Korean DR compensation lags ESS despite grid needs
The Korean demand response (DR) industry faces significant challenges, including uncertain dispatch and low compensation, contrasting sharply with the thriving Energy Storage System (ESS) market. While the government offered 1180 MW in the 3rd central ESS contract market, DR compensation remains at 'tens of won' per unit, hindering its ability to address the growing grid surplus, especially from solar power.
Our take
Why is Korea's demand response market struggling despite grid surplus challenges?
The Korean electricity market's current compensation structure for flexibility resources creates a significant imbalance, with the ESS sector securing guaranteed 15-year contracts and 'trillions of won' in value, while the DR sector receives only 'tens of won' per unit, shifting the operational risk and cost of grid stability onto DR aggregators and participating companies.
The current system guarantees revenue for ESS through long-term contracts and explicit government procurement, making it a low-risk investment. In contrast, DR compensation is tied to uncertain dispatch events and offers insufficient incentives, especially for 'plus DR' to consume surplus power, forcing companies to absorb the cost of operational changes like weekend special allowances for minimal returns. This disparity discourages DR participation, undermining its potential as a crucial and cost-effective solution for grid flexibility amidst growing power surpluses.
What the source says
- The recent 'ESS Central Contract Market Business Briefing' was crowded, indicating flexibility resource acquisition is a top priority for the power market.
- Preventing grid collapse during peak daytime solar generation urgently requires absorbing surplus power.
- DR's traditional role was reducing factory operations during summer peaks to save electricity.
- Plus DR, which encourages consuming surplus power during off-peak times like weekend afternoons, has become important.
- A source stated that no domestic company would change their operating schedule for 'tens of won' compensation, given high weekend overtime pay.
- Power authorities have encouraged DR participation by promising to normalize compensation with upcoming electricity market reforms.
- DR industry representatives warn that if dispatch is lower than expected, they risk being unable to fulfill promises to participating companies, causing those companies to leave.
- Increased power demand variability is driven by factors like AI data centers and semiconductor industry growth.
- The current era is a 'new normal' characterized by power shortages in summer/winter and surpluses in spring/fall, raising concerns about grid collapse.
- The DR industry is prepared for the new paradigm but states it cannot rely solely on corporate goodwill and cooperation.
For investors — For investors, the current regulatory framework makes ESS a more predictable and lower-risk investment compared to DR, which faces significant revenue uncertainty and operational burdens. Operators in the DR sector must navigate low compensation and the risk of losing participating companies without clearer policy signals and improved incentives for flexibility services.
Watch: Announcement of concrete plans for DR market reform and compensation adjustments from Korea's power authorities.
Weekly digest
What changed in Korea's power market this week — one email, every week.
Email only, used solely to send this digest (delivered via Resend). Unconfirmed sign-ups are deleted after 30 days. Free.