2013-11-02 16:27:23 - New Energy research report from Business Monitor International is now available from Fast Market Research
The country has undertaken many measures to battle the surge in energy demand as a result of the soaring summer temperatures. The situation has highlighted once again the problems that have resulted from its previous lack of investment in generation capacity. Moreover, the government has had to undertake strong action to combat the new wave of scandals which threaten to further weaken the public's trust in South Korea's nuclear power plants. Although we expect the country to power ahead with its capacitybuilding plans, the latest proposal to levy a carbon tax on electricity energy is likely to impact the attractiveness of the industry for private producers.
We forecast overall power generation in South Korea to grow at an average of 4.3%
per annum between 2013 and 2022, reaching 767.1TWh. While coal- and gas-fired generation continue to play a vital role, we expect most of the growth to come from nuclear generation, which we expect will lead growth in generation in the second half of our 10-year forecast period to 2022, despite the current high level of public distrust. We expect the country to continue adding thermal capacity to avoid further supply shortfalls, which it experienced in September 2011. As South Korea recorded several incidents where a surge in power consumption resulted in generation dipping into the 4,000 megawatt (MW) reserve buffer level set out by the government, the construction of eight coal-fired plants by private operators was approved (adding an estimated 2740MW) with completion anticipated by 2027. The government further approved the construction of another six gas-fired plants (adding an estimated 5060MW to the system), which are to become operational between 2015 and 2017. This is in line with our expectations for the increasingly cautious government to look to other forms of generation to fill the supply gap, given public distrust in nuclear generators.
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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, with growth in this sector anticipated to average 5.1% per annum between 2013 and 2022, the incidents of falsely certified parts found for various nuclear plants have increased public distrust of nuclear power and have stalled the opening programme for new capacity. A poll commissioned by the Economics Ministry, published in November 2012, recorded a plunge in public confidence in the safety of nuclear plants, with only 35% considering nuclear power safe compared with 71% in a similar survey done in January 2010. In line with our expectations, the government has turned to other forms of power generation, namely gas and coal generation. With the ongoing scandals surrounding the use of uncertified parts in nuclear plants, these heightened safety concerns are likely to persist, and pose downside risks to our nuclear generation forecasts. The tight demand and supply situation has pushed the government to ration energy used by public authorities, as the traditional peak for electricity draws closer in the coming months.
* The tight demand and supply power conditions continue to weigh on the country. In December 2012, South Korea's largest business lobby appealed to its members to save electricity in the light of high consumption and possible power shortages as the country saw multiple incidences of demand surging close to maximum generation capacity levels. We expect the slimness of this margin to continue to be a threat to the country's growth, with electricity consumption to grow at 4.2% in 2013. Our County Risk team sees a rebound in GDP growth to 3.0% in 2013, from a weak 2.1% estimated for 2012, and forecasts this to accelerate, growing at an average rate of 4.5% between 2014 and 2022. 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. The government approved the building of eight coal-fired power plants by private companies at the end of January 2013 - the first in 30 years. The government is aiming to increase the country's generation capacity in excess of 22% of consumption by 2027.
* In line with the commitment to cut emissions by 30% from 2020 forecasted levels, South Korea's parliament has passed an 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 17.2% per annum between 2014 and 2022 for non-hydro renewables as power companies gradually comply with this regulation. The government further reaffirmed its commitment to growing renewables in its energy portfolio, increasing its target for renewables generation to reach 20% of the country's total capacity, or 32,020MW, by 2027.
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