A. Major characteristics
From January through October 2011, primary energy consumption rose 3.3%, recording a lower increase rate than cumulative economic growth (3.7%) from the first through the third quarter of 2011.
From January through October, primary energy consumption indicated gradual growth as the level of economic growth somewhat slowed down. This is despite a rise in energy demand for heating purposes owing to the record-breaking cold wave in January32). A soar in international oil prices in the first quarter and strengthening of energy-saving policies33)likely contributed to the stabilization of energy consumption.
* A 32% rise in average Dubai oil prices ($/bbl): (First quarter of 2010) 75.90 →(First quarter of 2011) 100.44
The speed of industrial production increase exceeded the level of economic growth (3.7%). Energy consumption for industrial use (4.6% increase) led a rise in primary energy consumption from January through October.
* From January through October 2011, industrial production recorded a year-on-year increase of 7.4%.
The level of contribution made by the economic growth factor to a rise in primary energy consumption from January through September is assumed to be 3.6%p, while that made by the temperature effect is assumed to be 0.7%p34).
- On the other hand, changes in other factors such as energy efficiency improvements and a rise in oil prices reduced energy consumption by 1.1%p.
32) The average temperature in January (-7.2℃) was the lowest in 48 years (5.4℃ lower than the average year temperature).
33) Measure on placing restrictions on heating temperatures in buildings (January 24-February 18), emergency measure on saving energy (February 27 and onwards), etc.
34) GDP is announced by quarter. For this reason, an analysis of the level of contribution made to a rise in consumption is limited to January through September.
Characteristics and implications
9
Notes: 1) Values in parentheses refer to each factor’s level of contribution to change in energy consumption.
2) Other effects include all factors that trigger a change in energy consumption excluding the temperature effect and economic growth effect such as changes in the industrial structure and energy prices as well as energy efficiency improvements.
The establishment of a low energy-consuming industrial structure and improvements in energy intensity were carried out amid strong demand in the industrial sector.
From January through October 2011, energy consumption in the manufacturing industry, which accounts for more than 95% of energy consumption in the industrial sector, recorded sound growth of 4.4% year-on-year owing to continued favorable conditions in the fabricated metal, metal product (steel), and petrochemical industries.
An analysis of the level of contribution made to a rise in energy consumption in the manufacturing industry from January through September 201135)indicates that industrial structure changes and energy intensity improvements contributed to restraining the increase in energy consumption.
[FigureⅢ-17] Level of contribution of each factor towards a rise in primary energy consumption from January through September 2011
35) The added value of each business type is announced by quarter. This is why an analysis of the level of contribution to a rise in consumption is carried out for January through September only. Energy consumption of the manufacturing industry does not include anthracite and new & renewable energy. Only overall industrial statistics are compiled for new & renewable energy and anthracite for industrial use. They are not broken down into statistics by business type under the manufacturing industry.
- The level of contribution made by production activities to a rise in energy consumption in the manufacturing industry is assumed to be 7.5%p. This means that energy consumption in the manufacturing industry would have posted a year-on-year increase of 7.5% if no changes took place in other factors.
- In contrast, the level of contribution made by industrial structure changes to a rise in energy consumption was -2.4%p. Industrial structure changes contributed to bringing down energy consumption in the manufacturing industry by 1.7 million TOE.
- This is because the share of the manufacturing industry’s added value that is taken up by the fabricated metal industry, which has a relatively low energy intensity, went up, while the share accounted for by the petrochemical industry, whose energy intensity is high, declined.
- Energy intensity improvements of the manufacturing industry led to a 0.8%p decline in consumption.
Forecasts on energy intensity improvements in 2011 and 2012
Energy intensity (TOE/million won) deteriorated in 2009 and 2010, but is expected to improve to 0.251 in 2011 and 0.249 in 2012.
[FigureⅢ-18] Level of contribution of each factor towards a change in manufacturing industry consumption from January through September 2011
The worsened energy intensity in 2009 and 2010 seems to be temporary amid mid- to long-term energy efficiency improvements.
- The worsened energy intensity of 2009 resulted from the level of increase in primary energy consumption (1.1%) exceeding the economic growth rate (0.3%), owing to operation of new facilities in industries that consume a great amount of energy and a rise in energy transformation loss as a result of a rapid increase in electricity consumption36).
- The worsened energy intensity of 2010 mainly resulted from base effects from sluggish consumption witnessed in the previous year, a soar in energy consumption for industrial use owing to a rapid economic upswing, and an increase in energy consumption for cooling and heating purposes as a result of abnormal climate conditions throughout all seasons.
Notes: e refers to forecasts.
Continued rapid increase in electricity consumption is expected
Electricity is forecast to maintain a rapid increase in consumption due to several factors:
low charge; continued upswing in production in industries that consume a great amount of electricity; increased propagation of electric equipment; and convenience in use.
36) Final energy consumption went down 0.3% in 2009 but electricity consumption indicated relatively high growth at 2.4%.
Category 2005 2006 2007 2008 2009 2010 2011e 2012e
Economic growth rate (%) 4.0 5.2 5.1 2.3 0.3 6.2 3.8 3.7
Primary energy consumption
3.8 2.1 1.3 1.8 1.1 7.9 3.3 3.0
increase rate (%) Energy intensity
0.264 0.256 0.247 0.246 0.248 0.252 0.251 0.249 (TOE/Million won)
<TableⅢ-24> Outlook on energy intensity
- Electricity consumption indicated annual average growth of 9.8% in the 1990s, and continued an annual average increase of 6.1% in the 2000s, the highest among major final energy sources.
- Electricity consumption rose 10.1% in 2010, attributable to the economic recovery and temperature effects. It is forecast to record relatively rapid growth of 5.2% in 2011 and 4.5% in 2012.
A rise in electricity consumption expands energy conversion loss, thus triggering an increase in primary energy demand37).
- The level of contribution made by electricity towards a rise in primary energy consumption is forecast to be 49.4% in 2011 and 50.9% in 2012. It is forecast that around half of the primary energy increase will be accounted for by electricity demand.
- Strong electricity demand is expected to continue for the time being as a result of sound growth of industries that consume great amounts of electricity and changes in lifestyles triggered by technological development.
The supplied reserve level is steadily decreasing
Since 2000, peak electricity demand has been quickly increasing, faster than the speed at which power generation facilities were built. For this reason, spare electricity is steadily declining.
From 2000 through 2011, peak electricity demand in the summer indicated annual average growth of 5.3%. In contrast, total capacity and supply capacity recorded an annual average increase of a mere 4.7% and 4.9%, respectively. The supplied reserve level in the summer substantially dropped.
- In 2011, summer peak demand (72.19 million kW) recorded a year-on-year rise of only 3.3% owing to low temperatures in August, resulting in a supplied reserve level of 5.44 million kW. However, abnormally high temperatures continued in early September, resulting in a decline in reserve power to 240 thousand kW and the rolling blackout.38)
37) There is an energy loss of 63.6% in the power generation sector (as of 2010). This is why 2.74 TOE of primary energy is needed to produce 1 TOE of electricity.
Peak demand in the winter (December - February) indicated annual average growth of 6.2% during the past decade, thus recording a faster increase rate than peak demand in the summer. Power generation capacity at the point of winter peak demand recorded an annual average increase of 4.6%. This means that reserve power at the point of winter peak demand quickly went down.
- Winter peak demand in 2011 (December 2010~February 2011) stood at 73.14 million kW, a year-on-year rise of 6.1%, as a result of the economic upswing, continued cold wave, and affordable electricity charge. The supplied reserve level declined to 4.04 million kW.
Increase in the range of fluctuation in energy demand caused by temperature changes Temperature changes have had increasing influence on changes in energy consumption in the 2000s.
- Energy consumption is substantially influenced by temperature changes in tandem with increased dissemination and use of cooling and heating equipment and frequent occurrence of abnormal climate conditions.
Electricity demand in the winter is especially becoming more sensitive to temperatures and the range of fluctuation in demand is widening in tandem with increased dissemination of electric heating equipment.
- An analysis of how sensitive electricity demand was towards changes in HDD in a 10- year period after 1985 (movement to recent year by one year on an annual basis)39) indicates that electricity demand is becoming more sensitive to temperatures as time passes.
- This shows that electricity is quickly replacing oil as energy for heating.
38) Electricity demand was 67.26 million kW and supply capacity was 67.52 million kW.
39) Sensitivity analysis model (Monthly data used): InE=α+β1InGDP+β2CDD+β3HDD+e
(E refers to electricity, CDD refers to Cooling Degree Days, HDD refers to Heating Degree Days)
Oil dependence regarding primary energy consumption is forecast to continually drop.
The share of primary energy taken up by oil decreased to less than 40% in 2010, and will likely go down further to 37.7% in 2012.
When excluding non-energy oil for industrial raw material use (naphtha, asphalt, etc.), the share of primary energy taken up by oil used as an energy source is expected to decrease from 21.8% in 2010 to 19.6% in 2012.
- The share of primary energy taken up by non-energy oil stood at 17.9% in 2010 and will likely go up slightly to 18.1% in 2012.
The decrease in the Korean economy’s dependence on energy oil is likely the result of continued high oil prices and relative prices among energy sources in Korea.
- A rise in oil prices has led to a slowdown in the level of increase in fuel consumption for transport and continued downward trend in consumption for power generation. Oil is being steadily replaced by other energy sources such as electricity.
[FigureⅢ-19] Changes in electricity demand sensitivity for temperatures
There is a need to examine whether the speed at which the share taken up by energy oil is dropping is appropriate when Korea establishes energy supply and demand policies.
- Considering Korea’s industrial structure, where the level of contribution made by the petrochemical industry to the economy is high, the nation’s oil dependence target should be set targeting oil for fuel.
B. Policy implications
Continually implement measures to stabilize winter and summer electricity supply and demand in 2012.
Due to limited expansion of base-load power generation facilities (nuclear power, bituminous coal), electricity supply and demand conditions that were witnessed in 2011 will likely continue in 2012.
- Commercial operation is planned for two nuclear power plants (Singori Nuclear Power Plant Unit 2, Sinwolseong Nuclear Power Plant Unit 1) in the first half of 2012, but there are no plans for additional bituminous coal-based power generation facilities.
[FigureⅢ-20] Trends in oil dependence and forecasts
- Base-load power generation facility capacity in 2012 (as of the end of the year) will record a year-on-year rise of a mere 4.8%. The level of increase will be similar to that of electricity demand (4.5% increase).
As such, strong measures on stabilizing supply and demand need to be continually implemented in 2012 in order to stabilize electricity supply and demand.
- There is a need to continually move forward with reform into a cost principle-based charge system. At the same time, there is a need to come up with a mid- to long-term roadmap that would reduce the economic shock caused by the change in the charge system and would allow electricity consumers, including the industrial sector, to prepare for the change.
- There is a need to examine the matter of putting off the shutdown of power plants and engaging in early construction of new power plants in order to secure more supply capacity between now and 2015, when there is no spare electricity.
- If needed, current electricity supply/demand stabilization measures (reduce peak demand, place a restriction on heating temperatures, etc.) should be improved and continually executed.
- PR activities should be strengthened so that information is delivered to the general public on how to use electricity efficiently and the importance of reducing energy consumption.
There is a need to pay more caution to electricity supply/demand management when there is a change in the season.
There is a possibility that difficulties will be experienced in electricity supply in the event of a soar in electricity demand as a result of abnormal climate conditions when there is a change in the season.
- The shortage of reserve power in the summer and winter is forecast to continue for the time being. Repair of power plants needs to be carried out mainly in the spring and autumn.
- There is a possibility of power load temporarily rising in the event of simultaneous occurrence of abnormal climate conditions and load shifting of industries when there is a change in the season.
- In case of simultaneous occurrence of a drop in supply capacity and a rise in power load, as such was the case on September 15, 2011, there is a possibility of imbalance between supply and demand in the short term.
There is a need to improve Korea’s industrial structure into a low energy-consuming structure.
Energy demand in the industrial sector rose 8.5% in 2010. It is forecast to go up 4.6% in 2011 and 4.1% in 2012, thus leading a rise in final energy consumption.
* Rate of increase in final energy demand: (’10) 6.5% →(’11) 3.1% →(’12) 2.9%
As a result, the share of final energy accounted for by consumption in the industrial sector is expected to continually increase and reach 61% in 2012.
The rapid increase in demand in the industrial sector is attributable to continued rapid growth of leading industries that consume a great amount of energy, including the steel and petrochemical industries, as well as the fabricated metal industry that mainly uses electricity, including semiconductors, machinery, and automobiles.
- In 2010, there was a substantial rise (12.9%) in electricity demand for industrial use as a result of construction of large steel making facilities (total capacity of 19,000 thousand tons) that consume a great amount of electricity, including Blast Furnace #1 and #2 of Hyundai Steel40).
The level of contribution made by the industrial sector to a rise in final energy consumption has been on an upward trend since 2009.
- In 2012, energy consumption in the industrial sector is expected to increase by 5.0 million TOE, accounting for 86.2% of final energy demand increase (5.8 million TOE).
The level of contribution of energy for industrial raw material use (naphtha, coking coal) towards a rise in final energy demand is expected to reach 37.2%.
- In 2012, the level of contribution of the transport sector and residential/commercial and public/other sector is forecast to be low at 5.0% and 8.8%, respectively.
40) This accounts for 8.8% of the total steel making facility capacity (216,667 thousand tons) recorded in 2010.
Roles played by the industrial sector are important in reducing energy demand in Korea, but there is a restriction on reducing demand in the short term41). For this reason, industrial structure improvements should be continually implemented as a mid- to long- term task.
41) Energy for raw material use accounts for 52.4% (as of 2010) of energy consumption in the industrial sector.
[FigureⅢ-21] Level of contribution of each sector to a rise in final energy demand