Rationalizing the Electricity Market in the Era of Carbon-Free Energy

Imposition of Punitive Costs on Carbon-Free Power Sources: Although nuclear power is a key carbon-free energy (CFE) source that emits no carbon, under the current Renewable Portfolio Standard (RPS) system it is classified as an obligated supplier and therefore bears enormous annual Renewable Energy Certificate (REC) purchase costs. KHNP’s annual REC purchase cost surged from KRW 473.1 billion in 2021 to approximately KRW 1.0263 trillion in 2025. This is worsening the financial soundness of nuclear power plant operations and, through upward pressure on final electricity procurement costs, is ultimately being passed on to the public.

The Paradox of Prioritizing Output Reductions for the Lowest-Cost Baseload Source and Raising Electricity Procurement Costs: During spring and fall off-peak periods, when solar power output surges, the practice of reducing the output of nuclear power—the lowest-cost power source—has become entrenched in the name of maintaining grid stability. The number of nuclear output reduction events has jumped to more than 30 per year. As nuclear power, with a generation cost of about KRW 79/kWh, is curtailed and replaced by alternative power sources such as LNG, with a generation cost of about KRW 158/kWh, the result is annual grid settlement losses of hundreds of billions of won and higher electricity procurement costs, causing economic losses for both the public and the nation.

Rising Management Costs Due to Equipment Fatigue: Because nuclear power plants are most economical when operated at maximum output, repeated output adjustments (curtailments) cause thermal and mechanical fatigue to accumulate in major components, leading to management costs such as shorter maintenance cycles.

The solutions to these problems are as follows.

Comparison of the Current RPS/Grid Operation Method vs. CFE-Based Policy Improvement Alternatives

Category

Current Method

(As-Is)

Improvement Alternative

(To-Be)

Expected Effects and

Policy Benefits

RPS / REC

Obligation

• RPS compliance obligations imposed on nuclear operators (KHNP)

• More than KRW 1 trillion in annual REC purchase spending

• Recognition of linkage with CFE (carbon-free energy)

• Reduction of the mandatory ratio in consideration of nuclear power’s contribution to carbon reduction

• Improvement in KHNP’s financial soundness

• Reduced pressure for electricity rate hikes through lower electricity procurement costs

Grid

Output

Control

• Priority curtailment of nuclear power during special off-peak periods

• Economic losses from shutting down the lowest-cost baseload source

• Priority use of flexible resources (ESS, pumped storage)

• Establishment of standards for priority curtailment of the highest-cost sources (solar power, etc.)

• Maintenance of baseload utilization rates (preventing increases in generation costs)

• Creation of incentives for investment in flexible grid resources

Loss Settlement System

• Opportunity costs and settlement losses from nuclear curtailment absorbed by operators themselves

• Appropriate capacity payment (CP) compensation for curtailment/flexibility provision

• Normalization of the price function in the electricity market

• Establishment of a fair settlement structure based on contribution to the grid

Institutional Policy Direction

• Merit-order dispatch based on low variable costs (fuel costs)

• Promotion of a single renewable-centered RE100 supply model

• Shift to merit-order dispatch based on low total cost

• CF100 (CFE)-centered integrated carbon-free ecosystem

• Minimization of the public burden

• Securing national industrial competitiveness and achieving global NDC targets

I. Introduction: Background and Need for the Initiative

II. Comparison of the Characteristics of Carbon-Free Power Sources

1. [Energy Security] Nuclear power secures fuel for more than three years

2. [Environmental Performance] Nuclear power emits only one-fourth the greenhouse gases of solar power

3. [Economic Efficiency] Nuclear power is more than three times as economical as renewable energy

4. [Safety] The death rate of nuclear power is one-sixth that of solar power

III. Key Problems in the Current Electricity Market and Grid Operation

1. [Institutional Irrationality] The burden of mandatory REC (Renewable Energy Certificate) purchases for nuclear power generation

2. [Grid and Economic Paradox] Priority curtailment (output control) of nuclear power when renewable energy output is excessive

3. [Rising Management Costs] Equipment fatigue caused by frequent output adjustments of inflexible baseload power sources

IV. International Cases and Implications

1. Nuclear support systems in major foreign countries

2. Some countries support nuclear power in the electricity market

3. Implications for Korea’s electricity market system

V. Conclusion: Policy Proposals and Future Tasks

1. Policy improvement proposals

2. Expected effects and future tasks

References

Original title: 무탄소 전원 시대의 전력시장 합리화 방안

Author: Sang-deok Park

Date: 2026-11-05

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=report&pn=1&idx=29711