Cost-profit analysis for Japan-Russia and Japan-South Korea interconnectors

Abstract

This paper describes the results of cost-profit analysis related to interconnectors for Japan-Russia and Japan- South Korea based on the Asia International Grid Connection Study Group 2nd report. The Group has been established in 2016 for conducting research on international electric power networks in Asia from the viewpoint of technology, investment and legal framework. 2nd report of the Group was published in June 2018, examining the profitability of an interconnectors between Japan and neighboring countries. The Group has calculated expected profit from operation of these interconnectors.The Group has categorized interconnector business into four models from the survey of preceding and current business on grids and interconnectors. To clarify profitability, expected internal rate of return (IRR) was calculated for each business model based on estimated investment cost for each route. When interconnector is dedicated to specific power plants or suppliers and electricity can be sold at Japan wholesale market at 2016-2017 price level, positive IRR levels are expected in case that Free on Board (FOB) price lower than 7 JPY /kWh. When the investment will be covered by electricity tariff by final consumers, tariff for consumers will just slightly increase by approximately 0.1JPY/ kWh.