2013-02-28 15:13:04 - New Energy market report from Business Monitor International: "South Korea Power Report Q1 2013"
BMI View Concerns surrounding the safety of nuclear power plants have been reignited as a result of uncertified parts found used in some of South Korea's nuclear reactors. While we believe that the country is unlikely to shut more plants down, despite fervent protests, we believe that the government is likely to implement significant measures in the hope of regaining the public's trust. Other plans include hastening the implementation of a smart grid that will also help the strained power suppliers meet the country's growing consumption.
We forecast overall power generation in South Korea to grow an average of 3.59% per annum from 2012 to 2021, to reach 669 terawatt hours (TWh). While coal- and gas-fired generation continue to be vital,
we expect most of this growth to come from nuclear generation. That said, we expect the country to continue adding thermal capacity to avoid further supply shortfalls, which it experienced in September 2011. Moreover, the increased cautiousness at which the government provides approvals for the construction of nuclear generators could, in turn, result in greater thermal generation growth, particularly gas-fired plants.
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Key trends and changes in the industry:
* Although we believe that the bulk of growth in generation capacity will continue to be from nuclear, which growth we expect to average at5.19% per annum between 2013 and 2021, the incidents of falsely certified parts found for various nuclear plants may serve to increase public distrust in nuclear power and stall the opening of new capacity. These heightened safety concerns pose downside risks to our nuclear generation forecasts. The government has already shut down two reactors in the Yeonggwang nuclear power complex, which contribute approximately 2.6% of the country's total electricity supply, as a result of the uncertified parts and cracks found, but the high demand for electricity in winter is discouraging the government from taking even sterner action against offenders.
* Prime Minister Kim Hwang-sik called on South Koreans to join in an energy-saving campaign, with the risk of a power outage having grown with the shutdown of two nuclear reactors with substandard parts, leaving the country with power reserves of less than 4mn kilowatts (kw). The country is also looking to introduce an extra-charge from January 2013, to discourage energy consumption in peak daytime hours in winter by corporate users. The government is also exploring the option of renting ships with power generators from Turkey and the turning on of emergency generators at public companies to help cope with the shortage.
* In line with the commitment to cut emissions by 30% from 2020 forecasted levels, South Korea's parliament passed a new emissions trading scheme (ETS) to tackle a growing emissions problem. The scheme is set to be launched in 2015 and will affect heavy industries and power generators.
* Renewables are also set to grow, with a Renewable Portfolio Standard (RPS) now requiring power generators to source 10% of electricity from renewables by 2022. We forecast average growth of 17.4% per annum for non-hydro renewables in line with this regulation.
* The margin between the country's electricity demand and supply remains slim even as South Korea eagerly increases its generation capacity. The rolling blackouts imposed in September 2011 bears testament to the razor-thin margin which could be easily affected by the amount of capacity under maintenance. The slimness of this margin is likely to pose a problem, as we expect electricity consumption to grow at 4.19% in 2013, as our County Risk team sees a rebound in GDP growth to 3.0% in 2013 from a weak 1.9% estimated for 2012. Currently planned clean energy projects, to our knowledge, remain insufficient to alleviate this problem, and we believe that South Korea may have to continue adding conventional thermal capacity to supplement cleaner energy production. Indeed, we have seen the government shift its mindset to consider non-state companies to operate coal-fired power plants to increase the capacity and prevent costly blackouts.
* In the upcoming presidential elections, to be held early 2013, both candidates have vowed to raise electricity tariffs to reduce power consumption and cut nuclear power generation. BMI's core view is for Park Geun-Hye, from the ruling New Frontier Party, to win. She, however, has suggested that the original plans to add 11 more nuclear reactors by 2024 to increase nuclear generation to close to 50% of the energy mix would be reviewed. A slower growth in nuclear generation is likely to result in an accelerated growth in gas-fired generation, and will likely benefit private gas-fired power producers such as GS Power. Despite these pledges, we do not expect any drastic changes in the energy plan, given the tight demand and supply situation in the country and strong business influence on policy-making; rather, we expect a more gradual shift in the power mix.
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