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

South Korean policy makers have been sold a defective product. Seeking to address frightening long-term forecasts of electricity demand outpacing supply, the National Assembly adopted in 2000 a supply-side restructuring policy package that was in fact not well suited to address this particular problem in the best of circumstances, and especially poorly suited to the Korean situation of expensive imports of fuels. The imbalances that were forecast have increasingly come to pass, and current proposals to resume the restructuring package, which was halted in 2004, are likewise unlikely to provide much help for the actual problems at hand. This paper argues that in the special circumstances faced by Korea, the most urgent electricity sector reforms are on the demand side–in particular, real-time pricing for large customers and prices reflecting costs for the industrial sector–and that in this setting the supply-side focus on “vertical separation” and the creation of wholesale generation markets may be a costly distraction, in fact liable to make things worse rather than better.