Smart Grid in Korea Smart Power Grid, Consumers, Transportation, Renewable Energy, and Electricity Service: Market Analysis and Forecasts

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1 Smart Grid in Korea Smart Power Grid, Consumers, Transportation, Renewable Energy, and Electricity Service: Market Analysis and Forecasts Published 1Q 2010 Hoonho (Andy) Bae Industry Analyst 0 Clint Wheelock Managing Director

2 Section 1 EXECUTIVE SUMMARY In 1894, Thomas Edison helped provision the Korean palace with electricity. However, the majority of the Korean population at the time was unable to realize the benefits of electricity. In the early 20th century, Korea lagged behind other industrialized regions in technology development and service offerings. Additionally, the Korean War destroyed almost all social infrastructure, and Korea had trouble with insufficient availability of electricity, even until the mid-1970s. Since then, though, Korea has seen the advent of an era of innovation driven by information technology. The country has successfully transformed into a global technology hub. Consumers in the country can now enjoy ultra high-speed broadband access, nationwide 3G mobile services, and the world s first commercial mobile WiMAX service. Innovation in Korea has spurred ongoing projects in home automation/home networking services and Ubiquitous City construction. Other regions are now paying attention to the results of Korea s innovation. Moreover, these projects have contributed to the growth engine of the Korean economy. However, the days of taking the grid for granted are coming to a close. Economic, technical, environmental, and political challenges call for fundamental changes in how electricity is generated, distributed, and used. Additionally, most developed countries, including Korea, have been required to reduce climate changing carbon emissions. Korea faces another imminent problem: energy security to maintain steady growth in its economy. In a fast-changing global trend surrounding energy and environment, in 2008 the Korean government established a Green Growth policy and a smart grid roadmap as part of its national policy. Globally, the energy and utility industry is on the verge of a massive overhaul of electric generation, transmission and distribution systems, and the means by which consumers make energy use decisions. With the advent of a robust grid communications infrastructure, additional intelligence can be deployed throughout the grid. New transmission and distribution technologies aim to reduce the significant power lost to distribution line and equipment inefficiencies while improving the suboptimal utilization of existing resources. High-voltage transmission lines, enabled by new materials and voltage control technologies, promise to reduce line losses. The reduction of line losses is becoming more critical since renewable generation plants are often far from the energy-consuming population centers. New distribution automation technologies that dynamically control local voltage levels can offer significant power consumption reductions while providing improved power quality to consumers and faster outage detection, correction, and prevention. Smart meters are the fundamental building block for providing consumers the information they need to make productive choices. The companies providing products and services for the smart grid are as wide and diverse as the technologies and applications involved, including traditional industrial power equipment suppliers, existing networking and telecommunications companies, existing and new consumer electronics players, large and small software and IT systems houses, and the utilities themselves. 1

3 In many ways, the smart grid represents the melding of traditional industrial grid companies, communications equipment and services firms, and IT hardware, software, and services companies. The result will be no less transformative than the integration of the voice, data, and video communications industries that rocked the previous decade. Pike Research believes Korea has a positive market environment for the smart grid in terms of the technological and manufacturing competitiveness of Korean market players. By leveraging its technology leadership in the IT and communications space, Korea aims to form an advanced smart grid structure that includes improved power generation and distribution efficiencies, the incorporation of renewable and distributed generation resources, and support for transportation infrastructure shifts toward electric vehicles. For example, Korean electricity supplier KEPCO has been steadily maintaining significant CAPEX to improve utility performance with systematically managed mid- and long-term intelligence plans. KEPCO s investment of $4.2 billion annually toward all elements of power utility systems enables Korean consumers to use high-quality, advanced electricity services. As a result of the company s R&D and investments in the enhancement of intelligent grids, Korea has become one of the leading countries in terms of advanced power grid service. Indeed, Korea has the lowest transmission and distribution system outage time and loss rate in the world. The Korean government has supported the development of core smart grid technologies by Korean R&D institutions since Due to the government s support and the subsequent R&D outcomes, Korean semiconductor, heavy electricity manufacturing, power, and utility components companies have been able to produce competitive systems and applications for power grid, renewable energy sources, and electric vehicles. Korea s commitment to the IT sector and government-driven policy will result in competitive products and services that will play a favorable role in smart grid development. Smart grid infrastructure in Korea represents a large market opportunity. Pike Research breaks out the infrastructure as follows: advanced metering, distribution automation, substation automation, transmission upgrades, renewable energy management systems, and electric vehicle systems. Smart grid revenue in Korea will grow from approximately $906 million in 2010 to $3.8 billion in While much of the market attention has been on metering infrastructure, transmission upgrades and distribution automation systems actually represent the largest opportunities worldwide. 2

4 Chart 1.1 Smart Grid Revenue by Application, Korea Market: $4,000 $3,500 $3,000 $2,500 (Millions) $2,000 $1,500 $1,000 $500 $ Electric Vehicle Management Systems Renewable Energy Management Systems Transmission Upgrades Smart Meters Substation Automation Distribution Automation (Source: Pike Research) 3

5 Section 11 TABLE OF CONTENTS Section Executive Summary... 1 Section Smart Grid Policy in Korea Smart Grid Changes, Challenges, and Requirements Green Growth Policy and Commitment by Korean Government The Definition in Korea Needs and Effects KEPCO s Smart Grid Motivation Smart Grid Roadmap with Five Key Action Practices Smart Power Grid Smart Consumers Smart Transportation Smart Renewable Smart Electricity Services Systems and Technologies Applied to Roadmap Section Market and Consumer Issues Market Drivers Market Barriers Consumer Attitudes in Korea General Users in a HAN Environment Commercial Users Building Commercial Users Factory Electric Vehicles and Charging Systems Implications of Korean Consumer Attitudes Expected Benefits Dynamic Pricing Schemes and Demand Response AMR and AMI in Korea Technical Requirements for AMI in Korea Classification of AMI in Korea Current Deployment State of AMR in Korea AMI Cost Review and Korea s Deployment Plan until IHDs and Home Appliances Section Business Models Overview: What Is the Promising Sector? Residential Environment Affecting Business Models Last One Mile Business Models HEMS Building and Factory Energy Management Services Energy Market Place Smart Grid City Construction Smart Stations for EVs Smart Parking Garage V2G Value-Added Services in EVs HVDC

6 PSIs Driven by Korea Section Technology and Standards Issues IT and Power Grid Integration Project in Korea Current Grid Performance in Korea Distribution Systems Transmission and Transformation Substation Automation and Smart Measurement Demand Side Management Technology Technology Scope to Realize Smart Grid Home Area Networking Technologies in Korea Neighborhood Area Networking Technologies in Korea Wide Area Networking Technologies in Korea Technology Innovation and Standards Activities in Korea PLC-Binary CDMA (RF) Integrated Metering Standard PLC Chip Solution and Standardization Activities DLMS-Compliant Smart Meter EMS and Demand Forecasting Smart Grid in Homes OLEV Online Electric Vehicle Korea-Japan Collaboration in EV Charging Standard Investment in Solar and Renewable Energy Sector CMS/PQMS in Wind Turbines Section Case Study: Jeju Smart Grid Demonstration Project Purpose Project Structure Strategic Goals Project Practices Smart Power Grid Smart Place Smart Transportation Smart Renewable Smart Electricity Service Deployment Plans in Jeju by Key Players KEPCO SK Telecom Hyundai Heavy Industry Korea Telecom Consortium Leaders and Participants Section Key Industry Players Smart Grid Ecosystem KEPCO SK Telecom LS Industrial Systems LG Group LG Chem LG Electronics LG Telecom SK Group: SK Telecom, SK Energy, SK E&C, and SK Broadband POSCO Group: POSCO ICT, POSDATA, and POSCON Samsung Construction

7 7.1.8 Hyosung ILJIN Electric Hyundai Heavy Industry Taihan Electric Wire LS Cable Nuri Telecom Omni System PS Tec Korea Telecom Nexcon Tech KDN Xeline Korea Power Exchange Lotte Data Communication ATLASBX Section Market Forecasts Smart Grid Revenue Smart Grid Revenue by Application Smart Meter Market Section Company Directory Section Acronym and Abbreviation List Section Table of Contents Section Table of Figures Section Scope of Study Sources and Methodology Notes

8 Section 12 TABLE OF FIGURES Chart 1.1 Smart Grid Revenue by Application, Korea Market: Chart 8.1 Total Smart Grid Revenue, Korea Market: Chart 8.2 Smart Grid Revenue by Application, Korea Market: Chart 8.3 Smart Grid Application Revenue Comparisons, Korea Market: Chart 8.4 Cumulative Smart Grid Revenue by Application, Korea Market: Chart 8.5 Cumulative Smart Grid Revenue Percentage by Application, Korea Market: Chart 8.6 Smart Meter Unit Shipments and Installed Base Penetration, Korea Market: Chart 8.7 Smart Meter Unit Shipments by Basic and Advanced Types, Korea Market: Chart 8.8 Smart Meter ASPs by Class Basic and Advanced Types, Korea Market: Chart 8.9 Smart Meter Revenue by Class Basic and Advanced Types, Korea Market: Figure 2.1 KEPCO s Smart Grid Motivation... 7 Figure 3.1 Functional Configuration: Watt-Hour Meter, AMR, and AMI Figure 3.2 Smart Meter Deployed to C&I Customers in Korea Figure 4.1 Factory Building in Korea Figure 4.2 Smart Grid Business Models in Last One Mile Figure 4.3 EV Charging Stations Developed by KEPCO Figure 5.1 Power Outage Time Comparisons: Korea, Japan, France, the U.S., and the U.K Figure 5.2 Power Loss Rate Comparisons: Korea, Japan, France, the U.S., and the U.K Table 2.1 Systems and Technologies Applied to Korean Smart Grid Roadmap ( ) Table 3.1 Technical and Functional Requirements for AMI: Korea Table 3.2 Korean Electricity User Shares by Customer Number and Consumption Table 3.3 IHD Specifications in Korea Table 4.1 HEMS Service Offerings in Korea Table 4.2 BEMS/FEMS Service Offerings in Korea Table 5.1 IT and Power Grid Integration R&D Project Table 6.1 Jeju Smart Grid Demonstration Participating Companies by Practice Table 7.1 Business Scope in Smart Grid Projects by LG Companies Table 7.2 KDN: IT Architecture and Applications Applied to Grid in Korea

9 Section 13 SCOPE OF STUDY Pike Research has prepared this report to provide participants in the emerging smart grid market (equipment and hardware vendors, utilities, software companies, installation and service providers, and other system component manufacturers) with a study of the market potential for smart grid technologies in South Korea including AMI, transmission upgrades, SA, DA, EV management systems, energy management systems, and other categories. The report s purpose is not to provide an exhaustive technical assessment of all of the technologies and industries that may be related to smart grid deployments, but rather a strategic examination of the smart grid market focusing on business models, key technology issues, regulatory factors, customer demand dynamics, and the competitive landscape. Pike Research strives to identify and examine new market segments to aid readers in the development of their business models. All major global regions are included. The forecast period extends through SOURCES AND METHODOLOGY Pike Research s industry analysts utilize a variety of research sources in preparing Research Reports. The key component of Pike Research s analysis is primary research gained from phone and in-person interviews with industry leaders, including executives, engineers, and marketing professionals. Analysts are diligent in ensuring that they speak with representatives from every part of the value chain, including but not limited to technology companies, utilities and other service providers, industry associations, government agencies, and the investment community. Additional analysis includes secondary research conducted by Pike Research s analysts and the firm s staff of research assistants. Where applicable, all secondary research sources are appropriately cited within this report. These primary and secondary research sources, combined with the analyst s industry expertise, are synthesized into the qualitative and quantitative analysis presented in Pike Research s reports. Great care is taken in making sure that all analysis is well-supported by facts, but where the facts are unknown and assumptions must be made, analysts document their assumptions and are prepared to explain their methodology, both within the body of a report and in direct conversations with clients. Pike Research is an independent market research firm whose goal is to present an objective, unbiased view of market opportunities within its coverage areas. The firm is not beholden to any special interests and is thus able to offer clear, actionable advice to help clients succeed in the industry, unfettered by technology hype, political agendas, or emotional factors that are inherent in cleantech markets. 80

10 NOTES CAGR refers to compound average annual growth rate, using the formula: CAGR = (End Year Value Start Year Value) (1/steps) 1. CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are given, the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be given as well. Figures are based on the best estimates available at the time of calculation. Annual revenues, shipments, and sales are based on end-of-year figures unless otherwise noted. All values are expressed in year 2010 U.S. dollars unless otherwise noted. Percentages may not add up to 100 due to rounding. 81

11 Published 1Q Pike Research LLC 1320 Pearl Street, Suite 300 Boulder, CO USA Tel: This publication is provided by Pike Research LLC ( Pike ). This publication may be used only as expressly permitted by license from Pike and may not otherwise be reproduced, recorded, photocopied, distributed, displayed, modified, extracted, accessed or used without the express written permission of Pike. Notwithstanding the foregoing, Pike makes no claim to any Government data and other data obtained from public sources found in this publication (whether or not the owners of such data are noted in this publication). If you do not have a license from Pike covering this publication, please refrain from accessing or using this publication. Please contact Pike to obtain a license to this publication. 82