<article><p class="lead">South Korea's coal-fired power plants are likely to face significant winter disruption for a second year running, according to a draft proposal from the environment ministry.</p><p>Seasonal measures to control fine dust and particulate emissions from the power, transportation and industrial sectors were <a href="https://direct.argusmedia.com/newsandanalysis/article/2090802">enacted as law earlier this year</a>, following their implementation for the first time last winter.</p><p>In the environment ministry's draft proposal for the upcoming winter, published yesterday, the government said it plans to suspend as many coal-fired units as possible and impose an 80pc cap on output from any operational units in December-March. This would be similar to last winter's approach, although the ministry did not confirm how many units would be affected.</p><p>A detailed plan for December-February will be announced as part of a winter electricity plan by the end of this month, once clearer forecasts of weather conditions and power demand are available. Details for March will be finalised at the end of February, the ministry added. </p><p>The government effectively restricted around 12.9GW or 38pc of the coal-fired fleet in December 2019-March 2020 through a combination of full shutdowns and limitations on the use of operational plants. This reduced South Korea's coal-fired power generation by 14.4pc on the year to 67.3TWh, with coal consumption among state-owned Kepco utilities falling to 23.7mn t, from 29.3mn t a year earlier, according to Kepco data. Thermal coal imports decreased by 9pc to 31.3mn t over the same period. </p><p>Greater nuclear availability, more competitive gas prices and the potential for weaker power demand because of the economic impact of Covid-19 could all free the government to enforce stricter limits on coal use this year.</p><h3>Domestic gas prices continue to slip</h3><p class="lead">A further drop in state-owned gas firm Kogas' domestic tariff and firmer spot coal prices should continue to support fuel switching in South Korea ahead of the winter coal restrictions, and recent weakness in oil prices threatens to keep average gas costs under pressure into 2021.</p><p>Kogas has reduced its domestic tariff for the power sector for a sixth consecutive month to 7,115 won/GJ ($6.51/mn Btu) for November, down by 1pc on the month and by 39pc on the year.</p><p>Domestic gas prices have weakened in recent months following a drop in oil prices earlier this year, as a significant proportion of South Korean LNG imports are linked to crude prices in term contracts. The decline in domestic tariffs has slowed more recently as oil prices have recovered gradually since May, but firmer spot coal prices have also sustained the impetus for coal-to-gas fuel switching .</p><p>Based on Kogas' November tariff for the power sector, a 60pc-efficient gas-fired plant could generate electricity at a marginal cost of $38.15/MWh, including LNG consumption taxes, according to <i>Argus</i> analysis. This is $1.15/MWh higher than the equivalent cost for a 39pc-efficient coal-fired plant at around $37/MWh, based on <i>Argus</i>' cfr South Korea NAR 5,800 kcal/kg assessment last month, compared with more than a $20/MWh premium in the second quarter of this year.</p><p>More competitive gas prices could compound the impact of higher nuclear availability and mild weather on coal demand this month. </p><p>Some 20.2GW of South Korea's nuclear capacity is scheduled to be available this month and 20.7GW in December, compared with actual generation of 14.5GW in the same period last year. The country's meteorological administration said on 29 October that there is only a 20pc chance of below-average temperatures across the country on 9-22 November, rising to 40pc for the final week of the month and 30pc for the first week of December.</p><p>Beyond 2020, oil-linked LNG prices are expected to recover as a result of firmer oil prices since May, which may restore some of coal's cost advantage for power generation. But the recovery will likely be gradual, sustaining much fiercer competition between the fuels than in previous winters.</p><p>This would be an additional headwind for power-sector coal demand on top of the physical restrictions on the use of coal-fired plants in December-March.</p><p class="bylines">By Evelyn Lee and Jake Horslen </p><p><div class="picture"><div><span class="pic_title">Kepco coal availability and generation</span> <span class="units">GW</span></div><img src="https://argus-public-assets.s3.amazonaws.com/2020/11/03/koreacoalavail03112020033824.jpg"></div></p><p><div class="picture"><div><span class="pic_title">Implied generation costs (39pc coal vs 60pc gas)</span> <span class="units">$/MWh</span></div><img src="https://argus-public-assets.s3.amazonaws.com/2020/11/03/costs03112020033916.jpg"></div></p></article>
