The regions demographic and economic growth trends indicate that it may well face an energy shortage in the medium-term. “For every 1% growth in a country’s gross domestic product, the country will need 1.3% more energy. … Asia’s energy capacity has been stretched as its population growth has outpaced its energy supply,” said SN’s senior official. “Very little new capacity has been added over the last seven to eight years,” Erik Knive added.

SN Power is actively involved in the region and entered into a joint venture with India’s Tata Power to build 1GW of hydro power plants in Nepal and India. It is also looking at an additional 1GW in various south Asian locations and entering the Laos and Vietnam markets.

Currently, the Statkraft and Norfund-owned company operates hydro plants in Chile, India, Nepal, Peru, Sri Lanka and The Philippines.

Eight transactions were concluded during the week with a non-US utility buying 300,000lb U₃O₈ equivalent. However, after prices rose towards the middle of the week, the second half of the week saw any hopes for a price rebound fade as prices fell sharply.

Sellers that needed to generate cash and the available price insensitive inventory were market factors that played a key role in this price development, which saw prices edge downward by US$0.50, says TradeTech. In a wider context, nervousness over the European debt crisis and the weakened euro continued to affect markets.

In the long-term, market fundamentals for uranium are expected to remain strong. New reactor construction, particularly in China and the rest of Asia, is already influencing the market. The region has currently 112 nuclear reactors in operation with a further 37 being built and 84 in the planning stages. “The new demand for uranium from all these new reactors in Asia is already beginning to be felt,” said Jonathan Hinze, vice president Ux Consulting Company. “China purchased nearly 15 million pounds of U₃O₈ in 2009 alone.”

Meanwhile, Toshiba will invest US$100m in one of the world’s largest producers of enriched uranium as the leading participants in the industry race to secure supplies. The Japan-based group is to take a stake of about 15 per cent in the New York-listed USEC, which supplies more than half of the US market with enriched uranium fuel. The move will see Toshiba move further to the front-end of the nuclear industry after investing in uranium mines in Kazakhstan and Canada and creating a uranium trading subsidiary in the UK. “The nuclear renaissance is moving forwards and this investment will help power its growth by securing the supply of uranium fuel for existing and potential customers,” said Yasuharu Igarashi, corporate senior vice-president of Toshiba. The company said that its customer for new plant are demanding a comprehensive supply chain, including fuel delivery.

The initiative was launched on May 3 in the Uzbekistan capital Tashkent and the ABD said that it will provide an additional US$2.25bn to support projects with a combined generating capacity of 3000MW of solar power by 2012. The bank indicated that the combination of growing electricity demand, abundant desert and commitments to offset carbon emissions, made Central Asia a strong candidate for investment.

“With energy demand projected to almost double in the Asia and Pacific region by 2030, there is an urgent need for innovative ways to generate power while at the same time reducing greenhouse gas emissions,” ADB managing director General Rajat Nag stated. “Sustainable solar energy can be the clean power of the future if there are appropriate incentive and financing mechanisms in place.”

The ASEI is expected to use a combination of financing and “knowledge sharing mechanisms” to attract commercial banks and private investors. It is also planning to raise US$500m from donor countries to “buy down” the significant up-front capital costs associated with solar power.

Last year, the ABD provided almost US$1.3bn in finance for clean energy projects and from 2013, its target investment in this sector is set to rise to US$2bn a year.

The launch of geothermal plants has proved difficult for less developed nations as separate companies are usually required to indentify locations for projects, build the facilities and operate the power plants. Mitsubishi and Reykjavik Energy plan to package their products and offer a “one-stop-shop” for developing countries. “We will offer services as a total package to under-developed countries, including funding, digging, construction and provision of operational know-how,” said Ichiro Fukue, Mitsubishi Heavy Industry’s senior executive vice president. “We hope this will help promote geothermal energy development,” he added. According to Mr Fukue, several African and Latin American countries as well as Indonesia and The Philippines have expressed interest in the tie-up.

Although no sales projections were given by the companies, they have said they aim to capture 50 per cent of the global geothermal market by 2014.

South Korea is one of the leading lights of the world economy, being historically one of the fastest growing countries in terms of GDP and the same time, classified as an advanced economy by the IMF. According to the IMF, the country’s GDP is expected to contract by one per cent in 2009, before rising by 3.6 per cent in 2010. It was hit particularly hard by the financial crisis of 2008, recording a drop of 5.1 per cent in the last quarter of that year. Part of the reason behind the pronounced nature of the downturn is the fact that the South Korean economy is very much export-driven, so the sudden decline in demand for its products on the global stage came as a significant blow. In fact, in January 2009, export volumes were down a startling 35 per cent YoY, far greater than the 22 per cent seen when the dot-com bubble burst in 2002.

The South Korean power sector is at the forefront of the drive towards low-carbon sources of generation. A key driver has and will continue to be the country’s lack of domestic fossil fuel resources. The country imports around US$90bn of fuel a year, creating a massive economic incentive to invest in energy efficiency, along with renewables and nuclear power. The government is looking to adopt a renewables mandate which will require utilities to produce three per cent of their power from these sources over the next three years, rising to 10 per cent by 2020. While this goal has been extensively publicised, the fact remains that the country built an additional 2370MW of coal-fired generating capacity in 2009.

In terms of the overall market, the industrial sector is currently the most lucrative, generating 45.6 per cent of total revenue in 2007, with commercial and residential activities contributing 33 per cent and 21.4 per cent, respectively. The South Korean power market has recorded an impressive CAGR of 16.6 per cent for the 2003-07 period in terms of revenue, while consumption has been rising at a CAGR of 6.7 per cent over the same period.

Figure 1: KEPCO’s generation mix by fuel. Source: Global Power Report (2009)

The discrepancy is likely to be due to the dramatic rise in fuel prices, which are passed on to the end-user. Analysts have predicted that the strong growth seen prior to the global financial crisis will resume, with the market forecast to grow at a CAGR of 15 per cent over the 2007-12 period. If this prediction comes true, then by the end of 2012, the South Korean power sector will be worth an estimated US$65.5bn.

Business Monitor International expects South Korea’s GDP growth to average around 2.32 per cent annually between 2009 and 2013, while GDP per capita and electricity consumption per capita are expected to rise by 77 and six per cent, respectively. As a result, power consumption is expected to rise from 378TWh in 2008 to 403TWh by 2013. Generation is forecasted to decline by 3.9 per cent over the 2008-13 period, before increasing by 21.4 per cent between 2013 and 2018.

Although there have been several moves towards a more liberalised power market, KEPCO is by far the dominant company, with a market share of 87.6 per cent as of year-end 2008. As a consequence, the overall health of the power sector can be easily tracked by a look at KEPCO’s financials. The company sold 385bnkWh of electricity in FY2008, up 4.4 per cent YoY. However, it reported a net loss of US$2.12bn in 2008, the first in its 26 years of operation, compared to the US$1.12bn of net profit recorded in 2007. Fuel purchases represented 45.8 per cent of the company’s operating expense, with the vast majority bought from a limited number of foreign suppliers.

This was primarily due to the rise in fuel prices over the course of that year, coupled with a freeze in electricity tariffs for most of the year, due to governments concerns that they would boost inflation. The government eventually relented, allowing a 4.5 per cent hike in November 2008. A further 3.9 per cent increase was introduced in June 2009, to help prevent further losses, after the utility reported unexpectedly high losses of KRW882.2bn (US$665.4m) in the first quarter, which were attributed to a 4.3 per cent reduction in sales and a 26.3 per cent increase in purchased power.

KEPCO believes it needs at least a 20 per cent hike during 2009 to cover fuel costs and restore its finances. A real issue for the company is that although the cost of oil, natural gas and coal have fallen since the highs seen in the summer of 2008, the won depreciated against the dollar in late-2008, significantly reducing the potential savings. Fortunately, this state of affairs has been kicked into reverse, to the extent that won-denominated spot LNG prices have dropped by 24.7 per cent between March and October 2009, despite their rise in dollars. However, analysts believe that the relative price insensitivity of Korean LNG demand means that this trend will need to continue over the long-term if it is to boost the proportion of LNG in the country’s energy mix.

This reversal of fortunes has held true for KEPCO’s financials, as well, with a return to profit seen in both the second and third quarters of 2009. Net profit rose to KRW239.8bn (US$206m) in Q209, while revenues were up by 7.6 per cent YoY. In Q309, the company announced an operating profit of KRW1.607trn (US$1.38bn) and a 10 per cent on year increase in sales and a net profit of KRW931.1bn (US$799m). Interestingly, KEPCO is considering becoming a direct buyer of LNG, given that the Korea Gas Corporation (Kogas), the leading buyer of LNG in Korea, has paid high premiums for the fuel over the past 10 years compared with Japan. In fact, Kogas paid a startling 23.2 per cent more in Q109. It is thought that part of the problem is Kogas’s impending privatisation which has prevented it from signing long-term gas purchase contracts.

As of year-end 2008, KEPCO possessed 63,529MW of generating capacity, in the form of 444 generation units. These are managed by six subsidaries: Korea Hydro and Nuclear Power, Korea Southeast Power, Korea Midland Power, Korea Western Power, Korea Southern Power, and Korea East-West Power (see Table 1 for capacity breakdown). It is 21.1 per cent owned by Korean government, with another 30 per cent held by the Korean Development Bank. The company invested KRW233bn (US$200m) in R&D in FY2008. Despite the aftermath of the financial crisis, South Korea saw record peak demand for power during the summer of 2009, climbing to 63.21mkW on August 21, up from the 62.79mkW set on July 15, 2008. The health of the overall system could be seen by the fact that even with such high demand, the power reserve ratio was a respectable 14.9 per cent.

A key issue for the company is the threat of concerted union action with above 60 per cent of its employees holding membership with unions which are opposed to the restructuring and privatisation plans proposed for KEPCO’s non-nuclear subsidiaries. Concerted union action occurred in protest in 2002.

The other players in the market include POSCO Power Corporation which operates the country’s first privately-owned power station. It has a capacity of 1.8GW, but began construction in 2008 of a 1.2GW LNG combined cycle plant in Incheon. The company ordered 30.8MW of direct fuel cell (DFC) modules from FuelCell Energy, to help boost the efficiency of its generating assets and has ordered a total of 68MW of DFC from FuelCell Energy since 2007, of which 18MW is either operating or in the process of being installed.

There is also GS Power, which was established in 2000 and purchased assets from KEPCO in the Anyang and Buncheon regions. These included a combined cycle plant and district heating unit. It reported a total income of US$24.9m in the 2008 fiscal year, down 3.7 per cent YoY.

KEPCO’s dominance is likely to eroded in the coming years, as a result of government intervention and close followers of the sector expect private operators to account for 10 per cent of the domestic market by 2015. Although much of the drive towards deregulation and liberalisation of the South Korean electricity market was lost in 2003, when the Roh administration rose to power, reforms are still continuing, albeit at a reduced pace.

In July 2004, it introduced a Community Energy System, which enables regional districts to source electricity from independent power producers, without have to use the cost-based pool system employed by KEPCO’s generating subsidiaries. In Q109, this system had been rolled out in six districts, with 14 others about to launch it. Although these 20 districts represent only a tiny fraction of the overall market, the system is likely to become widely adopted in the coming years.

The government is also considering a shakeup of how customers are billed for power. This would involve switching to a voltage-based scheme, which would integrate the current three categories of electricity rates: industrial, general use and educational use. It is hoped that this will reduce the potential for cross-subsidisation, saving the government money and allowing it to direct financial support where it is most needed. Another possible change on the horizon is a shift to a price cap-based system of regulation, as opposed to the current cost of service approach to electricity pricing, with the aim of improving the efficiency of power providers in general.

A future opportunity for the Korean power sector is the drive towards the electrification of transport. Due to concerns that the country might be losing out in the race to mass produce an electric vehicle (EV) to effectively replace the internal combustion engine, President Lee Myung-bak has called for full-scale production of electric vehicles to occur in the second half of 2011, two years earlier than originally intended. Companies engaged in EV research will be able to draw from a US$341.8m fund.

KEPCO is also getting in on the act. In late October, it signed a memorandum of understanding with the Hyundai Kia Automotive Group for the development of EVs and the recharging mechanisms needed to make such products practical from the perspective of the consumer. The goal is to have both a commercially-viable EV and recharging systems in place by 2010.

Although the main driver is to capture 10 per cent of the worldwide EV market by 2015, the consequences for the domestic power market are significant, especially when one considers that transport counts for around half of global liquid fuel usage. Moreover a large proportion of the energy this represents will need to be delivered in the form of electricity if and when electric vehicles achieve full market penetration.