Kim,H. and Kim,S.-S.(2012): The resource adequacy scheme in the Korean electricity market. Energy Policy, 47, 133-144.


 In South Korea, the incentive scheme for generators to add new power generation is based on the system marginal price (SMP) and the capacity payment (CP). The infra-marginal generators receive an extra margin due to the high SMP level and the new infra-marginal generators need to be built to achieve the optimal fuel mix. However, the Metropolitan zone needs more marginal generators due to the transmission congestion and environmental regulations, but the marginal generator in the Metropolitan zone does not have adequate profits for the new investment under the current CP. This paper suggests the appropriate investment incentive scheme for different zones. The introduction of forward capacity markets for different regions creates higher capacity market prices in the Metropolitan zone than those in the Southern zone. The introduction of forward capacity market also induces a new LNG generator investment in the Metropolitan zone while only new infra-marginal generators need to be added in the Southern zone.

Keywords: Resource adequacy; Capacity payment; Forward local capacity market』

1. Introduction
2. The Korean electricity market and resource adequacy
 2.1. Overview of the Korean power system
 2.2. The cost-based pool (CBP) in the wholesale market
 2.3. Capacity compensation: regulatory standard versus market orientation
 2.4. The current CP calculation
 2.5. Shortcomings of the CP
3. New alternative designs for resource adequacy in Korea
 3.1. Different CP levels for different generators
 3.2. Adjusted uniform CP
 3.3. Local capacity markets with entry
  3.3.1. Supply bids based on the variable cost
  3.3.2. Demand curve construction
  3.3.3. Market clearing procedure
  3.3.4. Capacity market with supply bid cap and opportunity cost
4. Simulation
 4.1. Demand fluctuation
 4.2. VRR curve variations
 4.3. Extension of transmission capacity from the Southern zone to the Metropolitan zone
 4.4. Supply fluctuations
  4.4.1. Nuclear unit's social cost
  4.4.2. Delayed construction of nuclear plants
  4.4.3. CO2 emission price
  4.4.4. LNG price change
5. Concluding remarks