Korean Energy Economic Review ISSN:1599-7057(Print) 에너지경제연구

Although Capacity payments in the Korean electricity market was not changed from 2001, power generation plants didn’t raise issues on these capacity payments. This is because power plants could recover their fixed costs shortage from the energy payments system. However, this is not applied anymore, because system marginal price is expected to decrease sharply due to baseline plants entry, decrease in natural gas price, etc. Therefore, there are many debates on the adequacy of the capacity payments in our electricity market system. In this paper, we discuss, first, on the optimal capacity payments level in the current electricity market. In addition, we suggest various capacity payments plans including performance capacity factors, regional capacity factors, time capacity factors. Lastly, we explore capacity payments system within legal framework to address possible future changes in these mechanisms.