1. 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

2. AES 2007 2 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

3. AES 2007 3 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

4. AES 2007 4 Von Hippel/ROK Group 11/2007 ROK ECONOMY, ENERGY SECTOR Indicator19811990199520032006 Avg. Annual Growth Rate (%) ‘81- ‘90 ‘90- ‘06‘03-‘06 Primary Energy Consumption (million toe) 45.793.2150.4215.1233.48.25.92.8 Per Capita Energy Consumption (toe) 1.182.173.344.504.837.05.12.4 Energy/GDP (toe/million won) 0.310.290.32 0.31-0.70.42-1.1 CO 2 Emissions (million t-CO 2 ) 135.9239.0366.9474.4~4956.54.71.4 CO 2 Emissions Per Capita (t-CO 2 ) 3.515.578.149.9010.25.33.91.0 GDP (trillion won)147.5320.7467.1662.7759.29.05.54.6 Population (million)38.742.945.147.848.31.20.740.35

5. AES 2007 5 Von Hippel/ROK Group 11/2007 ROK Economic Growth/Energy Consumption  For 1987 - 1997 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 1987 - 1997 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% -10.0 -5.0 0.0 5.0 10.0 15.0 20.0 8183858789919395979920012005 (%) GDP Primary Energy Consumption

6. AES 2007 6 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  15.9 2006 233.4 mil. toe LNG 13.7% Nuclear 15.9% Hydro 0.6% Coal 24.3% Oil 43.6% Renewables & Others 1.9% 0 40 80 120 160 200 240 7073767982858891949720002005 (mil. toe) CoalOilLNGHydroNuclearFirewood & Others

7. AES 2007 7 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  2.2 - 20 40 60 80 100 120 140 160 180 7578818487909396992005 (mil. toe) IndustrialResidentail & CommercialTransportPublic & Others 2005 170.9 mil. toe Residential/ Commercial 20.7% Industrial 56.0% Public & Others 2.2% Transport 21.0%

8. AES 2007 8 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$

9. AES 2007 9 Von Hippel/ROK Group 11/2007 ROK Electricity Sector  Recent Trends (2005-2007) Total Capacity as of 7/07: 66.7 GW Load Factor 76-88% Reserve margin ~10 - 25% Growth in GWh 2005-2006: 4.6%  Recent Trends (2005-2007) Total Capacity as of 7/07: 66.7 GW Load Factor 76-88% Reserve margin ~10 - 25% Growth in GWh 2005-2006: 4.6%

10. AES 2007 10 Von Hippel/ROK Group 11/2007 0510152030 AAGR(%) 05- 10 10- 20 20- 30 GDP ( trillion won) 6408069811,1941,6844.74.03.5 Population (million) 48.349.249.850.049.30.40.1-0.1  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

11. AES 2007 11 Von Hippel/ROK Group 11/2007 200520102015202020252030 Agriculture& Fishery 3.93.12.62.22.01.8 Industry32.232.933.1 32.731.8 SOC11.010.710.410.29.89.5 Service52.953.253.954.655.656.9 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

12. AES 2007 12 Von Hippel/ROK Group 11/2007 200520102015202020252030 Food & Beverage5.14.13.43.02.62.4 Textile product3.82.61.91.61.31.2 Wood & Pulp, Paper3.22.62.11.91.71.5 Petrochemical16.915.113.713.012.412.0 Nonmetallic mineral3.02.52.11.81.61.4 Basic metal product6.75.85.24.74.33.9 Fabricated Metal60.166.471.073.575.677.3 Others1.20.80.60.50.4 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

13. AES 2007 13 Von Hippel/ROK Group 11/2007 (Unit: %) 228.6 MTOE 2010 2020 2030 Oil Coal LNG Nuclear RE & Others 44.4 24.0 13.3 16.1 2005 2.3 40.9 25.5 15.9 14.1 3.6 260.1 MTOE 36.1 25.3 15.5 17.9 5.1 330.7 MTOE 34.3 23.1 18.0 18.4 6.1 400.2 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)

14. AES 2007 14 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

15. AES 2007 15 Von Hippel/ROK Group 11/2007 (Unit: %) 2010 2020 2030 Industry Transport Residential Commercial & Public 2005 287.2 MTOE 55.2 20.6 14.2 10.0 172.1 MTOE 54.6 20.8 13.6 10.9 192.9 MTOE 54.7 20.8 12.6 12.0 238.9 MTOE 55.1 19.9 12.0 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  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)

16. AES 2007 16 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

17. AES 2007 17 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

18. AES 2007 18 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

19. AES 2007 19 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

20. AES 2007 20 Von Hippel/ROK Group 11/2007 Overseas Development Renewables Energy Intensity(%) Share(%) Rate(%) Efficiency 0.32 0.25 0.20 0.30 0.40 20052011 2.3 5.0 0.0 2.0 4.0 6.0 20052011 Oil Gas 3.7 15.0 4.7 30.0 0.0 10.0 20.0 30.0 2005201320052013 ROK Energy Policy Directions From 2 nd Energy Plan—3 rd Plan upcoming 2007

21. AES 2007 21 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

22. AES 2007 22 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)

23. AES 2007 23 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) Item2001201020202030Annual Increase (%) ’01- ’10 ’10-’20’20-’30 GDP (1995 T KRW)493.4768.41,1651,6295.04.33.4 Population (Million) 47.349.650.750.30.50.2-0.1 Households (Million) 14.916.918.219.11.51.00.5 Person per Household 3.22.92.82.6-0.5

24. AES 2007 24 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

25. AES 2007 25 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

26. AES 2007 26 Von Hippel/ROK Group 11/2007 ROK LEAP MODEL: Initial Results

27. AES 2007 27 Von Hippel/ROK Group 11/2007 ROK LEAP MODEL: Initial Results

28. AES 2007 28 Von Hippel/ROK Group 11/2007 ROK LEAP MODEL: Initial Results

29. AES 2007 29 Von Hippel/ROK Group 11/2007 ROK LEAP MODEL: Initial Results

30. AES 2007 30 Von Hippel/ROK Group 11/2007 ROK LEAP MODEL: Initial Results

31. AES 2007 31 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

32. AES 2007 32 Von Hippel/ROK Group 11/2007 THANK YOU!