۱- Introduction

۲- The trans-log cost function model

۳- Data

۴- Results and discussion

۵- Conclusion and policy implications

References

Abstract

This study suggests a simple economic model to analyze electricity grid that consists of different power sources. The substitutability of renewable energy for nuclear power in Korean electricity transmission network is investigated by suggested model. The monthly data from January 2006 to December 2013 reported by Electricity Power Statistics Information System (EPSIS) of Korea Power EXchange (KPX) are used. To estimate the elasticities of substitution among four power sources (i.e. coal, natural gas, nuclear power, and renewable energy), this paper uses the trans-log cost function model on which local concavity restrictions are imposed. The estimated Hicks-Allen and Morishima elasticity of substitution shows that renewable electricity and nuclear power are complementary. The results also evidenced that renewable electricity and fossil fueled thermal power generation are substitutes.

Background

Nuclear power has been a controversial issue worldwide. Specifically, there are many questions whether nuclear power plants can be continuously used in the future and, if not, whether renewable energy can substitute nuclear power. In Korea, the Moon Jae-in administration, established in 2017, is in favor of renewable energy and proposed the Korean government’s new long-term plan of electricity supply, which recommends the suspension of two nuclear power plants under construction [1]. After serious debate, the Committee for Public Debate of Sin-Gori Units No. 5$6 finally allowed continuing construction of those plants. The debate reflects Korea’s increasing fear of the risk of nuclear power since the Fukushima Daiichi accident in Japan, followed by the great earthquake in 2011 [2]. Fear of nuclear power is a global phenomenon. Global electricity generation from nuclear power plants in 2013 was less than its average between 2001 and 2010. The main driver of this decline was the shutdown of nuclear power plants in Japan, Germany, and the US [3]. The IAEA [4] reports that the rapid shutdown of nuclear power plants, beginning in the 2010s, has affected the current capacity of global nuclear power. Yet, the same report states that nuclear power still accounts for one-third of the total low carbon power generation and renewable energy cannot easily substitute nuclear power because of its intermittent characteristic. The IAEA projects that increasing global demand for electricity, especially in emerging economies, may lead to the expansion of nuclear power use, which presents a paradox concerning nuclear power [4]. Although nuclear power is inexpensive and a massive electricity supplier with low carbon emissions, simultaneously, it could bring about a fatal accident. CO2 emission from fossil fuel use is a common problem and seen as a significant cause of global climate change. In the electricity industry, however, the reduction of fossil fuel-based thermal power generation creates instability in the power supply. Nuclear power generation is a strong alternative as a substitute for thermal power generation [4]. As mentioned, however, nuclear power generation faces strong opposition as it has latent risks. Facing these two problems, CO2 emission and nuclear power’s risk, renewable energy is being discussed as an effective solution. However, as the IAEA report [4] points out, the technological and economic problems associated with renewable energy are still the basis of argument whether renewable energy is unsuitable for the base-load of the electricity system. Moreover, Madrigal and Stoft pointed out that intermittency of renewable energy such as wind power and photovoltaic affects grid stability [5].