1 Overview of/Update on the Energy Sector and LEAP Modeling Effort in the Republic of Korea Dr. David F. Von Hippel Nautilus Institute Senior Associate [Presented for the ROK Team, and based on AES2006 Presentations by Dr. Chung Woo-jin and Dr. Jungmin Kang] Asian Energy Security Project Meeting Tsinghua University, Beijing, PRC, November 1, 2007

AES Von Hippel/ROK Group 11/2007 OUTLINE OF PRESENTATION: The ROK Economy and Energy Sector— Brief Update  Overall Trends and KEEI Forecasts  Structure of Energy Supply and Demand  Key Policy Processes/Changes The ROK LEAP Model—Current Status and Ongoing Work  Model Structure  Existing Paths  Work ongoing and to be done  Coordination/Integration with DPRK Model

AES Von Hippel/ROK Group 11/2007 ROK ECONOMY, ENERGY SECTOR Rapid and Continuing Economic Growth  Industry key sector, but Commercial, Transport has been growing fast  Population growth slowing Structure of Energy Sector  Vast majority of energy imported (petroleum, LNG, Coal)  Electricity generation nuclear, imported coal, natural gas, small amount of hydro, declining amount of oil

AES Von Hippel/ROK Group 11/2007 ROK ECONOMY, ENERGY SECTOR Indicator Avg. Annual Growth Rate (%) ‘81- ‘90 ‘90- ‘06‘03-‘06 Primary Energy Consumption (million toe) Per Capita Energy Consumption (toe) Energy/GDP (toe/million won) CO 2 Emissions (million t-CO 2 ) ~ CO 2 Emissions Per Capita (t-CO 2 ) GDP (trillion won) Population (million)

AES Von Hippel/ROK Group 11/2007 ROK Economic Growth/Energy Consumption  For AAGR of Energy Consumption & GDP : 10.3% & 7.7%, respectively Energy Elasticity of Energy Consumption to GDP : 1.34  For 1998 – 2005 AAGR of Energy Consumption & GDP : 4.7% & 5.6%, respectively Energy Elasticity of Energy Consumption to GDP : 0.84 In 2006, GDP grew 5.2%, but Energy Consumption only 2.1%  For AAGR of Energy Consumption & GDP : 10.3% & 7.7%, respectively Energy Elasticity of Energy Consumption to GDP : 1.34  For 1998 – 2005 AAGR of Energy Consumption & GDP : 4.7% & 5.6%, respectively Energy Elasticity of Energy Consumption to GDP : 0.84 In 2006, GDP grew 5.2%, but Energy Consumption only 2.1% (%) GDP Primary Energy Consumption

AES Von Hippel/ROK Group 11/2007 ROK Primary Energy Consumption by Source  Trend in Consumption Shares (1981  1990  2006, %) Oil  : 58.1  53.8  43.6 Coal  : 33.3  26.2  24.3 LNG  : 0  3.2  13.7 Nuclear  : 1.6  14.2  15.9  Trend in Consumption Shares (1981  1990  2006, %) Oil  : 58.1  53.8  43.6 Coal  : 33.3  26.2  24.3 LNG  : 0  3.2  13.7 Nuclear  : 1.6  14.2  mil. toe LNG 13.7% Nuclear 15.9% Hydro 0.6% Coal 24.3% Oil 43.6% Renewables & Others 1.9% (mil. toe) CoalOilLNGHydroNuclearFirewood & Others

AES Von Hippel/ROK Group 11/2007 ROK Energy Consumption by Sector  Trend in Consumption Shares (1981  1990  2006, %) Industrial  : 44.9  48.1  56.0 Rsd. & Cmrcl  : 40.7  29.3  20.7 Transport  : 9.6  18.9  21.0 Public & Other  : 4.8  3.7  2.2  Trend in Consumption Shares (1981  1990  2006, %) Industrial  : 44.9  48.1  56.0 Rsd. & Cmrcl  : 40.7  29.3  20.7 Transport  : 9.6  18.9  21.0 Public & Other  : 4.8  3.7  (mil. toe) IndustrialResidentail & CommercialTransportPublic & Others mil. toe Residential/ Commercial 20.7% Industrial 56.0% Public & Others 2.2% Transport 21.0%

AES Von Hippel/ROK Group 11/2007 ROK Energy Imports Dependence mtoe  Energy Import (2005/2006) Import Dependency: 96.7% ME Dependency of Crude Oil: 81.8% Energy Imports: $ 66.7 billion Energy Import/Total Import: 25.5%  Energy Import (2005/2006) Import Dependency: 96.7% ME Dependency of Crude Oil: 81.8% Energy Imports: $ 66.7 billion Energy Import/Total Import: 25.5% Billion US$

AES Von Hippel/ROK Group 11/2007 ROK Electricity Sector  Recent Trends ( ) Total Capacity as of 7/07: 66.7 GW Load Factor 76-88% Reserve margin ~ % Growth in GWh : 4.6%  Recent Trends ( ) Total Capacity as of 7/07: 66.7 GW Load Factor 76-88% Reserve margin ~ % Growth in GWh : 4.6%

AES Von Hippel/ROK Group 11/ AAGR(%) GDP ( trillion won) ,1941, Population (million)  Economy and Population Annual average growth rate (AAGR) of economy from 2005 to 2030 : 3.9 % Population will decrease after 2020  Economy and Population Annual average growth rate (AAGR) of economy from 2005 to 2030 : 3.9 % Population will decrease after 2020 Source : Korea Development Institute GDP and Population ROK FORECASTS/PROJECTIONS

AES Von Hippel/ROK Group 11/ Agriculture& Fishery Industry SOC Service GDP in industry100.0  Industry Structure The AAGR of value added from ’05 to ‘30 in industry: 3.9 % The ratio of service industry will be higher : AAGR 4.2%(’05-’30)  Industry Structure The AAGR of value added from ’05 to ‘30 in industry: 3.9 % The ratio of service industry will be higher : AAGR 4.2%(’05-’30) Fractions of value added by economic activity (%) Source : Korea Institute for Industrial economics and trade ROK FORECASTS/PROJECTIONS

AES Von Hippel/ROK Group 11/ Food & Beverage Textile product Wood & Pulp, Paper Petrochemical Nonmetallic mineral Basic metal product Fabricated Metal Others Total100.0 Fraction of value added by industrial sector (%)  Structural Changes in Industry (Manufacturing) AAGR of fabrication industries from ’05 to ‘30 : 5.0 % * Fabrication Industries: Information & communication, car-making, shipbuilding Shares of output by other sectors will fall as a result  Structural Changes in Industry (Manufacturing) AAGR of fabrication industries from ’05 to ‘30 : 5.0 % * Fabrication Industries: Information & communication, car-making, shipbuilding Shares of output by other sectors will fall as a result Source : Korea Institute for Industrial economics and trade ROK FORECASTS/PROJECTIONS

AES Von Hippel/ROK Group 11/2007 (Unit: %) MTOE Oil Coal LNG Nuclear RE & Others MTOE MTOE MTOE  Shares of primary energy use by Type (2005  2030, %) Oil  : 44.4  34.3 Coal  : 24.0  23.1 Natural gas  : 13.3  18.0 Nuclear  : 16.1  18.4  Shares of primary energy use by Type (2005  2030, %) Oil  : 44.4  34.3 Coal  : 24.0  23.1 Natural gas  : 13.3  18.0 Nuclear  : 16.1  18.4 ROK FORECASTS/PROJECTIONS AAGR2.5%2.4%1.9% 2.2%(’05-’30)

AES Von Hippel/ROK Group 11/2007  Per capita energy & energy/GDP Energy Consumption per capita will steadily increase while energy efficiency of the economy improves  Per capita energy & energy/GDP Energy Consumption per capita will steadily increase while energy efficiency of the economy improves ROK FORECASTS/PROJECTIONS

AES Von Hippel/ROK Group 11/2007 (Unit: %) Industry Transport Residential Commercial & Public MTOE MTOE MTOE MTOE  Shares of Final Demand by Demand sectors (2005  2030, %) Industry  : 55.2  55.1 Transport  : 20.6  19.9 Resident  : 14.2  12.0 Commercial& Public  : 10.0  13.0  Shares of Final Demand by Demand sectors (2005  2030, %) Industry  : 55.2  55.1 Transport  : 20.6  19.9 Resident  : 14.2  12.0 Commercial& Public  : 10.0  13.0 ROK FORECASTS/PROJECTIONS AAGR2.3%2.2%1.9% 2.1%(’05-’30)

AES Von Hippel/ROK Group 11/2007  Shares of consumption by final energy The shares of coal and petroleum will fall while those of other energy forms (electricity, city gas, heat, renewables) will be higher  Shares of consumption by final energy The shares of coal and petroleum will fall while those of other energy forms (electricity, city gas, heat, renewables) will be higher ROK FORECASTS/PROJECTIONS

AES Von Hippel/ROK Group 11/2007  Supply-oriented energy policy Energy policy was mainly aimed at supplying energy in a stable manner and at low prices to enhance industrial competitiveness and contain inflation  Intervention of the government Depended on central planning rather than on markets functioning  Supply-oriented energy policy Energy policy was mainly aimed at supplying energy in a stable manner and at low prices to enhance industrial competitiveness and contain inflation  Intervention of the government Depended on central planning rather than on markets functioning  Positive Achievement Well-established Domestic Supply Network for Oil, Gas, Electricity, and District Heating  Several negative results Energy-Intensive Economic Structure Environmental Problem  Positive Achievement Well-established Domestic Supply Network for Oil, Gas, Electricity, and District Heating  Several negative results Energy-Intensive Economic Structure Environmental Problem ROK Energy Policy Directions

AES Von Hippel/ROK Group 11/2007 ROK Energy Policy Directions Market Development and Privatization  Break up of KEPCo into generation, transmission, distribution components  Development of Korea Power Exchange  Break up of KEPCo generation into nuclear, non-nuclear components, with sale and private operation of some (non- nuclear) assets  Partial sale to private sector of part of stock of Korean National Oil Company  Revise tax structures for some fuels (including biofuels) Energy Cooperation  Oil and gas resources development (foreign and domestic)  Participating in NEA energy cooperation research

AES Von Hippel/ROK Group 11/2007 ROK Energy Policy Directions Energy-Efficient Society High Oil Price Sustainable Energy System Environmental Regulation Oil Market Instability UNFCCC ChallengesPolicy Directions Changing Conditions Overseas Energy Development Energy Security Threats Resource Competition Open Policy Framework Conflicts between Stakeholders Policy Decision Process International Oil Market Environmental Concerns Energy Supply Security Non-Governmental Organizations

AES Von Hippel/ROK Group 11/2007 Overseas Development Renewables Energy Intensity(%) Share(%) Rate(%) Efficiency Oil Gas ROK Energy Policy Directions From 2 nd Energy Plan—3 rd Plan upcoming 2007

AES Von Hippel/ROK Group 11/2007 THE ROK LEAP MODEL DEMAND STRUCTURE Residential—Driven by number of households  Cooking, Space Heating, Lighting, Appliances (electric) Industrial—Driven by industrial GDP, share  Mining, Agriculture/Fisheries, Manufacturing, Construction (Manufacturing dominant) Commercial/public—Driven by building area Transport—Driven by number of vehicles  Private vehicles — 4 types  Mass transit and freight vehicles — 8 types

AES Von Hippel/ROK Group 11/2007 THE ROK LEAP MODEL TRANSFORMATION STRUCTURE Electricity T&D Electricity Generation — 11 Types of power plants Industrial Combined Heat and Power (CHP) District Heating Town Gas production LNG Gasification Oil Refining Pipeline Gas Imports from RFE (for Regional Path) LNG Imports from DPRK (for Regional Path) Electricity Imports from RFE (for Regional Path)

AES Von Hippel/ROK Group 11/2007 THE ROK LEAP MODEL Reference or BAU Path  Extrapolation of currently evolving economy/energy sector trends (Need to update to latest projections) Item Annual Increase (%) ’01- ’10 ’10-’20’20-’30 GDP (1995 T KRW) ,1651, Population (Million) Households (Million) Person per Household

AES Von Hippel/ROK Group 11/2007 THE ROK LEAP MODEL National Alternative Path—Current Structure Assumptions currently similar to BAU Path, except electricity generation projections.  Emphasizing renewable energy: Share of electricity generation by renewables 7.0% of total electricity generation in 2011, comparing with 2.6% in BAU  No new deployment of nuclear power plants after 2017  Demand side planned, but not yet developed

AES Von Hippel/ROK Group 11/2007 THE ROK LEAP MODEL Regional Alternative Path ROK participates in many of the regional infrastructure and other cooperative activities proposed for the Regional Alternative path  Natural gas pipeline: recipient of gas from pipeline bringing gas from North Sakhalin in the RFE to the ROK, with some gas used in the DPRK, and beginning operations in 2016  LNG Terminal: ROK/DPRK collaboration on a new LNG terminal, in the southern DPRK  Electricity Import: Transmission interconnection between RFE and ROK, passing through DPRK; 3 GWe in both directions

AES Von Hippel/ROK Group 11/2007 ROK LEAP MODEL: Initial Results

AES Von Hippel/ROK Group 11/2007 ROK LEAP MODEL: Initial Results

AES Von Hippel/ROK Group 11/2007 ROK LEAP MODEL: Initial Results

AES Von Hippel/ROK Group 11/2007 ROK LEAP MODEL: Initial Results

AES Von Hippel/ROK Group 11/2007 ROK LEAP MODEL: Initial Results

AES Von Hippel/ROK Group 11/2007 THE ROK LEAP MODEL NEXT KEY STEPS BY ROK TEAM Team leader, Prof. Shin Eui-soon of Yonsei Univ., Dr. Chung Woo-jin of KEEI advising Update to 2006 Base Year, add latest projections Add detail as available/needed (Manufacturing subsectors?), review assumptions Add/revise Demand-side measures for National Alternative Plan; add demand-side costs Add supply-side costs for a number of modules Add resource costs Develop, evaluate Nuclear “Max” and “Min” Paths Link with updated DPRK paths (LNG, imports from RFE) Develop alternative nuclear fuel cycle paths

AES Von Hippel/ROK Group 11/2007 THANK YOU!