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  • P-ISSN 2586-2995
  • E-ISSN 2586-4130
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KDI Journal of Economic Policy. Vol. 41, No. 4, November 2019, pp. 67-99

https://doi.org/10.23895/kdijep.2019.41.4.67

× KDI Open Access is a program of fully open access journals to facilitate the widest possible dissemination of high-quality research. All research articles published in KDI JEP are immediately, permanently and freely available online for everyone to read, download and share in terms of the Creative Commons Attribution 4.0 International License.

Assessing Alternative Renewable Energy Policies in Korea’s Electricity Market

HYUNSEOK KIM

Author & Article History

Manuscript received 07 August 2019; revision received 14 August 2019; accepted 07 October 2019.

Abstract

This paper, focusing on the renewable portfolio standard (RPS), evaluates alternative renewable energy policies. We propose a tractable equilibrium model which provides a structural representation of Korea’s electricity market, including its energy settlement system and renewable energy certificate (REC) transactions. Arbitrage conditions are used to define the core value of REC prices to identify relevant competitive equilibrium conditions. The model considers R&D investments and learning effects that may affect the development of renewable energy technologies. The model is parameterized to represent the baseline scenario under the currently scheduled RPS reinforcement for a 20% share of renewable generation, and then simulated for alternative scenarios. The result shows that the reinforcement of the RPS leads to higher welfare compared to weakening it as well as repealing it, though there remains room to enhance welfare. It turns out that subsidies are welfare-inferior to the RPS due to financial burdens and that reducing nuclear power generation from the baseline yields lower welfare by worsening environmental externalities.

Keywords

Electricity Market, Renewable Portfolio Standard, Technology, Renewable Energy Certificate, Welfare

JEL Code

Q21, Q28, Q31

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