences, Standards for Calculation of Electric Utility Charge, and Public Notice on Permissible Errors of Electric Meters and Operation of Electric Power System. These amendments refined electricity business licensing and approval standards and the preparation period framework to improve the feasibility of the power generation project. The wind measurement framework was also revised to expedite the application process for an EBL after installing the wind measurement device.

• Strengthened Financial Requirement for EBL – the minimum equity contribution that power generation project operators must secure under their capital funding plan to cover the total project cost has been raised from 10% to 15%. At the time of application for an EBL, at least 1% of the total project cost must have been paid in as equity contribution.
• Enhanced Evidence Requirement for Capital Funding – the power generation project operators must submit supporting documents for the capital funding plan (eg, investment commitment letters) that are now legally binding.
• Timely Completion of Power Generation Projects – for new and renewable energy projects, project operators must now distinguish the preparation period (ie, before filing the business commencement report) and the construction plan approval period (ie, before commencing construction).
• Clarified Wind Measurement Standards – priority in claiming areas for effective wind measurement (the “Effective Areas”) will be determined by the approval date of wind measurement device installation (excluding any subsequent modification permit approval). The previous provision allowing for conditional expansion of Effective Area has been removed. The Effective Areas have been standardised as circular zones with a 7 km radius from offshore wind measurement devices and a 2 km radius from onshore devices.

Introduction of Clean Hydrogen Certification System

In line with the Hydrogen Economy Promotion and Hydrogen Safety Management Act, the Public Notice on the Operation of the Clean Hydrogen Certification System was issued and came into effect on 4 March 2024. Those wishing to participate in the Clean Hydrogen Power Generation Bidding System, effective from 2024, must obtain Clean Hydrogen Certification.

Hydrogen produced with less than 4 kg of carbon dioxide emissions per 1 kg of hydrogen can qualify for Clean Hydrogen Certification, with four grades based on carbon emission levels. Carbon emissions are calculated based on their entire life cycle, including direct GHG emissions from hydrogen production pathway (Scope 1), as well as indirect GHG emissions from production of electricity or steam by sources external to the hydrogen production pathway (Scope 2 and Scope 3). However, GHG emissions captured for permanent storage such as via CCS will be excluded from the emission calculation, while GHG emissions captured via CCU will be included. Entities producing certified clean hydrogen will receive administrative and financial support, although the specifics of these incentives have yet to be determined.

Distributed Energy Legislation and Power Grid Impact Assessment

On 14 June 2024, the Special Act on the Activation of Distributed Energy and its subordinate regulations came into effect, determining the scope of “distributed energy” and “distributed energy business” as well as the entities required to install distributed energy facilities. These regulations are anticipated to promote a more decentralised, regionally focused energy supply system and new industries such as distributed energy businesses.

Further, project operators intending to use 10 MW or more of electricity, either through new construction or capacity expansion, in regions designated for power grid impact assessments, will now be required to complete such assessments for their projects.

On 30 May 2024, the “Regulation on the Operation of the Power Grid Impact Assessment System” was proposed, subjecting all regions of South Korea to power grid impact assessments and outlining specific criteria, methods, and procedures for these assessments. MOTIE is currently operating a pilot project for the system until the regulation is finalised.

It is anticipated that businesses intending to construct new data centres will be primary targets of the assessments. The assessments will consider factors such as the availability of power supply in the grid-connected area, local community acceptance, level of regional underdevelopment, and capacity to maintain proper voltage levels. Accordingly, thorough pre-assessment and preparation for grid connection will be necessary.

System Management Substation

A system management substation in South Korea means a substation designated by KEPCO as having saturated access capacity. Output of power generation facilities connected to such substations may be controlled even if nearby substations and transmission lines have spare capacity. Delays in construction of substations and transmission lines across South Korea are raising concerns that additional power generation may create system instability regionally and nationwide.

To tackle such issues, MOTIE and KEPCO have sought to (i) minimise the impact on the output of existing power plants affected by the new entrants, and (ii) induce the distribution of power generation projects to areas with affordable system capacity. On 30 May 2024, KEPCO designated 103 substations in Gwangju and Jeonnam, 61 in Jeonbuk, 25 on the East Coast, and 16 in Jeju as system management substations.

A new power generation plant seeking to connect to a system management substation can only do so during a “connection accessibility period”, being at the time of completion of the relevant power grid.

On 26 July 2024, at the 300th ERC meeting, EBLs were issued conditionally upon the relevant power plants being connected to system management substations after reinforcements to the system are completed (scheduled for December 2031). Accordingly, in the Honam area, where all substations are designated as system management substations, licences for power plants will be issued from January 2032 if the power plants are connected to a substation. In the East Coast region, where only some substations are designated as system management substations, such licences will be issued from July 2026 under the same condition.

New and Renewable Energy Bidding System

On 30 August 2023, the MOTIE announced amendments to the Rules on the Operation of the Electricity Market. To address renewable energy supply issues in Jeju Island and Jeollanam-do province, MOTIE issued the “Rules on the Operation of Jeju Pilot Project for Improvement of Electricity Market System”. The pilot project for the Renewable Energy Bidding System launched in Jeju since June 2024.

Those wishing to bid in the Renewable Energy Bidding System must participate in the day-ahead Electricity Bidding Market like conventional non-renewable generators. Renewable energy generators will accordingly be integrated into the centralised dispatch system, receiving capacity payments on the same terms as thermal power plants. To address the lack of a standard for selecting facilities subject to curtailment in areas such as Jeju, the Renewable Energy Bidding System will now follow the principle of economic dispatch, prioritising bidders by bid price. This system is expected to be expanded nationwide in the future.

Direct Power Transactions in Dispersed Energy Specialised Areas

Under Article 43 of the Dispersed Energy Promotion Special Act (the “Dispersed Energy Act”), effective 14 June 2024, dispersed energy suppliers installing power generation facilities in a dispersed energy-specialised area (a “Specialised Zone”) can supply electricity directly to electricity users in such zones without having to go through the electricity market.

Further details relating to direct power transactions within a Specialised Zone were provided in a public notice released on 5 September 2024, as follows.

• The notice establishes a broad framework for the matters to be covered by a direct power transaction contract such as the contract period and power price calculation method.
• Dispersed energy suppliers must supply at least 70% of the monthly power usage of electricity users. If the supplier’s generation falls short, it may receive electricity from KEPCO for an additional fee to meet the shortfall and set it to the electricity user.
• Direct power transactions must utilise the transmission and distribution network installed by KEPCO. If expansion of the network is required, the dispersed energy supplier must apply to KEPCO to construct necessary facilities and cannot build them independently.
• MOTIE is finalising guidelines for the designation of Specialised Zones by the year-end, and plans to designate the zones through a public RFP process in the first quarter of 2025.

Improving South Korea’s Renewable Energy Industry

On 16 May 2024, MOTIE announced “Strategies for Expanding Supply and Strengthening Supply Chain for Renewable Energy”.

• Offshore wind power – MOTIE seeks to shore up the stammering offshore wind power industry by creating a wholistic offshore wind power ecosystem. In July, a two-year roadmap will be released to strengthen the offshore wind power supply chain, including bidding volume, timing, and evaluation criteria.
• Solar power – to address location issues, solar power projects are being directed toward industrial parks and agricultural sites and efforts are underway to standardise local government regulations on the minimum distance to separate solar power projects. MOTIE also announced mandatory zero-energy buildings with building-integrated solar power systems and incentivises solar power projects in locations that have capacity.
• RPS restructuring – the Renewable Portfolio Standard (RPS) system will be restructured through government-led bidding for facility capacity and long-term fixed-price contracts between electricity suppliers and renewable energy generators. While intended to meet the supply goals for each source of power generation, manage supply chains, and provide greater certainty for investment, these are seen as a move toward the eventual abolition of the RPS system, raising concerns among existing operators and other interested parties.
• PPAs – Power Purchase Agreement (PPA) regulations and capacity standards will be eased. In particular, the lowered capacity standards will allow small renewable energy generation facilities and small-scale electricity users to enter the PPA market, facilitating RE100 implementation. The resale of Renewable Energy Certificates (RECs) from excess PPA generation will be permitted. Collaboration between the public and private sectors is also encouraged to establish a PPA brokerage market and transition to a private-led market in the medium to long term.

Working Draft of 11th Basic Plan

The Basic Plan for Power Supply and Demand (the “Basic Plan”), released every two years, provides South Korea’s long-term electricity supply outlook, power generation facility plans, and demand management strategies.

On 31 May 2024, MOTIE released a working-level draft of the 11th Basic Plan, which will be finalised by the Electric Policy Council after consultation with relevant ministries and public hearings. Key targets are as follows.

• Electricity demand forecast for 2038 – maximum power demand projected at 129.3GW.
• Electricity supply plans by 2038.
1. To meet such demand, new power generation facilities capable of 10.6GW are required, including up to three large-scale nuclear power plants and one small modular reactor (SMR), as well as LNG combined heat and power generation facilities.
2. Total capacity of target facilities: 157.8GW.
3. Confirmed facilities: 147.2GW.

• Renewable energy – to achieve Nationally Determined Contributions targets, solar and wind power facilities will be expanded from 23GW in 2022 to 72GW by 2030, a three-fold increase in renewable energy targets under the COP28 Declaration. By 2038, solar and wind power will reach capacity of 115.5GW, with total renewable energy capacity of 119.5GW, including hydro and bio.
• Thermal power – in addition to converting coal-fired power plants into LNG power plants, 12 coal-fired power plants with design lifespan reaching 30 years by 2037 to 2038 are planned to be converted into carbon-free plants such as pumped storage hydro or hydrogen power plants.
• Nuclear power – plan to have 30 plants will become operational by 2038.
• Energy mix – this plan outlines power generation quantity and proportion of power generation (unit: TWh, %).

When comparing the energy mix projected for 2030 in the 11th Basic Plan to the 10th Basic Plan, there are slight decreases in nuclear power (32.4%→31.8%) and coal (19.7%→17.4%) and increases in LNG (22.9%→25.1%) and hydrogen/ammonia (2.1%→2.4%), while renewable energy remains unchanged (21.6%).

The proposed targets and forecasts require legislative support and investment. Several Bills promoting offshore wind and the grid expansion have lapsed in the 21st National Assembly, and their revival in the 22nd National Assembly will be crucial to achieving the government’s objectives. The navigation of competing interest for nuclear power projects and securing LNG supply will also be important.

Roadmap for Korean Offshore Wind Power Auctions

On 8 August 2024, MOTIE announced a roadmap for competitive offshore wind power auctions.

• On 25 October 2024, the first auction was announced. From 2025, annual auctions are scheduled to occur in the second quarter. For any volume shortfalls, an additional auction will be held in the fourth quarter.
1. From the second half of 2024 to the first half of 2026, a total of 7 to 8GW is up for bid through three separate auctions exceeding market expectations.
2. The auction will occur in two phases. Phase 1 will assess non-price factors for 120 ~ 150% of the announced supply volume. Phase 2 will focus on price. To enhance predictability of the auction, the upper price limit for fixed offshore wind projects will be disclosed in 2024, while it is yet determined whether the limit for floating offshore wind projects will be disclosed.
3. The auction for the supply of floating offshore wind power will be separated from that of fixed offshore wind power, taking into account the price competitiveness challenges for floating offshore wind power.
4. To address industry concerns that the weighting for price in the 2023 auction undermined the development of domestic supply chains, the evaluation criteria were amended:
1. non-price factors will have greater weight (40 points → 50 points);
2. industrial economic effects, including safety public interest considerations, will have greater weight (16 points → 26 points); and
3. facility maintenance will now also be considered.

As mentioned in 1.1 Law Governing the Structure and Ownership of the Power Industry, the South Korean electricity market operates as a cost-based pool, where wholesale prices are not determined based on supply and demand, but on generation entities’ expected costs and demand. More specifically, generators bid based on electric capacity without price bidding and KEPCO, having a monopoly on demand, accepts the bid of the generator with the lowest variable costs and adjusts based on costs, not price.

The adjusted unit price is reviewed and determined by the Costs Assessment Commission. The electricity price is constituted of the SMP, which reflects variable costs, and capacity payment, which reflects fixed costs.

Electricity from new and renewable energy sources, like solar and wind, is also traded at the SMP for a particular point in time. To account for the variability of the SMP, a long-term, fixed-price contract system was introduced. In other words, when GENCOs purchase electricity generated from solar and wind power, they sign a long-term contract for a contract term with approximately 20 years for a sum of the SMP and the renewable energy certificate price, and the power generation business operators are guaranteed to expect stable profits in the long term, even if the SMP varies from time to time.

The Electric Utility Act also regulates the structure and functions of wholesale electricity.

As noted previously, an operator of an electricity generation business and an operator of an electricity sales business must carry out electricity transactions in the electricity market in accordance with the electricity market operational rules. A GENCO or a private operator engaged in electricity generation business is in charge of electricity generation in accordance with the power supply instructions of the KPX, which taking a neutral position, oversees the electricity market and the operation of the power system (including determination of the electric power sales price). KEPCO supplies electricity to consumers by purchasing electric power at the price determined by the electricity market.

While the electricity generation market is competitive with private operators generating power, KEPCO maintains a monopoly in the transmission, distribution, and sales of electricity, so the wholesale market is not fully competitive. Additionally, there is no nodal pricing system.

The electricity generation market is competitive, such that private generation business operators are generating electric power. However, since KEPCO’s monopoly system is still maintained in the transmission and distribution of electricity and in the electricity sales business, there is no wholesale electricity market which is wholly competitive. Furthermore, there is no nodal pricing system.

See 1.1 Law Governing the Structure and Ownership of the Power Industry and 1.8 Unique Aspects of the Power Industry for details on the structure of the wholesale electricity market and electric power.

It is understood that the acts of importing and exporting electric power are not specially prohibited by the relevant laws and regulations. However, there is no confirmed case of electricity imports or exports in South Korea. This is because grid connections with other countries are required, when South Korea is surrounded by the sea on the eastern, western and the southern borders and is separated from North Korea on the northern border, such that South Korea is effectively isolated as an “electric power system island”.

As a result, electricity import and export through a grid system has not been achieved. In 2017, the former government announced that it was pursuing the goal of joint use of clean energy sources by Northeast Asian countries through the so-called “Super Grid” connecting the South Korean-North Korean-Russian and the Korean-Chinese-Japanese electric power systems, but this is still understood as a plan at a declarative level only.

As of the end of 2023, the approximate ratio of generation capacity by fuel source was as follows (according to the Draft 11th Basic Plan):

• coal (bituminous coal plus anthracite coal) – 27%;
• liquid natural gas (LNG) – 30%;
• nuclear – 17%;
• new and renewables – 22%; and
• others – 4%

As of the end of 2023, the approximate ratio of actual generation by fuel source was as follows (according to the Draft 11th Basic Plan):

• coal (bituminous coal plus anthracite coal) – 31%;
• LNG – 27%;
• nuclear – 31%;
• new and renewables – 10%; and
• others – 1%.

As of the end of 2022, the amount of power generated by new and renewable energy consisted of the following (according to the 2022 renewable energy statistics for distribution, Korea Energy Agency):

• solar power – 53.2%;
• wind power – 5.8%;
• hydropower – 6.1%;
• marine power 0.7%;
• bioenergy – 20.6%;
• waste treatment – 0.7%;
• fuel cell – 9.4%; and
• IGCC (Integrated Gasification Combined Cycle) – 3.4%.

In the electricity business industry, including the power supply market, South Korea does not specifically restrict the market dominance of specific operators in terms of market share. As mentioned, competition in the power generation market has been introduced, but KEPCO and GENCOs still account for approximately 60% of the total power generation. Due to exclusive government licensing, KEPCO monopolises the power transmission, distribution and sales markets. The government has a broad range of authority over regulation of the electricity business based on the unique nature of electric power and characteristics of the electricity business industry, in return for allowing a vertically integrated monopolistic electricity business operator to engage in all of electricity power generation, transmission, distribution and sales.

However, even if KEPCO’s monopoly is accepted in the electricity sales market, the electricity sales business operator under the Electric Utility Act must supply electric power, such that it is not permitted to deny the supply of electricity without a justifiable reason, pursuant to the licence obtained according to the terms and conditions of electricity supply from the government (MOTIE). Likewise, electricity business operators are prohibited from engaging in unfair trade practices under the Fair Trade Act.

In this regard, the Korea Fair Trade Commission (KFTC) has the authority to regulate abuse of market-dominant positions and unfair trade practices.

The Fair Trade Act is a general law that prohibits anti-competitive behaviour in specific markets and provides for market surveillance and enforcement procedures. As explained in 2.4 Law Governing Market Concentration Limits, the KFTC oversees anti-competitive behaviour, and formulates relevant regulations and policies.

MOTIE also has the authority to investigate, order measures, take disciplinary action, and levy and collect fines, in the event an electricity business operator commits a prohibited act under the Electric Utility Act, such as submitting false electricity generation data about the electricity generated by the power plant to the KPX for setting an unreasonably high electricity trading price or unjustly discriminating against the end user in the use of electric facilities for power transmission and distribution.

An electricity business operator undertaking anti-competitive actions in the market may be subject to administrative dispositions such as corrective actions and administrative fines, as well as criminal penalties such as imprisonment and fines.

The principal laws that govern the construction and operation of generation facilities are the Electric Utility Act and Electrical Construction Business Act.

As discussed, the Electric Utility Act provides for general regulations on the electricity business including:

• an EBL;
• stabilisation of electricity supply, safety management of electric facilities and composition of the electricity market; and
• the KPX, ERC and the Korea Electrical Safety Corporation.

The major approvals required under the Electric Utility Act are the EBL, approval or report of the construction plan for electric facilities for electric utility and pre-use inspection. In general, the Minister of MOTIE (in certain circumstances, the mayor or governor) has the authority to issue such permits, approvals and reports.

The Electrical Construction Business Act provides for the standards regarding construction, management and supervision of generation facilities and regulates the electrical construction business registration, orders for and subcontracting of electrical construction and technical management. The major approval required under the Electrical Construction Business Act is the registration of electrical construction business, which must be filed with the relevant local authority.

Also, administrative regulations provide guidelines and elaborate on the obligations of generation business entities and the following are material regulations that affect the electricity industry:

• Specific Standards for Electricity Business Licences;
• Standards for Calculation of Electric Utility Charge;
• Public Notice on Permissible Errors of Electric Meters and Operation of Electric Power System; and
• Standards on Electric Facilities Technology.

All entities engaged in the electricity business have the obligation to maintain facilities that they have installed or operate to comply with such standards, and are subject to regular inspections.

Regulatory Categories

The regulatory process for obtaining all approvals can be categorised into the below five categories, and the relevant laws are as follows:

• new and renewable energy policy – New and Renewable Energy Act;
• entry into and operation of generation business – Electric Utility Act;
• construction, management and supervision of generation facilities – Electrical Construction Business Act;
• generation facilities site – National Land Planning and Utilisation Act; and
• environment – Environmental Impact Assessment Act and various laws regulation emission of pollutants.

Obtaining Approvals

The general order for obtaining approvals are as follows:

• EBL under the Electric Utility Act;
• development activity permit or urban planning facility decision under the National Land Planning and Utilisation Act;
• if required, (small-scale) environmental impact assessment;
• approval of the construction plan under the Electric Utility Act;
• construction of the electric facilities in accordance with the Electrical Construction Business Act;
• pre-use inspection of the electric facilities;
• test run;
• report of business commencement; and
• commercial operation.

Under the New and Renewable Energy Act, facilities utilising new and renewable energy must, within one month from pre-use inspection, additionally apply for REC facilities confirmation.

As noted in 1.4 Law Governing the Sale of Power Industry Assets, the following factors are considered for the issuance of the EBL:

• whether the entity has the financial and technological capacity necessary to operate the electricity business;
• whether the entity will be able to carry out the electricity business as planned;
• for the distribution business and district electricity business, whether the business territory of two or more distribution business entities or the supply territory of two or more district electricity business entities will not fully or partially overlap;
• for the district electricity business, whether the entity will have the supply capacity of at least 60% of the total electricity demand in the particular supply district and the entity’s district electricity business will not cause any disruptions in the electricity supply by other electricity business entities that supply to users residing in neighbouring districts;
• whether the concentration of electric power stations or fuels in a specific district will interfere with electric power systems;
• whether concentration in a specific fuel will interfere with electricity supply;
• compliance with the master plan for electricity supply and demand; and
• whether the achievement of the GHG reduction target will not be interfered with.

In addition to the above, when approving permits for photovoltaic, wind and fuel cell power generation businesses – which require either a small-scale or full-scale environmental impact assessment – the opinions of residents will be taken into account by providing prior notice to those residents.

Technical Capacity for Electrical Construction Business

An entity applying to register as an electrical construction business must have certain technical capacities, including having at least three electrical construction engineers, a minimum capital of KRW150 million (for foreign entities applying through their South Korean branch, the branch must also have a minimum establishment capital of KRW150 million), and an office for the operation of the electrical construction business. Generally, the project implementer does not register as an electrical construction business for the installation of electric facilities and EPC duties are subcontracted to entities that have obtained the electrical construction business permit.

Standards for Development Activity Permit

The following standards must be complied with to obtain the development activity permit:

• the development plan must be in accordance with the development scale limits prescribed by the Enforcement Decree;
• the development plan must not run counter to any urban or local management/growth plans;
• the development plan must not impede any urban or local management/growth plans;
• the development plan must be harmonious with surrounding land usage, local environment and scenery; and
• the infrastructure and securing of sites under the development plans must be appropriate.

Environmental Impact Assessment

If required under the Environmental Impact Assessment Act, full-scale or small-scale environmental impact assessments must be conducted. Opinion hearings of residents are required at certain stages, such as the development activity permit.

Processing time

Although it may vary based on the scale and location of the project, the general processing time is as follows.

• One to three months for an EBL.
• If required, one year for a full-scale environmental impact assessment or three months for a small-scale environmental impact assessment.
• One year or more, excluding environmental impact assessment, for the development activity permit, which is divided up between:
1. the assessment based on the evaluation criteria – three months;
2. the consultation and discussion with relevant administrative bodies – three months;
3. the evaluation by the Urban Planning Commission – two to three months; and
4. the evaluation by the Central Urban Planning Commission – two to three months.
• The Minister of MOTIE’s approval of the construction plan may require one to two months.

In order to ease the administrative burden on small-scale photovoltaic power generation businesses with a generation capacity of less than 3,000 kW, the permit process for photovoltaic power generation businesses has been simplified by allowing the development activities permit, which is required under the National Planning and Utilisation Act, to be deemed granted.

Approvals for Operation

Licences and permits are not particularly required by law for the operation and maintenance of generation facilities. However, if an O&M operator performs electrical work as part of operation and maintenance, that O&M operator must hold an electrical construction business licence.

The Electrical Construction Business Act provides that electrical work cannot be entirely subcontracted to a third party, but the main part thereof must be performed directly by an electrical contractor.

Generally, EBLs provide for obligations under the Electric Utility Act regarding the installation and operation of electric facilities; and approval of division, merger or business acquisition and an EBL may be cancelled for violation of such obligations.

The following additional conditions are frequently imposed, although the conditions will vary for each business. The operator:

• must comply with the obligations under the Electric Utility Act and other relevant laws and regulations;
• must commence operations within the approved preparation period and in the event of a cause of delay, must apply for extension before the installation period;
• must obtain approvals required for development activity, construction, conversion of mountainous districts, occupation and use of roads under the Mountainous Districts Management Act, Building Act, National Land Planning and Utilisation Act, Cultural Heritage Protection Act, Road Act and environmental laws;
• must conduct prior negotiations with relevant authorities if the generation capacity is to be modified during the process of obtaining the above approvals and must comply with the review of the relevant agencies;
• must report the construction plan to the relevant local authorities to commence construction under the Electric Utility Act after obtaining the above approvals;
• must use best efforts to implement safety measures during construction to promote safety and minimise environmental damage and in the event of inevitable environmental damage, must restore without delay after construction completion; and
• must sufficiently gather and reflect the opinion of interested parties, including neighbouring landowners and residents, through information sessions, and conduct the business after implementing measures to prevent civil complaints.

Other than modification approvals or reports, the Electric Utility Act does not explicitly provide for required procedures to amend or relax a term or condition of an EBL. Accordingly, negotiations with the relevant authority will be required. If a term or condition of an approval violates relevant laws and regulations, such term or condition will be deemed a separate measure of the relevant authority and may be challenged through administrative litigation.

Under the Korean Constitution, just compensation must be paid for expropriation, use or restriction of private property for public necessity in compliance with relevant laws. The Act on Acquisition of and Compensation for Land, etc, for Public Works Projects (the “Land Compensation Act”) allows land to acquired or used for installing electric business facilities under the Electric Utility Act. The Electric Utility Act also allows for the use of a third-party’s land under the Land Compensation Act. Accordingly, land may be acquired or expropriated for the installation of electric business facilities, and lump-sum compensation must be paid in cash under the Land Compensation Act, with the amount determined by an appraiser.

In general, government-led businesses and privately-led large impact businesses are acknowledged as public works projects. The majority of privately-led businesses are conducted through purchase, lease or establishment of surface rights on land. Issuance of an EBL may be restricted if land is not secured for the business. An entity that has obtained the approval public works project execution plan must prepare land and goods protocol, disclose the compensation plan, determine the compensation amount and negotiate with landowners and other interested parties. If negotiations are not concluded, compensation for expropriation or use is determined through alternative procedures such as adjudication by the relevant land tribunal or objection to adjudication. Additional compensation may be required under the Act on the Compensation and Support for Areas Adjacent to Transmission and Substation Facilities.

Under the Electric Power Source Development Promotion Act, which provides for relaxed regulations, if an electric power source business entity obtains approval for an execution plan for electric power resource development, it is deemed to have acquired all permits, licences, decisions, designations, approvals, cancellations, agreements and measures required under each separate law. Upon approval of the execution plan, the electric power source business entity may also expropriate or use the required land. Accordingly, expropriation and use rights may also be obtained under the Electric Power Source Development Promotion Act.

Under the Nuclear Safety Act, construction of nuclear power reactors and relevant facilities requires a permit from the Nuclear Safety and Security Commission and the permit application must include a decommissioning plan, which must thereafter be regularly renewed. The Nuclear Safety and Security Commission’s approval is also required for the decommissioning of nuclear power reactors and relevant facilities (as noted in 1.3 Foreign Investment Review Process, foreign investment in a nuclear power business is a cause for revocation of the nuclear power business licence).

Generation businesses other than the nuclear generation business are not subject to specific decommissioning requirements except general obligations under environmental laws and construction laws. However, if the generation facility site is within a mountainous district or farmland, a deposit for restoration is required. If the generation facility site is leased, the premises must be restored to the original state under the lease agreement with the lessor.

The principal laws governing the construction and operation of transmission facilities are the Electric Utility Act and Electrical Construction Business Act.

Under the Electric Utility Act, transmission businesses must obtain a permit from the Minister of MOTIE. The registration of an electrical construction business must be obtained in accordance with the Electrical Construction Business Act (see 3.1 The Construction and Operation of Generation Facilities for registration standards).

As discussed, KEPCO has a monopoly over the South Korean transmission market.

The factors considered for the issuance of the EBL to electricity businesses, as noted in 3.2 Obtaining Approvals to Construct and Operate Generation Facilities, also apply to transmission businesses.

Although KEPCO has a monopoly over the transmission business, a power generator is generally obligated to construct transmission lines for grid connection at its own cost and responsibility. The electricity plan, one of the documents submitted when applying for the EBL, should include:

• an opinion issued by KEPCO concerning the effect of grid connection; and
• an electricity transmission map.

Accordingly, it would be necessary to consult in advance with KEPCO about, among other things, where the transmission lines would be located, as KEPCO may require that transmission lines be placed in different locations than originally planned.

Under the Electrical Construction Business Act, electrical construction includes the installation of electric facilities. The Electric Utility Act’s definition of electric facilities includes facilities for generation, transmission, distribution, supply and use. Accordingly, the standards for the electrical construction business as mentioned in 3.2 Obtaining Approvals to Construct and Operate Generation Facilities also apply to construction of transmission facilities. Other procedures, such as the development activity permit and environmental impact assessment, also apply to the construction of transmission facilities. See 3.2 Obtaining Approvals to Construct and Operate Generation Facilities regarding the typical processing time.

See 3.3 Approvals to Construct and Operate Generation Facilities. As the Electric Utility Act’s definition of electric facilities includes facilities for generation, transmission, distribution, supply and use, the terms and conditions imposed in an EBL also apply, where relevant, to the transmission business and construction of transmission facilities.

As with the installation of generation facilities, installation of transmission lines requires ownership, surface rights or lease rights for the installation site. As mentioned in 3.4 Eminent Domain, Condemnation or Expropriation Rights, under the Electric Utility Act and Land Compensation Act, land may be acquired or expropriated for the installation of electric business facilities, which includes transmission facilities. Accordingly, the procedures for compensation mentioned in 3.4 Eminent Domain, Condemnation or Expropriation Rights apply.

KEPCO has a monopoly over the entire South Korean transmission market, as compared to other countries’ entities that have exclusive rights within a defined territory.

The Electric Utility Act does not restrict the issuance of a transmission business permit to KEPCO, and KEPCO’s monopoly over the transmission market is not explicitly provided for in the relevant laws or regulations or governmental authority’s administrative measures. Historically, KEPCO had a monopoly over the entire electricity market. In the early 2000s, a phased plan for market competition was introduced, but after competition in generation was implemented, further phases of the plan were suspended, resulting in the current structure of the South Korean electricity market.

To prevent monopoly pricing and ensure the stable supply of electricity, the Electric Utility Act requires the transmission business to:

• obtain the prior approval of the Minister of MOTIE regarding the charges for use of transmission facilities; and
• ensure that electricity businesses may use the transmission facilities without discrimination.

As noted in 4.5 Monopoly Rights to Provide Transmission Services, the Electric Utility Act provides for certain requirements to prevent monopoly pricing and ensure the stable supply of electricity. It also regulates the charges for use of transmission and distribution facilities. The transmission business must obtain the approval of the Minister of MOTIE regarding the charges for use and other terms and conditions and before the approval of the Minister, deliberation of the ERC is required.

In accordance with the above requirements, KEPCO provides for the regulations on the use of transmission and distribution facilities, which have been approved by the Minister of MOTIE. Under the Enforcement Decree of the Electric Utility Act, the following must be included in such use regulations:

• use charges;
• method of calculation of volume traded and use charges;
• liabilities between the transmission business and distribution business and liabilities between the transmission and distribution businesses and users of the transmission and distribution facilities;
• method and procedure for application for use of the transmission and distribution facilities;
• standards and payment method of costs to be borne by transmission and distribution facilities users;
• access point and standards for access between the transmission and distribution businesses and transmission and distribution facilities users; and
• any other matters regarding the protection of the transmission and distribution facilities users’ interests.

The approval criteria for the usage charges for the use of transmission and distribution facilities and other usage conditions, as well as the criteria for the approval for change, are as follows:

• the usage fee should be an amount which is equal to a reasonable cost plus a reasonable profit;
• the use of electric facilities is free from discrimination; and
• the relationship of rights and obligations with respect to the use of electric facilities shall be clearly specified.

According to MOTIE’s “Standard for Calculation of Transmitted Electricity Usage Charges”, the transmission charge should cover the total cost of transmission, which is the sum of the appropriate cost for transmission business plus investment compensation incurred under good faith and efficient management.

• The appropriate cost is calculated by deducting the non-operating income and expenses as well as asset depreciation from the cost of sales related to the transmission business, general administrative expenses and appropriate corporate income tax.
• The appropriate amount of investment compensation is the appropriate compensation for the actual invested assets that are directly utilised in connection with the transmission business. Such amount is calculated by multiplying the “appropriate investment compensation ratio” determined at a level that can harmonise the corporate performance and the public interest (considering factors such as capital cost of transmission business, risk, interest rate, inflation rate, reinvestment and expansion plan of the fiscal year, repayment plan of principal, and price prospects), with the “base fee” derived from the sum of the average net operating facility assets at the start and end of the fiscal year, the working capital for a certain period, and the assets under construction by self-financing for the fiscal year under review.
• The transmission charge system is composed of basic charge and usage fee, and it should be structured so that the burden on the users of the electricity transmission facility is fairly maintained and the resources are distributed reasonably based on the cost of transmission business.

The Electric Utility Act does not explicitly stipulate how an electricity transmission business operator shall contest the approval of the Minister of MOTIE in relation to the regulation for the use of transmission facilities. However, if the licence is illegal or unfair, KEPCO may contest it in accordance with the general principles and procedures of administrative litigation. While there is no explicit procedure for contesting the current regulation, an operator can apply for the change to the licence conditions by attaching the statement of grounds for change.

As described in 4.6 Transmission Charges and Terms of Service, “the use of electric facilities without discrimination shall be guaranteed” is one of the licensing criteria in the facility usage regulation.

The usage regulation provided by KEPCO also provides that “KEPCO, in providing usage of electricity transmission and distribution facilities, shall ensure that the customers can use such facilities without being unfairly discriminated against” (customers include both consumers in demand and power generators).

If a customer makes an application to use KEPCO’s transmission and distribution facilities, KEPCO shall conduct a technology review of the access plan and make an offer of connection to the customer. The customer shall accept the offer and KEPCO shall allow the customer to use the transmission and distribution facilities by negotiation and execution of a Term of Use Agreement with the customer within one month after KEPCO receives the acceptance of offer notice.

The main laws governing the construction and operation of the distribution facilities are also the Electric Utility Act and the Electrical Construction Business Act.

Under the Electric Utility Act, a licence is required for electricity business operation and the authority to grant such licence lies with the Minister of MOTIE, in principle. For the construction of electricity distribution facilities, the electricity construction business should be registered according to the Electrical Construction Business Act (see 3.1 The Construction and Operation of Generation Facilities for registration standards).

Meanwhile, South Korea’s electricity distribution market is also dominated by KEPCO, as previously mentioned.

The Electric Utility Act stipulates the provisions for transmission facilities and distribution facilities in parallel and applies the same rules, therefore refer to 4.2 Obtaining Approvals for the Construction and Operation of Transmission Lines and Associated Facilities for details.

See 3.3 Approvals to Construct and Operate Generation Facilities. The electricity business is inclusive in that it refers to all electricity-related businesses such as the electricity generation business and the electricity distribution business. The conditions of the EBL apply similarly to the distribution business.

For the installation of electricity distribution facilities, ownership or use rights over the project site, such as rights in the land, superficies, or lease, are required. However, projects recognised as serving public benefit under the Land Compensation Act and the Electric Utility Act – for which the acquisition, acceptance or use of the land are recognised – are treated as businesses installing electric facilities for the electricity business. As the electricity business and installation of electric facilities include the electricity distribution business and electricity distribution facilities, the same procedure for securing business site for power generation facilities also applies to distribution facilities. See 3.4 Eminent Domain, Condemnation or Expropriation Rights.

Unlike countries such as Japan, the UK, France and the USA, where the transmission/distribution market has a regionally monopolistic structure, the South Korean distribution market is also dominated by KEPCO (that is, it is not a regional monopoly, but an exclusive structure where KEPCO is the exclusive operator of the entire transmission market in South Korea). See 4.5 Monopoly Rights to Provide Transmission Services.

The Electric Utility Act stipulates the provisions for the transmission facilities and the distribution facilities in parallel and applies the same rules, see 4.6 Transmission Charges and Terms of Service for details.

Whilst there is a notice for the “standard for calculation of distributed electricity usage fee”, separate from the notice for the “standard for calculation of transmitted electricity usage fee”, from MOTIE, the contents are nearly identical. Thus, the explanation for “transmission” of electricity in 4.6 Transmission Charges and Terms of Service can be read as “distribution” of electricity.