Korea's electricity market reforms needed to fix price distortions for renewables

A comprehensive study from researchers Lee, Yoon, and Shin (arXiv:2605.09318) reveals that Korea's electricity market design is fundamentally broken for the renewable energy era. The current cost-based pool (CBP) and uniform pricing mechanism create severe price distortions that misallocate resources and discourage investment in renewables and grid flexibility. The paper argues these flaws block the nation's energy transition by failing to signal transmission constraints, real-time supply-demand imbalances, or generator-specific costs.

To fix this, the authors propose a holistic reform package with four interconnected steps: (1) introducing locational marginal pricing (LMP) to send location-based price signals for transmission constraints; (2) establishing a real-time market to capture temporal value of electricity; (3) integrating market and system operations to resolve operational inconsistencies; and (4) switching from CBP to a price-based bidding system. Crucially, the paper warns that these reforms must be implemented jointly—piecemeal changes will not work. The study provides a roadmap for aligning Korea's market design with its aggressive renewable energy goals.