South Korea has gone from having little to no energy storage to procuring about 50 MW in the span of a few months. This procurement makes the early projects in deregulated markets in the United States, such as PJM Interconnection, seem small in comparison.
Korea Electric Power Corporation (KEPCO) is procuring 52 MW of advanced batteries for frequency regulation in 2014 through two installations totaling 28 MW and 24 MW. Proposals will be evaluated in the coming weeks, and four consortia, including major South Korean lithium ion (Li-ion) vendors and systems integrators, are bidding in the procurement. Located at the West Anseong Substation and the New Yongin Substation, these installations will handle power supply to Seoul and the surrounding area. KEPCO estimates the cost for these two projects will be ₩60 billion ($58.3 million). The total market size for frequency regulation in South Korea is estimated by to be 1.1 GW, and in order to meet this requirement, KEPCO typically requires thermal generators hold back 5% of capacity, for which it pays them ₩600 billion ($583 million) per year.
Less Regulation = Lower Costs
Instead of using thermal generators for all its frequency regulation requirements, KEPCO estimates it can procure 500 MW of energy storage for frequency regulation for ₩625 billion ($607.8 million) between now and 2017. By investing in these resources, KEPCO would be able to avoid a portion of the yearly payments to thermal generators.
Lessons from existing projects and market reforms in Chile and the United States suggest that these changes will have major effects on the South Korean grid. First, wholesale energy prices should decrease once thermal generators are not obligated to hold back 5% capacity for frequency regulation. Although KEPCO is not planning to displace its entire frequency regulation requirement with Li-ion batteries, releasing half the power plants from this obligation (or halving the obligation to 2.5%) would make a difference in energy prices.
Second, the overall amount of frequency regulation that KEPCO must procure should decrease with the addition of fast, accurate resources such as Li-ion batteries. Fast and accurate resources correct the deviation in frequency more quickly, meaning that less frequency regulation is required overall. Therefore, 5% (52 MW) of fast-response resources could deliver more than 5% of the regulation required on the South Korean grid.
Ultimately, the South Korean ratepayer will benefit because these savings should be passed on to the customer. Keeping energy prices low is an economic and political issue in South Korea, where many key industries rely on energy-intensive exports. Manufacturers are keen to keep their products priced competitively, and the government is under pressure to keep improving economic growth.