This study evaluates the policy goal of ‘renewable energy 3020’, raising the proportion of renewable power generation to more than 20% by 2030 through staged strengthening of the Renewable Portfolio Standard (RPS), compared to other alternative policies. The analysis focuses on the business-purposed power supply that is subject to the RPS, where self-consumption generation in households is excluded. We propose a tractable equilibrium model that provides a structural representation of Korea’s electricity market, including its energy settlement system and renewable energy certificate (REC) transaction system. Arbitrage conditions are used to define the core value of REC prices to identify relevant competitive equilibrium conditions. The model considers R&D investment and learning effects that may affect the development of renewable energy technologies.

In the model, two periods are considered: ‘the period in which knowledge related to renewable energy technology development accumulates’ and the ‘period in which technology development is realized due to accumulated knowledge’. The model is parameterized to represent the current situation as the first period and the future situation, in which the renewable energy 3020 is implemented, as the second period. The 2016 raw data and forecasts in the 8th Basic Plan for Long-term Electricity Supply and Demand (2017~2031), respectively, are used as representative figures for each period. The model is then simulated for alternative scenarios such as renewable energy 3020 (baseline scenario), repeal of RPS, previously planned RPS, optimal RPS, production subsidy, and nuclear power reduction under RPS.

The result shows that in the baseline scenario the retail electricity price is dropped by 4.1% in the second period relative to the first period. Also, in the second period the REC price is hugely reduced but greater than 0, meaning that the RPS is still binding. Strengthening the RPS in the second period leads to the expansion of R&D investment in the first period, thereby contributing the reduction of renewable generation costs in the second period. In consequence of learning-by-doing and technological innovation, in the baseline scenario the second-period generation cost of solar power is reduced by 24.7% and that of wind power is reduced by 17.3%.

As to the welfare effects, it turns out that the baseline scenario yields a higher welfare level than the RPS abolition scenario. Specifically, compared to the case of its absence, the introduction of RPS increases the retail electricity price in both periods. At the same time, the overall welfare, despite the reduction of consumer surplus, is improved because environmental externality costs are reduced owing to shrunk nonrenewable power generation. The baseline scenario has a higher welfare level relative to the scenario of past RPS schedule, and the welfare can be further enhanced from the baseline scenario by additional strengthening of the RPS. The ranking of welfare effects by scenario is maintained throughout sensitivity analysis.

It is confirmed that renewable production subsidies, corresponding to REC prices in the baseline scenario, can achieve the same level of renewable power generation as in the baseline. On the other hand, subsidies less increase in retail electricity prices. Because of the high financial burden, however, the subsidies are inferior to the RPS in terms of overall welfare. The simulation is also conducted for the case in which the second-period aggregate capacity of the nuclear power plants is forced to be cut by 5% from the baseline scenario. It is found that despite the reduction in the accident risk costs of the nuclear power, welfare is lowered compared to the baseline because there is a dominating increase in environmental damages due to the expansion of LNG power generation.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Renewable Energy Deployment Policies and Previous Studies
　Section 1 Renewable Energy Policy Goals
　Section 2 Major Renewable Energy Deployment Policies
　Section 3 Global Electricity Market Trends
　Section 4 Literature Review

Chapter 3 Electricity Market Model
　Section 1 Price Determination Mechanism in Korea’s Electricity Market
　Section 2 Partial Equilibrium Model

Chapter 4 Parameterization and Scenario Analysis
　Section 1 Parameterization
　Section 2 Analytical Scenarios

Chapter 5 Simulation Results
　Section 1 Simulation Outcomes
　Section 2 Sensitivity Analysis

Chapter 6 Conclusion

References
Appendix
ABSTRACT