Lawmaker Lee Cheol-gyu urges reform of Korea's ESS market settlement
Lee Cheol-gyu, a People Power Party lawmaker, revealed that Korea's ESS Central Contract Market projects show operating profit margins up to 11.8% and proposed that the settlement structure, which calculates profits based on 24-hour standby rather than actual charge/discharge times, needs reform. He estimated total 15-year settlement costs could reach 1.821 trillion KRW.
Our take
Why are profits in Korea's ESS Central Contract Market considered excessive, and what reforms are proposed?
The current ESS Central Contract Market design, which bases profit settlement on a 24-hour standby period rather than actual operational hours, inflates project profitability up to 11.8% and shifts excessive costs, estimated at 1.821 trillion KRW over 15 years, onto electricity consumers and renewable energy generators.
This mechanism allows ESS operators to claim revenue for availability beyond their actual dispatch, effectively guaranteeing high returns irrespective of utilization. The lawmaker argues that this overcompensation, combined with potentially inflated project cost estimations, results in higher bid prices and subsequently increases the financial burden on the Electricity Fund, electricity tariffs, and additional settlement costs for renewable energy generators who benefit from reduced curtailment. The '1day 1cycle' rule in the regulatory context for Central Contract ESS, while not explicitly cited by the lawmaker, underpins the potential for 24-hour revenue calculation if not strictly enforced based on actual discharge.
What the source says
- Lee Cheol-gyu Lawmaker Lee Cheol-gyu revealed that successful bid prices for ESS Central Contract Market projects, previously undisclosed as trade secrets, were 50 won/kWh for Jeju, 27 won/kWh for Gwangyang, and 19 won/kWh for Haenam.
- The Gwangyang and Haenam projects showed estimated operating profit margins of 9.95% and 7.98% respectively.
- Lee Cheol-gyu Lee Cheol-gyu noted that ESS projects are settled based on a 24-hour standby period, despite actual mandatory charge/discharge times being 4 or 6 hours.
- Lee Cheol-gyu For a 96MW, 6-hour discharge ESS project, the estimated total business cost was 119-124.2 billion KRW, significantly lower than the 160 billion KRW actually presented for the project.
- Lee Cheol-gyu An appropriate bid price to ensure a 9.98% annual profit for the Haenam project was calculated at 14.74 won/kWh, which is 29% lower than its actual 19 won/kWh bid price.
- Lee Cheol-gyu Additional settlement costs for renewable energy generators in Jeju, Gwangyang, and Haenam are projected to total 1.0897 trillion KRW over 15 years.
- Lee Cheol-gyu Lee Cheol-gyu criticized the current ESS Central Contract Market as a post-facto solution for past renewable energy oversupply and grid construction delays, funded by the Electricity Fund and electricity tariffs.
- Korean government The Korean government plans to select ESS power generators totaling 1180MW (1100MW mainland, 80MW Jeju) in the 2026 ESS Central Contract Market.
For investors — Investors in Korea's ESS Central Contract Market should anticipate potential policy changes leading to reduced profitability, particularly if settlement mechanisms are revised to align with actual operational hours rather than 24-hour standby. Future project bids may face stricter cost scrutiny and lower acceptable bid prices, impacting long-term revenue projections.
Watch: Monitoring legislative discussions and regulatory announcements regarding revisions to the ESS Central Contract Market's settlement rules and cost estimation methodologies.
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.