New market study, "South Korea Power Report Q2 2013", has been published

Despite the increased concerns surrounding the safety of nuclear power plants, with several South Korean reactors found to use uncertified parts, the country is likely to forge ahead with its plans to expand its nuclear capacity, even as it builds new coal and gas generation.. Electricity demand remains at an all-time high, and the tight demand and supply conditions have pushed the government to accelerate its award of approvals for building of new gas and coal plants. The country has embarked on an ambitious project with a US laboratory, K-DEMO, with the aim of developing a commercially viable fusion reactor and plans to invest KRW1trn in the project.

We forecast overall power generation in South Korea to grow an average of 4.3% per annum between 2013 and 2022, reaching 767.4 terawatt hours (TWh). While coal- and gas-fired generation continue to be vital, we expect most of this growth to come from nuclear generation, which we expect will lead growth in generation in the second half of our 10-year forecast period.

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That said, we expect the country to continue adding thermal capacity to avoid further supply shortfalls, which it experienced in September 2011. With South Korea recording several incidents where the surge in power consumption resulted in generation dipping into the 4,000 megawatt (MW) reserve buffer level set out by the government, the construction of eight coal-fired plants was approved (adding an estimated 2740MW) by private operators by 2027. The government further approved the construction of another six gas-fired plants (adding an estimated 5060MW to the system), which are to become operational between 2015 and 2017. This is in line with our expectations for the increasingly cautious government to look to other forms of generation to fill the supply gap, given public distrust in nuclear generators.

Key trends and changes in the industry:

* Although we believe that the bulk of growth in generation capacity will continue to be from nuclear, with growth in this sector anticipated to average 5.1% per annum between 2013 and 2022, the incidents of falsely certified parts found for various nuclear plants have increased public distrust in nuclear power and stall the opening of new capacity. A poll commissioned by the Economics Ministry, published in November 2012, recorded a plunge in public confidence in the safety of nuclear plants, with only 35% considering nuclear power safe compared to 71% in a similar survey done in January 2010. In line with our expectations, the government has turned to other forms of power generation, namely gas and coal generation. It remains to be seen if these heightened safety concerns will persist and thus continue to pose downside risks to our nuclear generation forecasts. That said, the tight demand and supply situation has forced the government to restart most of its nuclear plants (including Uljin-1 reactor, which was shut due to a malfunction).

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