Korea nears revival of VC for 30 nuclear units after 11 years
The Korean government has revised its Government-Approved Volumetric Contract (VC) operating standards, paving the way for Korea Electric Power Corporation (KEPCO) and Korea Hydro & Nuclear Power (KHNP) to finalize VC agreements for 30 nuclear power units by December. This marks the first revival of VC for nuclear power in 11 years, fundamentally altering the settlement mechanism for approximately 13.8358 trillion KRW worth of annual power transactions.
Our take
Will Korea's nuclear contracts for difference change wholesale revenue for other generators?
Other generators' revenue should not change directly, because Korea's nuclear contracts for difference settle a contract price against the market price between KEPCO and KHNP, and no change to SMP setting is described.
The change is in who absorbs price swings between KEPCO and KHNP, replacing the settlement coefficient that cut nuclear revenue when SMP spiked in 2022. What remains open is contract volume, which depends on the utilisation rate assumed while nuclear output is cut more often.
What the source says
- Government The recently revised 'Government-Approved Volumetric Contract Operating Standards (VC Notice)' explicitly designates nuclear power plants as eligible for VC contracts.
- The VC contract price is calculated based on fixed costs like depreciation, operation and maintenance, investment returns, and fuel costs.
- The contract volume calculation faces practical variables, such as determining the average utilization rate, especially with frequent nuclear plant output curtailments.
- a relation A source familiar with the matter noted that starting contracts in December might be cumbersome due to accounting year issues.
- Government The VC mechanism will replace the existing settlement adjustment coefficient previously applied to nuclear power.
- In January 2023, the System Marginal Price (SMP) exceeded 240 KRW/kWh, while the nuclear settlement price dropped to 44 KRW/kWh, compared to 157 KRW/kWh for coal and 278 KRW/kWh for LNG.
- The approval process for VC contracts involves deliberation by the Electricity Regulatory Commission and approval by the Minister of Climate and Energy Environment, a process that took approximately two weeks for the 2015 contracts.
- The 9th Basic Plan for Long-term Electricity Supply and Demand had previously re-specified nuclear VC, leading to the current implementation nine years later than originally planned.
For investors — Merchant storage investors and optimisers should keep SMP as the basis of revenue models and read the approved contract terms for any link between contract volume and nuclear dispatch before changing price assumptions.
Watch: The official announcement of the signed Government-Approved Volumetric Contracts between Korea Electric Power Corporation and Korea Hydro & Nuclear Power, or the final approval by the Ministry of Climate, Energy and Environment.
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