Optimal share of natural gas in the electric power generation of South Korea: A note

Natural gas (NG) not only emits fewer greenhouse gases and air pollutants than coal but also plays the role of a peak power source that can respond immediately to the variability of increasing renewables. Although the share of NG generation worldwide is increasing, it is difficult for South Korea to increase its NG generation significantly in terms of fuel supply security, since it depends on imports for all of the NG used for power generation. Therefore, the optimal share of NG generation in electric power generation is a serious concern. This note attempts to estimate the optimal share by modelling the plausible relationship between NG generation and national output in the Cobb-Douglas production function setting and then deriving the output-maximizing share of NG generation. The production function is statistically significantly estimated using annual data from 1990 to 2016, allowing for the first-order serial correlation. The optimal share is computed to be 20.3%. Therefore, it is recommended that South Korea increases the share of NG generation slightly and makes efforts to secure a stable NG supply, given that, according to the national plan, the share will be 18.8% in 2030.