The concentration of electricity demand in Gyeonggi-do continues to increase. In 2023, 41.2% of the country's maximum power demand of 38,522 MW occurred in Seoul Metropolitan Area (Seoul, Gyeonggi-do, and Incheon). However, the local power generation facilities in the region are insufficient to meet this demand, necessitating the supply of 12,500 MW of electricity from non-Gyeonggi-do areas. Furthermore, by 2029, 601 new data centers are expected to be constructed in Gyeonggi-do, and the Yongin Semiconductor Cluster is projected to add up to 16 GW of additional electricity demand. Given these trends, the concentration of electricity demand in Gyeonggi-do is expected to intensify.
On the other hand, while the absolute capacity of power generation facilities in Gyeonggi-do has increased, their share of total installed capacity has declined. In 2014, power generation facilities in Gyeonggi-do accounted for 26,204 MW, or 28.11% of the total capacity. However, by 2024, this capacity had increased to 37,250 MW, but its proportion of total capacity had decreased to 25.77%. Conversely, in non-Gyeonggi-do areas, power generation capacity has grown from 67,012 MW (71.89%) in 2014 to 107,293 MW (74.23%) in 2024, further exacerbating the regional disparity in power generation facilities. As a result, non-Gyeonggi-do areas have a power self-sufficiency rate exceeding 100%, whereas Gyeonggi-do remains highly dependent on external electricity supply.
Additionally, the adoption rate of renewable energy in Gyeonggi-do is significantly lower than in non-Gyeonggi-do regions. The renewable energy self-sufficiency rate in non-Gyeonggi-do areas stands at 14%, while in Gyeonggi-do, it is only 4%, highlighting the urgent need for more renewable energy installations. This imbalance in electricity supply has led to congestion in the seven power transmission lines that supply electricity to Gyeonggi-do. In May 2023, the transmission limit for Gyeonggi-do power supply lines was set at 11,100 MW, and on May 31 at 12 PM, the transmission flow nearly reached the limit at 11,058 MW, indicating severe transmission congestion.
However, expanding transmission infrastructure remains a challenging task. The construction of new transmission facilities has been delayed or canceled due to public resistance and regulatory issues. For example, Hanam City ultimately rejected KEPCO's plan to build an HVDC converter station at the East Seoul substation. Other major transmission lines, such as Bukdangjin-Sintangjeong (345 kV), Dangjin Thermal Power Plant-Sinsongsan (345 kV), and Donghaean-Singapyeong (HVDC), have faced site selection delays and permit rejections, postponing their completion by over 150 months. This situation underscores the need for alternative solutions to ensure stable electricity supply in Gyeonggi-do.
Against this backdrop, the Special Act on Distributed Energy Activation, which came into effect in June 2024, introduced the possibility of regional differential electricity pricing. This policy aims to alleviate transmission constraints caused by the mismatch between power production and consumption regions and improve inefficient market operations. In this study, a simulation of the Korean power market was conducted to analyze the potential impacts of this pricing scheme on power generators in Gyeonggi-do, renewable energy investment incentives, changes in retail electricity prices, and fluctuations in wholesale electricity prices due to changes in industrial power demand.
The study examined three policy scenarios in comparison to the current market operation (M2). In the first scenario (M3-1), wholesale market prices were derived separately for Gyeonggi-do and non-Gyeonggi-do areas based on their respective marginal prices. The second scenario (M3-2) applied a weighted average of nodal marginal prices for Gyeonggi-do and non-Gyeonggi-do electricity demand. The final scenario (M4) directly applied nodal marginal pricing. However, it should be noted that the Korean power system model (KPG 193) used in this study is based on publicly available data and was simplified using Security Constrained Economic Dispatch (SCED). As a result, the study focuses on identifying price and settlement trends rather than providing absolute accuracy in price predictions.
The findings indicate that under a regional differential pricing scheme, wholesale electricity prices in Gyeonggi-do are expected to remain relatively stable compared to the current market (M2). However, prices may decline slightly under M3-2 and M4. While the Gyeonggi-do market price is relatively unaffected, wholesale electricity prices in non-Gyeonggi-do areas could decrease by approximately 40% due to the presence of lower-cost generators. This price shift could impact both power generators and electricity retailers. In particular, the adoption of nodal marginal pricing could lead to high Locational Marginal Prices (LMP) in high-load areas in western Gyeonggi-do, as these prices are influenced by the incremental costs of generation. In contrast, LMP in southern Gyeonggi-do (Pyeongtaek regions) are expected to be lower due to the availability of low-cost power generation. However, regions without power plants, such as Hwaseong, Yangpyeong, and Gapyeong, may experience high LMP due to congestion charges, making them more vulnerable to wholesale price increases.
In terms of power generator profitability, since wholesale electricity prices in Gyeonggi-do remain largely unchanged, settlement costs and net profits for power generators in Gyeonggi-do are not expected to deviate significantly from current levels. However, the projected 40% decline in non-Gyeonggi-do market prices is expected to reduce revenues and settlement costs for non-Gyeonggi-do power generators, resulting in a relative increase in profitability for Gyeonggi-do-based power generators.
For electricity retailers, the difference in procurement costs between Gyeonggi-do and non-Gyeonggi-do regions could influence retail electricity prices. Since wholesale electricity prices in Gyeonggi-do are expected to remain stable, retail prices in the region are also unlikely to change significantly. However, in non-Gyeonggi-do areas, the anticipated 40% reduction in power procurement costs is expected to lead to lower retail electricity prices. Consequently, electricity consumers in Gyeonggi-do may face relatively higher retail prices, potentially leading to a sense of unfairness. To address this issue, measures to mitigate consumer dissatisfaction in Gyeonggi-do will be necessary.
Regarding renewable energy investment incentives, the high land costs in Gyeonggi-do result in high Levelized Cost of Electricity (LCOE), making it difficult for most renewable energy projects to achieve profitability. The maximum LCOE required to ensure economic feasibility in Icheon, for example, is 178 KRW/kWh, which is challenging to meet. However, rooftop solar PV systems could secure profitability due to their lower LCOE of 96 KRW/kWh, making their adoption highly recommended. Additionally, rather than participating in the wholesale market, renewable energy developers may benefit more from long-term fixed-price contracts to hedge against market price fluctuations.
Lastly, the study examined the impact of industrial power demand growth on market prices under a regional differential pricing scheme. The results suggest that since wholesale market prices in Gyeonggi-do are expected to remain stable, increased demand from industrial complexes would have little impact on overall market prices. However, in areas like the Yongin Semiconductor Cluster, where power generation facilities are lacking, rising electricity demand could lead to higher LMP. Therefore, to mitigate these LMP increases, constructing additional power generation facilities near congested transmission lines in Gyeonggi-do would be necessary.