Review on Enactment of the Special Act on the Promotion of Dispersed Energy & Amendment to Electric Utility Act

The Special Act on the Promotion of Dispersed Energy (the Dispersed Energy Act) was recently enacted as of June 13, 2023 and,

on the same date, the amendment to the Electric Utility Act (also known as the Electricity Business Act) (the Amendment) was also promulgated, both of which will come into force as of June 14, 2024.

Background

The recent enactment of the Dispersed Energy Act and the Amendment has been implemented as a part of the Korean government’s long term energy plan to overcome certain limitations of the existing centralized power system and establish a sustainable, decentralized power system.

For the purpose of addressing long-lasting severe conflicts with local residents over the construction of large-scale power plants and transmission/distribution lines, Korean government aims to raise the share of dispersed power generation in Korean energy market up to 30% by 2040 by (i) alleviating monopolistic sales structure, (ii) shifting focus from energy supply to energy demand and enhancing regional energy independence, (iii) encouraging the installation of small-scale power facilities nearby energy consumers, and (iv) enhancing the stability of power supply by securing the grid connection and transmission/distribution lines to cope with the volatility of renewable energy.

Key Elements of Dispersed Energy Act

The Dispersed Energy Act establishes the legal basis for the envisioned transition to a dispersed energy system by introducing a wide range of features to be adopted, including (1) the electric power impact assessment system, (2) the dispersed energy specialized region, (3) the virtual power plant, (4) the obligation to install dispersed energy facilities, (5) the enhanced management of transmission/distribution lines, or (6) the regionalized tariff system.

(1) Electric Power Impact Assessment System – It is required to assess the impact of a newly installed large-scale power consuming facility on the electric power system for the purpose of mitigating the concentration of electric power demand in certain area, such as Seoul Metropolitan Area.

(2) Dispersed Energy Specialized Region – The government may designate a certain area as a dispersed energy specialized region where an innovative system, such as direct power trading, will be allowed to be adopted for the purpose of introducing a power system suitable for local characteristics.

(3) Virtual Power Plant – A virtual power plant, a software-based power plant which integrates dispersed energy resources, such as renewable energy and energy storage systems (ESS), by using information and communication technologies (ICT) and manages and operates them as a single power plant, is introduced to encourage the participation of small-scale dispersed energy generators in the energy market.

(4) Obligation to Install Dispersed Energy Facilities – Certain new residential or urban developers may be required to install the dispersed energy facilities and use a minimum amount of dispersed energy.

(5) Enhanced Management of Transmission/Distribution Lines – Distributors will be required to efficiently manage the transmission/distribution lines by forecasting, monitoring and evaluating the dispersed energy connected to such transmission/distribution system.

(6) Regionalized Tariff System – Power supplier may set different electricity price by region in consideration of transmission and distribution costs in such region.

Amendments to Electric Utility Act

The Amendment entails certain rights and obligations of an virtual power plant operator as follows:

Implication

• Korea has been a centralized power structure with large-scale power plants around the coast to generate electricity and transmits and distributes electricity to large-scale electricity demand areas, including the Seoul Metropolitan Area. With the introduction of the Dispersed Energy Act, it is anticipated to gradually shift the power structure to the region-based dispersed power sources.
• The Dispersed Energy Act is expected to serve as a foundation for the creation of new energy industries by introducing new types of businesses, such as small and medium-sized nuclear power plants (SMR), dispersed energy virtual power plants, and stored electricity sales. In particular, in dispersed energy specialized areas, it will be allowed to supply or sell the electricity through individual contracts without going through the electricity trading market, which will promote the liberalization of the electricity market in Korea.
• On the other hand, in the case of large-scale electricity consumers such as data centers, it will be required to conduct an electric power impact assessment and take any corrective measures (if necessary) for obtaining a business approval under the Dispersed Energy Act. These new regulatory requirements may result in any business delays and an increase in business costs and constraints on business location seem to be inevitable.
• The Dispersed Energy Act entrusts the Presidential Decree to stipulate key details, including the scale of dispersed energy (cap), mandatory dispersed energy installers, installation areas, and projects subject to an electric power impact assessment. The Dispersed Energy Act is stipulated to become effective as of June 14, 2024, one year after its promulgation, for the enactment of subordinate regulations.  In light of the above, anyone who seeks new business opportunities by utilizing dispersed energy or is likely to use large-scale electricity in the future, should closely monitor the introduction of subordinate regulations.
  

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Kwang Yul KIM (kwangyul.kim@leeko.com)

Jungmin PAK (jungmin.pak@leeko.com)

Lachlan BARTH (lachlan.barth@leeko.com)

Sanghyo KIM (sanghyo.kim@leeko.com)

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