South Korea’s power sector requires urgent reform to support national decarbonization goals while maintaining affordability and reliability. Renewable energy accounts for less than 10% of electricity generation—the lowest share among OECD countries—and the system remains dominated by large, centralized fossil and nuclear power plants with high emissions, high fuel costs, and limited operational flexibility. Existing market and regulatory frameworks were designed for this legacy system and no longer align with today's policy priorities or technological realities.

This brief draws on international experience and proposes a phased and strategic reform process, ideally led by a high-level transition coordination body under the Prime Minister. We outline how this transition process could be structured and emphasize that clear objectives, transparent decision-making, robust stakeholder engagement, and a roadmap with measurable milestones will be essential to sequence reforms effectively, mitigate risks, and ensure social acceptance.

For two broad areas of reform – governance and electricity market design – the brief highlights several selected issues that our team judges need urgent attention. In the governance area, we discuss establishing an independent electricity regulator with a net-zero mandate and advancing unbundling of KEPCO as critical steps for ensuring neutrality, enabling competition, and improving grid planning. Regarding electricity market design, we discuss developing competitive, bid-based wholesale markets, ending the cost-based day-ahead pool, and removing the practice of guaranteed cost recovery for fossil generators. We also discuss establishing a contracts for difference mechanism to support renewables, expanding options for consumers to choose clean energy sources, and establishing strong incentives for distributed energy resources. These are not the only reforms required – but each will be necessary to unlock flexibility, attract investment, and enable a reliable, cost-effective, low-carbon power system.