As South Korea embarks on its decarbonization path, maintaining competitiveness, affordability and reliability will require critical and timely reforms to its power sector.
Renewable energy accounts for less than 10% of electricity generation — the lowest share among the countries in the Organisation for Economic Co-operation and Development. The system also remains dominated by large, centralized fossil and nuclear power plants with high emissions, high fuel costs and limited operational flexibility. The existing market and regulatory frameworks were designed for this legacy system and no longer align with today’s policy priorities or technological realities.
In support of South Korea’s energy transition, this brief draws on international experience and the local context to craft recommendations. The authors propose a phased and strategic reform process, ideally led by a high-level transition coordination body under the Prime Minister. We outline how this transition process could be structured and emphasize that clear objectives, transparent decision-making, robust stakeholder engagement and a roadmap with measurable milestones will be essential to sequence reforms effectively, mitigate risks and ensure social acceptance.
For two broad areas of reform — governance and electricity market design — the brief highlights several selected issues for reform.
In the governance area, we discuss establishing an independent electricity regulator with a net-zero mandate and advancing the unbundling of KEPCO as critical steps for ensuring neutrality, enabling competition, and improving grid planning.
Regarding electricity market design, we explore the value of developing competitive, bid-based wholesale markets, ending the cost-based day-ahead pool, and removing the practice of guaranteed cost recovery for fossil generators. We also encourage establishing a contracts-for-difference mechanism to support renewables, expanding options for consumers to choose clean energy sources and establishing strong incentives for distributed energy resources like solar PV and electric vehicles. These are not the only reforms required — but each will be necessary to unlock flexibility, attract investment, and enable a reliable, cost-effective, low-carbon power system.
The Korean-language version of this report is available here.
