South Korea Walks an Energy Tightrope

South Korea’s difficult power supply issues have been aggravated by an ongoing documentation scandal involving its essential nuclear plants, and the future of its economy depends upon efforts to balance energy security and environmental concerns. 

South Korea, the world’s eighth-largest trading nation, whose trade volume has surpassed $1 trillion for two straight years, barely avoided blackouts between June and August this summer after the country’s nuclear regulator was compelled to temporarily shut down or suspend resumption of six of its 23 reactors.

The cause: A wide-ranging documentation scandal that has since morphed into a political firestorm of corruption allegations traded between the state-owned nuclear company and the industry, and within the government itself. It began in November 2012 when investigators found thousands of substandard parts with forged quality warranties installed in reactors. This May, further scrutiny uncovered control cables used in emergency shutdown that failed safety checks but were still installed in several reactors with fake warranties.

And as temperatures rose this June, grid operator the Korea Power Exchange warned that reserve margins had dipped precariously low, and it was forced to slash power use by 6 GW to counter debilitating electricity supply shortages. The country’s energy ministry at the time also demanded that local conglomerates curb power use by 15% to avoid a grid failure. The problem now stands to worsen over the coming winter and through next summer, putting the country’s booming economy on hiatus.

It was not the first time this country of 49 million people has suffered sporadic power shortages due to an increasing strain on the grid. South Korea last suffered rolling blackouts in September 2011, when unexpectedly warm temperatures boosted power consumption, and it narrowly averted another crisis in November 2012 when the first two reactors were implicated in the documentation scandal.

Evidently, this member of the Organisation for Economic Cooperation and Development (OECD) that is poor in natural resources has been struggling to match its booming rise in energy demand with an associated investment in power plants. Observers point out that as power consumption by industries has skyrocketed along with a rise in income levels, so have applications that rely on the grid, attributable to artificially depressed power prices that are the lowest in the OECD. At the same time, construction of new power plants has been limited by delays stemming from environmental concerns and civil complaints. The country’s reserve margin has been gradually pinched to a slim 3.8% as recently as 2012—and it shows no sign of recovery until at least 2015 and as late as 2018, according to current investment scenarios.

The long term looks no better. The documentation scandal has eroded public confidence in the country’s lofty nuclear expansion aspirations, which had been seen as the best means to achieve long-term energy security and environmental goals. In this post-Fukushima age, that means South Korea is walking a tightrope to future energy security.

Unsustainable Power Prices

What’s causing the dangerous disparity between power supply and demand? The consensus is that South Korea’s power market is skewed. Retail prices are controlled in South Korea, and generators depend heavily on government subsidies to cover increased costs. Underscoring supply issues is that investment for power capacity expansions in recent years has fallen short because the market “is not providing sufficient incentives,” Finnish equipment firm Wärtsilä says in an in-house analysis. “The Korean electricity market provides a system marginal price (SMP) for each hour, which should stimulate new investments if the supply side is scarce,” it explains. “However, because the country’s generating companies cannot receive the full SMP for their existing assets, and because retail prices are regulated and are currently below the SMP, there is no incentive to invest in new capacity.”

The biggest loser is none other than state-controlled monopoly Korea Electric Power Corp. (KEPCO), which controls 100% of the transmission and distribution market and 93% of total power generation. KEPCO has posted annual losses for the past five years.

In August, the company’s net loss deepened to $1.58 billion compared to a year earlier, even as sales increased by nearly 17%. The company attributed the loss to surging costs of oil, gas, and coal. Though the company has been seeking higher tariffs, the government has only allowed the company to hike electricity prices by an average of 4.9%—much less than the 10.7% hike requested in July. South Korea therefore continues to have some of the lowest electricity prices (both residential and industrial) among the world’s developed countries.

According to the International Energy Agency (IEA), market reform will be the most critical remedy for South Korea’s economy-crippling power shortages. The process should entail “greater restructuring of [KEPCO] and revisiting the design of the wholesale market; and strengthening the independence of the sector regulator to enable fair competition, including the removal of barriers to new entrants and third-party access to network infrastructure, and creating clear roles for publicly owned and private entities,” it says.

The IEA notes that reform of energy markets is a “process not an event,” stressing that the government must clearly articulate goals for reform that take into account the country’s “green growth” ambitions, its nuclear expansion program, its targets for new and renewable energy, and the new emissions trading scheme.

Asia’s Beacon

Despite its current power supply troubles, South Korea boasts a 100% electrification rate, and it continues to serve as a beacon of development for many Asian countries—including neighboring China and Japan, which share many of Korea’s power shortage woes.

Since 1887, when the first electric bulb was lit in the royal court in Kyung Bok Palace and three 7-kW steam power generators (procured by special dispatch to the Edison Electric Co.) created the Hansung Electric Co., the country’s power sector has resiliently survived a number of political, economic, and regulatory barrages.

Between 1910 and 1945, the Korean Peninsula was occupied by Japan, from which it regained its independence after World War II. The division of the peninsula along the 38th parallel and ensuing Korean War (1950–1953) resulted in an armistice that created a border between the communist north and the democratic south (though South Korea, also known as the Republic of Korea, did not have its first free, direct presidential election until 1987). A few years later, in 1961, the Korea Electric Co. (KECO) was born through the integration of an existing power company and two distribution firms. As the country saw rapid economic growth fueled by chaebols, massive family-owned conglomerates that enjoyed a close relationship with the government, KECO became a wholly government owned entity in 1982, being renamed the Korea Electric Power Corp. (KEPCO).

When rattled by the currency market turmoil that derived from the 1997 Asian Financial Crisis, South Korea moved to restructure its power sector. Following passage of the Basic Plan for Restructuring the Electricity Industry, KEPCO was unbundled in 1999 into five thermal generation companies—Korea South-East Power Co. (KOSEP), Korea Midland Power Co. (KOMIPO, Figure 1), Korea Western Power Co. (KOWEPO), Korea Southern Power Co. (KOSPO), and Korea East-West Power Co. (KEWESPO)—and one company to oversee the country’s nuclear and hydropower, Korea Hydro and Nuclear Co. (KHNP). The five thermal companies were to be privatized in stages, though the government has not completed that. Today the government retains a 21% direct stake in KEPCO. The 2009-established Korea Finance Corp.—a 100% government-owned quasi-sovereign financial institution—owns the majority 29.9% share in KEPCO.

PWR_110113_SR_SouthKorea_Fig1
1. Class operations. The Boryeong thermal power plant, the first standardized 500-MW supercritical plant that was designed, constructed, and completed solely by South Korean engineers, began operating in April 1993. Its owner, Korea Midland Power Co. (KOIMPO), said Unit 3 recorded 5,000 days of trouble-free operations between December 1998 and September 2013—a record for the country that has a number of noteworthy plants. Courtesy: KOMIPO

Restructuring efforts also established the Korea Electric Power Exchange (KPX) to serve as the system operator and coordinate the wholesale electric power market. KPX continues to regulate the cost-based bidding-pool market and determines prices for energy sold between generators and the KEPCO grid. KEPCO is the main retailer and, apart from large industrial consumers, is the sole purchaser of electricity from the pool. Since 2004, however, regional districts have been allowed to bypass KEPCO and the power pool by buying power directly from independent generators.

Today, KEPCO and independent generators (which produce about 8% of the country’s power) are overseen by the Ministry of Trade, Industry, and Energy (MOTIE), an entity that took on a trade policy role and replaced the Ministry of Knowledge Economy (MKE) in March 2013. MOTIE works in consultation with the Ministry of Strategy and Finance, the country’s six generation companies, and KEPCO. The country’s nuclear power sector is regulated by the Nuclear Safety and Security Commission (NSSC).

Teetering “Green Growth”

Complicating the country’s overwhelming supply issues is a planned transition toward a low-carbon, sustainable energy future. South Korea is a signatory of the United Nations Framework Convention on Climate Change and the Kyoto Protocol. In line with the first National Energy Master Plan (2008–2030), the country in April 2010 passed the Framework Act on Low Carbon Green Growth. A key aspect of that “green growth” strategy is balancing energy security with resource efficiency and measures to mitigate climate change.

Significantly, the act establishes an ambitious target to reduce national emissions of greenhouse gases (GHG) by 30% in 2020 below a business-as-usual scenario and requires the government to operate a GHG emissions trading system that will cover major power generators and industrial and manufacturing entities.

Following passage of the Enforcement Decree of Allocation and Trading of Greenhouse Gas Emissions Allowances Act (the ETS Act) by South Korea’s cabinet in November 2012, the ETS is now slated to begin in January 2015, overseen by the Ministry of Environment. Data from 2011 shows that 76% of the country’s emitted GHGs came from only 10 major entities—including KEPCO, which generated about 93% of the country’s power and accounted for 39% of the nation’s total GHG emissions.

Essentially, the green strategy has forced the energy-hungry nation to stake its long-term future disproportionately on an expansion of nuclear power and renewable capacity.

That approach could work, say experts. Planned builds of low-carbon generation are expected to reduce the average emissions per megawatt-hour of power generation by more than 10% between 2010 and 2020. However, others contend that South Korea will, during its transition, be forced to rely on coal-fired generation over more expensive gas-fired generation (gas must be imported at a premium as liquefied natural gas [LNG]). They also assert more than the planned nuclear and renewable capacities may be needed to meet long-term goals for energy security, and that this may be despite energy efficiency priorities set by the country’s “green growth” strategy, which include a $2.2 billion investment in industrial energy efficiency and standards set for appliances and lighting.

Meanwhile, the country is, in addition to the cap-and-trade program, considering a carbon tax that would range from about $0.0012/kWh for thermal generation to $0.0062 per liter of heavy fuel oil. If approved, the carbon tax could come into effect in January 2016. Though it would draw in trillions of revenue for the government, “fear of double regulation for businesses in addition to the proposed emission trading scheme has been expressed,” said Changmin Yoo, the director of PwC South Korea.

A Delicate Power Balance

Keep in mind that South Korea’s energy consumption has grown six-fold since the 1980s (and five times faster than other OECD countries) on the back of rapid economic growth propelled by its heavy and chemical industries. The country is today the world’s 9th-largest energy-consuming nation. Total primary energy consumption surged to 275.7 million tons of oil equivalent (TOE) in 2011 as energy consumption per capita also increased, from 1.1 TOE in 1980 to 5.1 TOE in 2011, according to the Korea Energy Management Corp. KEPCO reported in 2012 that about 14% of net electricity generated was consumed by residential use, 31% was for commercial and public use, while about 55% was for industrial use.

South Korea’s current power portfolio is divided mostly between thermal generation and nuclear power. In 2012, total electricity consumption soared to 466.59 TWh while the total produced from 81.8 GW of installed capacity was 509.58 TWh (Figure 2).

PWR_110113_SR_SouthKorea_Fig2
2. Where coal is king. In 2012, South Korea’s total installed capacity was 81.8 GW, and it produced 509.58 TWh (not counting transmission losses) while it consumed 466.59 TWh. Source: Korea Electric Power Corp. 

Thermal Generation. Coal power has to date played a particularly marked role, its share in the country’s electricity mix rising dramatically from 17% in 1990 to 40% in 2010. Gas-fired generation, too, soared during that period, from 9% to 19%. Though the country’s “green growth” future strategy favors nuclear power most of all, coal will continue to play a major role, presumably to boost energy security.

The bulk of South Korea’s thermal generation is produced at cities such as Dangjin, where a coal-fired power plant has been in operation since 2000 (Figure 3). Other generation in or near urban centers includes the $2.5 billion 1,600-MW Yonghungdo plant near the city of Inchon and the Hadong plant, which has eight 500-MW units.

PWR_110113_SR_SouthKorea_Fig3
3. Burnished coal credentials. KEPCO’s coal-fired Dangjin power plant about 70 kilometers southwest of Seoul has four 600-MW units (Units 1–4) and four 500-MW ultrasupercritical units (Units 5–8). Work is under way at the plant to complete two 1-GW units (Units 9 and 10) featuring ultrasupercritical technology by the end of December 2015 and June 2016. Courtesy: KEPCO

Meanwhile, several innovative plants are under construction, including KOSPO’s $3 billion Samcheok Green Power Project. When online in 2014, that project will employ low-grade coal and supercritical circulating fluidized bed boilers. Another much-watched project is an integrated gasification combined cycle plant being developed by KEPCO subsidiary KOWEPO, which will use GE’s giant 7F syngas turbine for the 300-MW plant in Seoul that is slated to be completed in 2015.

Development of future coal plants will be opened to independent power producers (IPPs), and a number of players are vying for that opportunity, including four Korean conglomerates: Tong Yang, Dongbu, Samsung, and SK.

South Korea is also expected to begin construction of LNG power plants with a combined output of 5 GW starting in June 2015, up from the 887 MW of LNG capacity in December 2012 and a combined cycle gas-fired power plant capacity of 19.7 GW (or about 24% of the nation’s total capacity). According to giant South Korean construction firm Doosan—which is the only player in the country with the technological capacity to produce gas and steam turbines—IPPs could secure thermal power plant projects with a combined output of about 11 GW (or nearly 74% of the nation’s thermal output in 2020).

Nuclear.  Historically, nuclear power has been essential for reducing South Korea’s vulnerability to global fuel shortages. Since the 1970s, the country has carried out an ambitious nuclear power program in parallel with its industrialization policy, first building power plants mostly through turnkey contracts (its first plant, Kori 1, was built by Westinghouse in 1978), and then developing a domestic sector to undertake construction, management, design, and equipment supply.

Touting “green growth”—a “new banner for an old strategy,” notes U.S.-based think tank the Council on Foreign Relations—South Korea today has 21.6 GW of nuclear capacity at 23 operating nuclear plants (comprising 19 pressurized water reactors and four CANDU pressurized heavy water reactors) and five units under construction. All the country’s reactors, located along the southern coast, are owned by KEPCO subsidiary Korea Hydro & Nuclear Power (KHNP). And it’s an admirable fleet: The country boasts that its reactors have the highest capacity factor—the proportion of time that a reactor is generating electricity—and the lowest unplanned shutdown rate in the world, at only 0.3 to 0.5 times per month, compared to 3.2 times per month in France.

However, in accordance with a 1973 nuclear cooperation agreement with the U.S.—which is due to be renewed in four years—South Korea has an open fuel cycle without enrichment or reprocessing. Spent fuel is now stored onsite at reactors until a centralized interim storage facility at Gyeongju is completed (expected in 2024). One expert notes, however, that three reactor sites where spent fuel is currently stored are expected to reach capacity in 2016, and construction of the interim repository has twice been delayed due to “weak bedrock and groundwater problems.”

Nevertheless, South Korea’s future is staked firmly in nuclear simply because, as former South Korean prime minister Han Seung-soo acknowledged in 2011, “If we pursue clean energy, we need to accept nuclear power as a reality until we have better options readily available.” Since the Fukushima disaster, therefore, South Korea has remained steadfast on a nuclear expansion, though it has emphasized nuclear safety, and even establishing the world’s first International Nuclear Safety School to train safety experts from other countries. Plans are now under way to increase nuclear’s share from 25% to 59% by 2030, and in addition to the five reactors under construction, eight others are planned at an estimated total cost of $32 billion to $40 billion.

The country certainly has the technological know-how—even if the Fukushima accident and widening documentation scandal have undermined public support for the country’s cheapest source of electricity. After achieving technological independence with construction of Yeonggwang 3 and 4 (Figure 4), South Korea’s first domestically designed OPR1000 reactors, Ulchin 3 and 4, entered commercial operation in 1998. Six more OPR1000 plants are now under construction at Ulchin, Shin-Kori, and Shin-Wolsong, but South Korea is also building a domestically designed third-generation light water reactor, the APR1400, at Shin Kori 3 and 4, units that are slated for completion in December 2013 and 2014 respectively.

PWR_110113_SR_SouthKorea_Fig4
4. Strained supplies. South Korea suffered strained power supplies this summer, stemming from forced reactor shutdowns ordered last November at the Yeonggwang nuclear complex (shown here) owned by state company Korea Hydro & Nuclear Power Co., which operates the nation’s 23 nuclear reactors. The measure followed KHNP’s admission that eight unnamed firms that supplied parts had faked 60 certificates covering 7,682 nuclear power components over a period of nearly 10 years, from 2003 to 2012—affecting at least five reactors. Later in May 2013, a separate scandal involving forged documentation for safety-related control cabling prompted the shutdown of Shin Kori 1 and 2 and Shin Wolsong 1 and delayed startup approval for the newly built Shin Wolsong 2. South Korea’s government has since announced new measures responding to the quality control scandal and safety problems to include new procedures for procuring reactor parts and dealing with mechanical problems. Courtesy: Korea Yeonggwang NPP

Korea Hydro & Nuclear Power Co. typically issues corporate bonds with diversified maturities to attract national and international investors to fund the costly projects, though it says it also “works to secure a reasonable sales price for electricity and to reduce the cost of production” to maximize earnings. Meanwhile, the company has also embarked on a quest to export 80 indigenously designed nuclear reactors by 2030 to generate a total of $300 billion in sales. Though it recently cemented a critical deal for the supply of four APR1400 units to the United Arab Emirates, experts question the feasibility of the larger goal, noting it would require a tremendous boost in production of nuclear reactors at time when the nuclear workforce had diminished. (For more on South Korea’s nuclear export efforts, see POWER’s web supplement to this issue, “South Korea Ramps Up Nuclear Exports.”)

Renewables. As prioritized in its “green growth” strategy, South Korea is also banking on renewables to increase its energy self-sufficiency, though as it stands today, the country’s share of renewables is so meager that it ranks at the bottom of all OECD countries, says the IEA. In 2012, it replaced feed-in tariffs (FITs) with a renewable portfolio standard (RPS) that applies to power providers with more than 500 MW in generating capacity and requires that the 13 largest public and private utilities purchase or generate renewable energy at a rate equal to 10% of their share of total energy by 2022.

Some experts point out that in the year since the RPS was adopted, new facility capacity has jumped by 620 MW—nearly half that accumulated under FITs over the past decade. Others note that despite incentives like a 5% tax credit, long-term low-interest loans, and halved import duties on renewable plant components to encourage more private firms to take a lead in the development of renewables, the fledgling sector continues to lag behind global competition.

Yet others simply point to the country’s massive potential. Only 5% of the potential estimated for large-scale and small-scale hydropower has been realized—even though hydro is the country’s top renewable source, the government says. The government also wants 15.7 GW of wind power to be generated by 2022 in addition to the existing 480 MW. South Korean conglomerates have begun to invest significantly in offshore wind farms in the southeast part of the country, and the government has boosted its support by announcing a strategy to attract $8.2 billion to develop offshore wind farms with a capacity of at least 2.5 GW by 2019. Solar, far underdeveloped, will fare best in South Korea’s southern coastal area, and geothermal capacity has remained stagnant at 229 MW, notes the government. Several KEPCO subsidiaries are meanwhile focusing on biomass using pellets as a means to achieving the RPS.

Perhaps South Korea’s most promising renewable efforts are in marine energy, where it hopes to benefit from strong tidal flows around the Korean Peninsula. Funded partly by the Korean government, the Korea Water Resources Corp. (KWRC) in 2011 put into operation the 254-MW Lake Sihwa tidal power station, a tidal barrage that uses 10 submerged 25.4-MW bulb turbines to generate power (Figure 5). That project is the world’s biggest tidal power station today.

PWR_110113_SR_SouthKorea_Fig5
5. Tidal power title-holder. The Korea Water Resources Corp. in August 2011 put into operation the 254-MW Lake Sihwa tidal power station in the country’s northwest Gyeonggi Province, a tidal barrage that uses 10 submerged bulb turbines that are driven in an unpumped flood generation scheme. The project’s capacity surpasses the1966-built 240-MW Rance Tidal Power Station in France, making it the world’s biggest tidal power station. Courtesy: KWRC

Transmission and Distribution. As of December 2012, South Korea’s transmission grid consisted of three systems of 765 kV and 345 kV for trunk routes and 154 kV or 66 kV for local networks—all owned and operated by KEPCO—of over 31,622 kilometers. KEPCO is replacing most 66 kV lines as it carries out the second stage of a 765 kV power transmission link that it says will serve as the backbone of a 21st-century smarter system.

A supervisory control and data acquisition (SCADA) system is used to remotely monitor and control substation operations. In addition to equipment and facility upgrading, more substations are being automated and built indoors to secure power supply reliability. Meanwhile, KEPCO also owns the sole distribution network in the country—a highly efficient one.

Notably, in December 2012, the rate of power loss in transmission and distribution was 3.69%—much less than in other countries, including the U.S., whose losses average about 7%.

Advanced Technologies. To its credit, South Korea ranks among the highest in the world in research and development spending, and it has over the past few years pioneered a number of fundamental technologies. Also highly revered are its efforts to establish a smart grid throughout the entire country by 2030 with a more sophisticated grid and management of power peaks using automated metering infrastructure and energy storage systems.

Citing its paucity of natural resources and soaring demands of economic growth, the government enacted the Smart Grid Act in 2011 and subsequently issued a master plan, both which have paved the way for institutional support of smart grids. Notable projects include a $65 million smart grid pilot complex on Jeju Island (Figure 6), which between 2009 and 2013 tested five sectors to improve the power system efficiency and to develop output stabilization technology for renewable energy. The project included testing of commercialized electric car charging stations and real-time payment systems.

PWR_110113_SR_SouthKorea_Fig6
6. An island of hopes. One of South Korea’s nine provinces, the scenic but isolated 714-square-mile Jeju Province that lies in the Korea Strait, seeks to be “carbon-free” by 2030, an effort that entails replacing current diesel generation with renewables and a reliance solely on electric vehicles and a smart grid. Projects are under way to install a 2.5-GW offshore wind farm—one of the largest in the world—a 300-MW onshore wind farm, and a 100-MW solar power facility by 2030. South Korea has also tested several smart grid, energy storage, and electric vehicle charging technologies on the island, including an advanced distribution automation system, a microgrid operation center, and advanced metering infrastructure. The island also includes a seawater desalination plant. Courtesy: Jeju Special Self-Governing Province

On the renewables front, too, KEPCO is equipping itself with the technology and competency needed for all aspects of offshore wind power generation, including engineering, construction, and operation, and it has ambitions to become one of the world’s top three offshore wind energy players by 2020.

Research is under way at an offshore wind farm in the Yellow Sea, and South Korea is also developing biogas turbine generators and establishing infrastructure for solar energy testing facilities. An interesting project from the Korea Institute of Energy Research (KIER), meanwhile, seeks to use ammonia produced using water, air, and electricity from renewables in existing energy storage and transportation infrastructure. KIER has to date developed a vehicle whose fuel has an ammonia substitution rate of 70%.

Establishing a Safety Net

South Korea’s future energy goals are outlined in biannual power development plans based on which generation companies apply for government approvals for power plant construction. The latest installment of the so-called “Basic Plan of Long-Term Electricity Supply and Demand (BPE)” is the 6th BPE, issued this year, which covers a planning period from 2013 to 2027.

Compared to the 5th BPE (2010–2024), the 6th plan calls for a marked rise in the proportion of baseload power plants: It increases the share of coal-fired generation to 34.6% on a 2027 basis compared to 27.9% on a 2024 basis (Figure 7). Those plants will be needed to meet a power consumption growth rate increase of 3.4% in the 6th plan, a figure that was revised from 3.1% in the 5th plan, and significantly, to retain a target electricity reserve margin rate of 22%, the government reasons. However, deferring a decision to build any new nuclear plants, the plan notably stops short of planning for new nuclear capacity beyond what is already approved in the 5th plan (35.9 GW), given ongoing safety concerns.

PWR_110113_SR_SouthKorea_Fig7
7. The demand and supply plan. The 6th Basic Plan of Long-Term Electricity Supply and Demand (2013–2027) compared to the 5th plan (2010–2024) calls on generators to maintain a constant reserve margin of 22% until 2027 in order to stabilize power demand and supply. Also urged is massive capacity expansion for nuclear, coal, and renewable generation. Source: MOTIE

Analysts applauded the plan’s stance to complete six planned but uninstalled nuclear reactors from the 5th Basic Plan, which have been controversial following the procurement-related scandal at Korea Hydro and Nuclear Power. But according to credit ratings agency Fitch Ratings, if no nuclear generation is built after 2024, the share of higher-cost generation (including coal and LNG-fired power plants) will surge—and Fitch projects the government may rethink its position on nuclear energy given high production costs anticipated. At the same time, it says, the government’s call for 61 new generating units (excluding renewables) by 2027 underscores the need for urgent reforms of its power sector.

Higher generation capacity and a more expensive overall generation mix through 2027 will continue to burden KEPCO—which will build about 35 of those new plants—if the government does not allow for cost-reflective tariffs. Fitch also projects that KEPCO and its five generation subsidiaries could spend more than 10 trillion won ($9.3 billion) per year solely on the construction of the new coal and nuclear plants—even if the government invites more private sector participation in the generation market.

Seeking Fuel Stability

The 6th plan, meanwhile, also contains an interesting admission by the government that power generation costs will need to be curbed in the face of expected fuel cost rises in the mid- to long term. Though South Korea accounts for 2.1% of the world’s total energy consumption, it is poor in natural resources and has been forced to import a staggering 96% of its fuel needs for more than a decade. In 2012, the country spent an astounding $184.8 billion (compared to $172.49 billion in 2011) to import 96.4% of its energy—a figure that represented a third of the country’s total imports.

Comprising 99% of energy imports were almost a billion barrels of oil from the Middle East (and a tiny fraction from Asia and Africa); 116 million tons of coal from Australia, China, and Indonesia; 36.7 million tons of LNG from Qatar, Oman, and Indonesia; and 907.4 tons of uranium from Russia and Canada. Effectively, South Korea was in 2011 the world’s third-largest coal importer. And in 2012, because it is dependent on costly oil-indexed price imports for nearly all its LNG, except for a small fraction obtained from its own Donghae gas fields, it became the world’s second-largest LNG-importing nation, after Japan.

Future plans to diversify imports focus on shale gas, and to that effect, the government in September 2012 announced a “Shale Gas Development and Use Strategy.” The Korea Gas Corp., an entity responsible for importing natural gas, has a stake in developing shale gas fields in Canada and is attempting to secure supplies offshore Mozambique. It has also more recently signed a purchase contract with Cheniere Energy’s Sabine Pass LNG facility for 3.5 million metric tons of LNG annually (making it the first U.S. LNG export project). Then the government plans to increase storage rates and add capacity from three other import terminals already in operation at Incheon, Pyeongtaek, and Tongyeong.

A Comprehensive Vision

South Korea’s attempts to balance energy security and the environment are notable in their scope and span, but the country continues to be at the mercy of several volatile factors. Later this year, the government is expected to release its second energy master plan. It remains to be seen if, as some government sources report, that plan will lay out a more flexible vision that could allow the country to achieve the tremendous economic growth it is capable of while engaging a smart strategy to address climate change. ■

Sonal Patel is a POWER associate editor. Follow her on Twitter @sonalcpatel and @POWERmagazine.