Optimal Operational Strategy for Power Producers in Korea Considering Renewable Portfolio Standards and Emissions Trading Schemes

Abstract

Globally, many countries are experiencing economic growth while concurrently increasing their energy consumption. Several have begun to consider a low-carbon energy mix to mitigate the environmental impacts caused by increased fossil fuel consumption. In terms of maximizing profits, however, power producers are not sufficiently motivated to expand capacity due to high costs. Thus, the Korean government initiated the Renewable Portfolio Standard (RPS), an obligation to generate a certain proportion of a producer's total generation using renewable energy for power producers with capacities of 500 MW or more, and the Emissions Trading Scheme (ETS), designed to attain a carbon emissions reduction goal. We propose a mathematical model to derive the optimal operational strategy for maximizing power producer profits with a capacity expansion plan that meets both regulations. As such, the main purpose of this study was to obtain the optimal operational strategy for each obligatory power producer. To that end, we defined a 2 × 2 matrix to classify their types and to conduct scenario-based analyses to assess the impact of major factor changes on solutions for each type of power producer. Finally, for the power generation industry to operate in a sustainable and eco-friendly manner, we extracted policy implications that the Korean government could consider for each type of power producer.Energies 2019, 12, 1667 2 of 24 implemented RPS, which obligates power producers with 500 MW or more of NRE generation capacity to produce a certain percentage of the previous year's NRE generation capacity from renewable energy (RE) sources. The government aims to have more than 10% of electric power generation come from RE sources by 2023.At the 21st Conference of Parties, Korea, whose GHG emissions were 7th among Organization for Economic Co-operation and Development (OECD) countries in 2016, declared a national reduction target of 37% compared to business as usual (BAU) by 2030 [4]. In order to achieve this, in 2015, the government started ETS, which assigns companies Carbon Emissions Reductions (CER) based on annual and sectoral GHG reduction targets. Each company complies with this regulation by buying CER surplus, selling CER shortage, or paying penalties for excess emissions.Korea's major producers in the power generation industry, which accounts for more than one-third of national GHG emissions [7], must follow both regulations. RPS and ETS act as means to implement international commitments, from a national viewpoint, and to create a new paradigm that can affect operations, from an enterprise perspective. Therefore, obligatory power producers (hereafter, power producers) should be aware of the mechanisms of both regulations. They should also provide a stable power supply and establish an efficient future operational strategy.Korea's power industry is moving towards increasing the private-sector share from the nation-led sector. Thus, from a corporate management perspective, RPS and ETS will affect revenues and costs. Most previous...

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