Integrating market and technology uncertainties into the projected cost of power technologies: a case of Korea

Abstract

Like many countries responding to climate change, Korea also faces an unprecedented transformation of its power sector into a low-carbon system. To evaluate the most advantageous combination of technologies and necessary policies for achieving the goals of such a transformation, this study decomposes the historical development of the total cost of five major power technologies in Korea into three cost components and identifies the underlying driving forces and variabilities of each. We then project the likely distribution of costs in 2030 using Monte-Carlo simulation and simulate the possible impact of climate and environmental policies on the economic landscape of competing technologies. Our results show that the business-as-usual dynamics of key techno-economic-market factors are not likely to secure the economic viability of the proposed energy transition in Korea. Introducing carbon prices or strict environmental policy is imperative in Korea to make renewables and less carbon-intensive gas power remain cost-competitive with coal power.

Keywords

• LCOE
• Monte Carlo simulation
• Technology learning
• Market uncertainty
• Carbon pricing