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

1 Introduction

Until the accident of Fukushima Daiichi Nuclear Power Plant in 2011,it was considered that interconnectors including cross-regional connectors had been treated as unimportant on national energy policy in Japan.However,energy policy began to change,the government has pursued reform of Japan's power system,while renewable energy is being deployed rapidly.

From a global perspective,international trade of electric power is far from rare.International power networks will be constructed with dramatic growth of renewable energy investment.This phenomenon is observed in European countries and the other countries in the world.Thus,an international electricity grid network seems to be essential even for Japan in order to diffuse renewable energy.

The Asia International Grid Connection Study Group has been established in 2016,for the purpose of conducting research on international electric power networks and recommending what to do in order to open up its possibilities in North East Asia.Renewable Energy Institute plays a role as secretariat.The Group is composed mainly of researchers of electric power systems and energy policy,experts in renewables,and people from related businesses.In the interim report which was published in Apr.2017[1],the Group has reported overviews of the concept of international power grid,cases of application in Europe,and potentials it has in Asia and challenges to be addressed.

Thereafter the Group had investigated the recent trends of interconnectors globally,including North America.In addition,settlement of interconnectors' routes and the cost estimation were conducted and expected profit by interconnector business was calculated.Study results were published as 2nd report in June 2018 [2].This paper mainly focuses on the results of cost-profit analysis for Japan-Russia and Japan-South Korea interconnectors based on the 2nd report.

2 Cost-profit analysis for interconnector between Japan and neighboring countries

2.1 Categorization of business model for interconnector

From the results of investigation for interconnectors in Europe and in north America,and referring preceding studies [3-6],it was found that business models of grids and interconnectors can be classified into four models shown in Table1.They are the generators/suppliers dedicated line model,the regulated grid tariff model,the transmission rights sales model and the congestion charge model.These business models are implemented in combination according to the local market situations and the electricity systems.

Table1 Business models for interconnectors

?Name Income source Example Generators/suppliers dedicated line model Canada - the U.S.Russia - China Regulated grid tariff model Revenues of electricity sales Grid tariff by all final consumers Denmark - Norway Russia - China Transmission rights sales model Revenues of transmission right sales EU area PJM in the U.S.Congestion charge model Differences between market price

The generators/suppliers dedicated line model is for installation of transmission lines from specific power plants or suppliers to demand areas.The power transmission in this case is basically unidirectional,and the investment is recovered by revenues from electricity sales.Therefore,interconnectors installed from areas with inexpensive power sources to demand centers are observed.Canada has exported electricity to the United Stated for more than 100 years,and there are many interconnectors which adopt this business model.

The regulated grid tariff model is an investment recovery method widely used for construction of domestic transmission lines in many countries,and also adopted in many interconnectors.Costs to construct and maintain transmission lines are regarded as a part of the total costs of transmission system operators under the regulated tariff.For these transmission costs,grid tariff is paid by all consumers in the specific area and used to recover the investment.Therefore,invested costs and grid tariff are strictly regulated by the government.

The transmission rights sales model is one of the investment recovery methods conventionally adopted.In this model,power generation companies and retailers pay interconnector owners to secure a certain amount of transmission capacity (rights to transmit electricity).Transmission rights can be set without coupling of wholesale electricity markets.For example,in the interconnector between the UK and France,EDF in France has procured transmission rights in the long term [7].On the other hand,advanced market coupling will bring about inter-market power supply contracts.If market segmentation occurs under such circumstances,power generation companies cannot supply power across the market,and need to purchase and sell power in the market where the contract was made.Transmission rights are utilized to avoid the risk of loss due to the situations.

The congestion charge model is an investment recovery method used when market coupling is implemented between European countries or within the domestic markets of a part of the U.S.If a grid is congested between price areas,the market operator will implement market splitting.However,regardless of this market splitting,electricity continues to be physically transmitted through the grid.Therefore,the grid owner is entitled to income equivalent to the multiple of the amount of electricity actually transmitted and the price difference between the markets; this income is obtained through the market operator.However,this method is not effective for recovering investment in a grid if the grid capacity is sufficient and market splitting does not occur.Therefore,it can be said that areas where the congestion charge model is employed for investment recovery in European countries and a part of the U.S.are those areas where market splitting occurs frequently.

2.2 Common precondition for calculation

Candidate routes and cost estimation for interconnector of Japan-Russia and Japan-South Korea were discussed on preceding paper [8].Four routes in Japan-Russia and three routes in Japan-Korea were assumed,capacity of each interconnector was set as a couple of DC 1GW cables with return trace.Enhancement of domestic power grid was also estimated.Estimation results of total investment cost are shown in Table2 and Table3.

Table2 Estimated construction cost for Japan-Russia interconnector

R1 Sakhalin-Kashiwazaki(Length:1,255 km)430.5 bn.JPY—430.5 bn.JPY R2 Sakhalin-Ishikari-Kashiwazaki(Length:1,255 km)196.1 bn.JPY 265.8 bn.JPY 461.9 bn.JPY R3 Sakhalin-Wakkanai-Ishikari-Kashiwazaki(Length:1,258 km)110.0 bn.JPY 463.0 bn.JPY 573.0 bn.JPY R4 Sakhalin-Ishikari-Tomakomai-Fukushima(Length:1,246 km)196.1 bn.JPY 330.3 bn.JPY 526.4 bn.JPY

Table3 Estimated construction cost for Japan-South Korea interconnector

K1 Busan-Maizuru(Distance:627 km)246.5 bn.JPY—246.5 bn.JPY K2 Busan-Matsue-Hino(Distance:413 km) 171.8 bn.JPY 30.6 bn.JPY 202.4 bn.JPY K3 Busan-Imari and Oita-Ikata(Distance:296 km)129.0 bn.JPY 83.3 bn.JPY 212.3 bn.JPY

Profit is assessed with the IRR method.If the rate is higher than a predetermined discount rate,it is considered worthy of investment.Pretax revenues are used in calculation,and initial investment and O&M costs are included in the costs.In general,the discount rate for public works investment is around 4% [9,10].If interconnectors are regarded as an infrastructure contributing to public welfare,the discount rate of 4% or higher can be a rough standard for investment decisions.As for the business models,the calculation assumes that the generators/suppliers dedicated line model,the regulated grid tariff model and the transmission rights sales model are adopted in interconnector for the Japan-Russia and the Japan-South Korea.In addition,the congestion charge model is assumed only in the Japan-South Korea interconnector because the Russian Far East does not have a wholesale electricity market which allows the congestion charge model to be estimated.

2.3 The generators/suppliers dedicated line model

For the Japan-Russia interconnector with the generators/suppliers dedicated line model,it is assumed that all electricity from Russia is bid for and sold on the day-ahead market of Tokyo area in Japan Electric Power Exchange(JEPX).For the Japan-South Korea interconnector,it is assumed that electricity from Mongolia,China and the Korean Peninsula is transmitted through South Korea,and then bid for and sold to where the connection points of the Japanese side belong,which are the JEPX Kansai,JEPX Chugoku and JEPX Kyushu areas as shown Fig.1.In the calculation,FOB prices are used to sell electricity to Japan,and the differences between JEPX and FOB prices become the revenues of investors in interconnectors.Power flows from Japan to the other countries are not included in this calculation.Considering the small volume of trading on the JEPX before the full liberalization of the retail electricity market in 2016,the evaluation period is set from 2016 to 2017,and the annual data of each year was analyzed and compared with each other.The assumptions with the generators/suppliers dedicated line model are shown in Table4.

Fig.1 Business scheme of the generators/suppliers dedicated line model

Table4 Calculation precondition for the generators/suppliers dedicated line model

25 years 1 - 3% of initial investment cost [11]Minimum:1 GW; Maximum:2 GW For each year of 2016 and 2017(every 30 minutes)5-9 JPY/kWh (every 1 JPY )

Calculated results are shown in Table5 and Table6.For any routes,1 GW usage of grid capacity makes the median of the IRR range positive when the FOB prices are around 5-6 JPY/kWh or lower.However,the profitability improves with increasing capacity factor up to 2 GW.This indicates that the generators/suppliers dedicated line model is a business model where the profitability fluctuates according to FOB prices and the capacity factor of transmission lines.

Regarding the impact for IRR by factors,1% difference of O&M ratio changes the IRR by approximately 1% in both Japan-Russia and the Japan-South Korea interconnector.The difference in market prices make more impacts for the IRR.It was estimated approximately 2% for Japan-Russia route,10%for Japan-South Korea route.This is because the wholesale electricity price in 2017 was higher than in 2016 across western Japan.Furthermore,the IRR of K3 route,which sells electricity at the Kyushu area had a gap with K1 and K2 up to 2% (in 2017) due to market segmentation in Japan.

Nevertheless,if the price level of JEPX day-ahead market keeps and electricity supply from overseas at lower than 7 JPY per kWh,installation of interconnectors with the generators/suppliers dedicated line model is well worth considering in terms of investment recovery.But there are many factors affecting the profitability when electricity sells to wholesale market,and investment predictability become unclear.Therefore,it is important to reduce the influence of price volatility by making contracts on a negotiation basis or other solutions in actual business situations.

Table5 Calculated results for the Japan-Russia interconnector with the generators/suppliers dedicated line model(Unit:IRR%)

[R1] Sakhalin-Kashiwazaki(Market to sell electricity:JEPX Tokyo area)1 GW 2.3 to 7.1%Max.-5.2%2 GW 12.9 to 18.0%-1.3 to 4.3%-5.6 to 1.2%-11.4 to-2.3%8.4 to 13.7%4.1 to 9.1%0.3 to 4.6%-3.9 to 1.3%[R2] Sakhalin-Ishikari-Kashiwazaki(Market to sell electricity:JEPX Tokyo area 1 GW 1.3 to 6.2%Max.-5.9%2 GW 11.7 to 16.6%-2.3 to 3.6%-6.8 to 0.5%-13.9 to-3.0%7.3 to 12.5%3.1 to 8.2%-0.7 to 3.8%-4.9 to 0.6%[R3] Sakhalin-Wakkanai-Ishikari-Kashiwazaki(Market to sell electricity:JEPX Tokyo area)Max.-8.0%2 GW 8.1 to 12.8%1 GW -1.6 to 3.8%-5.5 to 1.3%-11.6 to-1.6%Max.-4.9%4.2 to 9.3%0.2 to 5.5%-3.7 to 1.6%-8.8 to-1.4%[R4] Sakhalin-Ishikari-Tomakomai-Fukushima(Market to sell electricity:JEPX Tokyo area)1 GW -0.4 to 4.7%Max.-7.1%2 GW 9.5 to 14.3%-4.2 to 2.2%-9.4 to-0.8%Max.-4.2%5.4 to 10.5%1.4 to 6.5%-2.5 to 2.5%-7.1 to-0.6%

Table6 Calculated results for the Japan-South Korea interconnector with the generators/suppliers dedicated line model(Unit:IRR%)

Set value of FOB prices 5 JPY per kWh 6 JPY per kWh 7 JPY per kWh 8 JPY per kWh 9 JPY per kWh[K1] Busan-Maizuru(Market to sell electricity:JEPX Kansai area)1 GW 4.0 to 13.8%Max.0.7%2 GW 15.3 to 29.7%-1.2 to 10.1%-7.8 to 6.6%Max.3.5%8.5 to 23.0%2.4 to 17.3%-3.1 to 12.5%-9.5 to 8.5%[K2] Busan-Matsue-Hino(Market to sell electricity:JEPX Chugoku area)1 GW 6.8 to 17.4%Max.2.7%2 GW 19.7 to 36.3%1.4 to 13.0%-4.5 to 9.2%-13.0 to 5.7%11.8 to 28.2%5.1 to 21.5%-0.4 to 15.8%-5.7 to 11.3%[K3] Busan-Imari/Oita-Ikata(Market to sell electricity:JEPX Chugoku area)1 GW 5.7 to 15.6%Max.1.7%2 GW 17.9 to 33.0%0.3 to 11.5%-5.7 to 7.9%-16.6 to 4.7%10.4 to 25.5%4.0 to 19.3%-1.3 to 14.2%-6.9 to 9.9%

2.4 The regulated grid tariff model

As for the calculation with the regulated grid tariff model,it is assumed that General Electricity Transmission and Distribution Utilities in the connection points of the Japanese side cover the installation and O&M costs.The amount is the sum of 50% cost of international part and all domestic costs shown in Table2 and Table3.Each General Electricity Transmission and Distribution Utility collects grid tariff from all consumers in their service area (see Fig.2).The remaining costs are covered by the partner country.Table8 shows conditions for the calculation with the regulated grid tariff model.Assumptions of payback period and O&M ratio are the same as those with the generators/suppliers dedicated line model as shown Table4.

Fig.2 Business scheme of the regulated grid tariff model

Table7 Calculation precondition for the regulated grid tariff model

0.06 - 0.10 JPY per kWh (every 0.01 JPY)50% of interconnector and 100% of lines in Japan Tokyo Electric Power area 289.9 TWh [21]Kansai Electric Power area 148.6 TWh [22]Chugoku Electric Power area 60.2 TWh [23]Kyushu Electric Power area 85.7 TWh [24]

Calculation results are shown in Table8 for the Japan-Russia interconnector.The median of the IRR range is positive when the grid tariff is 0.06 JPY per kWh or higher for the R1 route,0.08 JPY per kWh or higher for the R2 route,and higher than 0.10 JPY per kWh for the R3 and R4 routes.Regarding the R1 route,the calculation is based on the premise that Russia covers 50% of construction costs even though the transmission line in Japanese territorial waters and exclusive economic zone is longer than those of Russia.If Japan covers all construction costs for the interconnector,the range of grid tariff which makes the IRR for the R1 route positive is estimated to be approximately 0.12 JPY per kWh as the R3 and R4 routes.From this calculation results,it was found that electricity could be imported from Russia through the interconnector if all consumers in the service area of Tokyo Electric Power Company can pay with an additional approximately 0.5%on current electricity price.

Table8 Calculated results for the Japan-Russia interconnector with the regulated grid tariff model(Unit:IRR%)

0.10 JPY per kWh[R1] Sakhalin-Kashiwazaki Set value of grid tariff 0.06 JPY per kWh 0.07 JPY per kWh 0.08 JPY per kWh 0.09 JPY per kWh 1.9 to 5.0%4.0 to 6.8%5.9 to 8.5%7.7 to 10.1%9.3 to 11.7%[R2] Sakhalin-Ishikari-Kashiwazaki-5.5 to-0.4%-3.1 to 1.1%-1.3 to 2.4%0.3 to 3.7%1.7 to 4.8%[R3] Sakhalin-Wakkanai-Ishikari-Kashiwazaki-13.6 to-3.7%-9.1 to-2.3%-6.5 to-1.0%-4.6 to 0.1%-3.1 to-1.1%[R4] Sakhalin-Ishikari-Tomakomai-Fukushima-8.4 to-2.0%-5.6 to-0.5%-3.6 to 0.8%-1.9 to 1.9%-0.5 to.3.0%

continue

0.10 JPY per kWh*Billing area for all routes:Tokyo Electric Power Company area(Power demand:289.9 TWh)Set value of grid tariff 0.06 JPY per kWh 0.07 JPY per kWh 0.08 JPY per kWh 0.09 JPY per kWh

As for the R2,R3 and R4 routes,it is assumed that AC/DC converters are equipped in Hokkaido and electricity generated in the service area of Hokkaido Electric Power Company can be transmitted to the service area of Tokyo Electric Power Company.Grid tariff can be collected from consumers in the service area of Hokkaido Electric Power Company in addition to those in the service area of Tokyo Electric Power Company.In that case,the payment per kWh may be reduced.In any case,if consumers can gain some benefits more than what they pay for grid tariff,installation of interconnectors using this business model is quite feasible.

It is less effective for recovery of investment in the Japan-South Korea interconnector compared to the Japan-Russia interconnector with the regulated grid tariff model.Calculation results are shown in Table9.The costs are covered by all consumers in the service area of each company,Kansai Electric Power Company,Chugoku Electric Power Company and Kyushu Electric Power Company respectively.Comparing to Tokyo Electric Power Company which has the most consumers in Japan,the amount of charge per capita is larger in the other areas,which makes the business model less effective.Nevertheless,the median of IRR range is positive when the grid tariff is at 0.06 JPY/kWh or higher for the K1 route.If the range of areas that benefit from the interconnectors can be extended to service areas of multiple companies or the entire western Japan areas,the burden calculated with the regulated grid tariff model will become smaller.Therefore,it can be said that burden area setting is important when the regulated grid tariff model is adopted.

The estimation for the Japan-South Korea interconnector is also based on the premise that international costs are paid equally by both countries.If Japan covers all the costs,grid tariff will double the set value.However,unlike the Japan-Russia interconnector,none of the three routes of the Japan-South Korea interconnectors mostly belong to Japanese side.Therefore,sharing the costs on a fifty-fifty basis,which is already implemented in Europe and other regions,is feasible.

As shown above,while the regulated grid tariff model increases grid tariff,the decrement of overall electricity tariff is expected.It could be said that the regulated grid tariff model would be categorized nearly as public investment.

Table9 Estimated results for the Japan-South Korea interconnector with the regulated grid tariff model(Unit:IRR%)

0.10 JPY per kWh[K1] Busan-Maizuru Set value of grid tariff 0.06 JPY per kWh 0.07 JPY per kWh 0.08 JPY per kWh 0.09 JPY per kWh 0.4 to 3.8%2.5 to 5.5%4.4 to 7.1%6.0 to 8.6%7.6 to 10.0%Billing area for [K1]:Kansai Electric Power Company area(Power demand:148.6 TWh)[K2] Busan-Matsue-Hino-18.9 to-4.4%-11.1 to-3.0%-8.0 to-1.8%-5.9 to-0.7%-4.2 to 0.3%Billing area for [K2]:Chugoku Electric Power Company area(Power demand:60.2 TWh)[K3] Busan-Imari/Oita-Ikata-12.3 to-3.4%-8.4 to-2.0%-5.9 to-0.7%-4.1 to 0.4%-2.6 to 1.5%Billing area for [K3]:Kyushu Electric Power Company area(Power demand:85.7 TWh)

2.5 Transmission rights sales model

It is hard to forecast trading prices of transmission rights from the market environment at this moment.Therefore,the calculation is based on setting examples in referring to some cases in Europe.This calculation assumes physical transmission right (PTR).In principle,the total amount of available PTR is determined based on the transmission capacity.Therefore,conditions for calculation are as shown in Table10.Annual average transmission right price means the annual average of the price from Country A to Country B and the price from Country B to Country A.Conditions of payback period and O&M ratio are the same as those with the other calculation.

Table10 Calculation precondition for the transmission rights sales model

2 GW per one-way 0.2,0.4,0.6,0.8,1.0 JPY per kWh

Calculation results for Japan-Russia interconnector are shown in Table11.The IRR is positive when the annual average transmission rights prices are 0.8 JPY/kWh or higher for the R1 route and 1.0 JPY/kWh or higher for the R2,R3 and R4 routes.Reviewing the prices of transmission rights traded with explicit auction in Europe,the annual average prices between U.K.and Ireland,which was one of the most expensive contracted transmission right price,were normally lower than 0.26 JPY/kWh (converted at a rate of 130 JPY to per euro).Transmission rights set to interconnectors installed between coupled markets serve as a tool for inter-market power supply contracts to compensate for the loss caused by market segmentation.In other words,those who purchase transmission rights pay the costs to avoid the risk of market segmentation.It will take some time for such situations to occur between Japan and Russia because the market between the two countries needs to be developed and liberalized to some extent.

The IRR for the Japan-South Korea interconnector can be positive with annual average transmission rights prices of around 0.4 JPY/kWh in some routes due to lower construction costs compared to the Japan-Russia interconnector (Table12).However,the prices are still higher than the current trading prices of transmission rights in Europe.As transmission rights prices are actually affected by market conditions and reserve margin,there are many unpredictable and uncertain elements at this present.The estimation shows that this business model can serve as a subsidiary means to earn revenues associated with the congestion charge model.

Also,investors in the interconnectors can earn revenues by selling long-term fixed transmission rights.In this case,power producer will add transmission rights prices to their acquired prices when selling electricity.This business model,however,falls under the generators/suppliers dedicated line model in this paper.

Table11 Estimated results for the Japan-Russia interconnector with the transmission rights sales model(Unit:IRR%)

Set value of annual average transmission right prices 0.2 JPY per kWh 0.4 JPY per kWh 0.6 JPY per kWh 0.8 JPY per kWh 1.0 JPY per kWh[R1] Sakhalin-Kashiwazaki Max.-11.0%-15.1 to-4.0%-5.1 to 0.2%-1.0 to 2.6%2.0 to 5.1%[R2] Sakhalin-Ishikari-Kashiwazaki Max.-12.0%Max.-4.6%-6.3 to 0.9%-1.9 to 1.9%1.1 to 4.3%[R3] Sakhalin-Wakkanai-Ishikari-Kashiwazaki Max.-15.7%Max.-6.7%-10.7 to-2.9%-5.1 to-0.2%-1.8 to 2.0%[R4] Sakhalin-Ishikari-Tomakomai-Fukushima Max.-14.0%Max.-5.9%-8.7 to-2.1%-3.8 to 0.6%-0.7 to 2.9%

Table12 Estimated results for the Japan-South Korea interconnector with the transmission right sales model(Unit:IRR%)

Set value of annual average transmission right prices 0.2 JPY per kWh 0.4 JPY per kWh 0.6 JPY per kWh 0.8 JPY per kWh 1.0 JPY per kWh[K1] Busan-Maizuru Max.-5.2%-2.9 to 1.3%2.7 to 5.6%6.7 to 9.2%13.7 to 15.9%[K3] Busan-Imari/Oita-Ikata 10.2 to 12.5%[K2] Busan-Matsue-Hino-12.5 to-3.4%-0.1 to 3.3%5.4 to 8.0%9.8 to 12.1%-14.4 to-3.9%-0.8 to 2.8%4.7 to 7.4%9.0 to 11.4%12.8 to 15.0%

2.6 Congestion charge model

For the calculation with the congestion charge model,simulation to find out how often market segmentation occurs after market coupling,is necessary.However,it is possible to regard the current status without market coupling as market segmentation.Based on this premise,a rough estimation for Japan and South Korea,where wholesale electricity markets are operated,was made from their trading prices.Under the conditions shown in Table13,the calculation with the congestion charge model was made only for the Japan-South Korea interconnector.Conditions of payback period and O&M ratio are the same as those with other models.

Table13 Calculation condition for the congestion charge model

50%,75%,100%Middle rate of the day prior to trading day Each year of 2016 and 2017(every 30 minutes)

South Korea has operated electricity whole sale market the South Korea Power Exchange (KPX) since 2001.KPX adopts the cost-based pool system.On the other hand,JEPX day-ahead market is operating on blind single price auction method.There is gap on whole sale electricity price between Japan and South Korea due to the deference of market design concept at this moment.Therefore,when interconnector is installed,this price gap will be congestion charge.

Based on the above premise,revenues are estimated by multiplying the market price difference between Japan and South Korea by the actual amount of electricity expected to be transported,and the results are shown in Table14.According to the table,the congestion charge model has a chance of recovering investment in all the Japan-South Korea interconnector routes assumed in this estimation.Even if the capacity factor is set to 50%,operation with this business model may be feasible.However,it should be noted that the revenues shown in Table14 cannot be earned at face value if the markets are coupled because the electricity prices of both countries are expected to interact and get closer to each other.Nevertheless,there is a possibility coupling of both markets can bring a certain economic profit.

Table14 Calculated results for the Japan-South Korea interconnector with the congestion charge model(Unit:IRR%)

Capacity factor 50% 75% 100%[K1] Busan-Maizuru(Market to sell electricity:JEPX Kansai area)0.0 to 5.1%5.5 to 10.2%9.9 to 14.8%[K2] Busan-Matsue-Hino(Market to sell electricity:JEPX Chugoku area)2.6 to 7.4%8.5 to 13.2%13.4 to 18.5%[K3] Busan-Imari/Oita-Ikata(Market to sell electricity:JEPX Kyushu area)2.3 to 6.9%8.1 to 12.5%12.9 to 17.6%

3 Conclusion

Asia International Grid Connection Study Group conducted cost-profit analysis based on four business models for investment recovery from the viewpoint of investors in interconnectors.The Study Group has categorized business model through interconnector into four model and evaluated for each route in the interconnector between Japan and neighboring countries.It was found that the generators/suppliers dedicated line model is feasible for both the Japan-Russia interconnector and the Japan-South Korea interconnector if electricity can be procured less than 7 JPY per kWh.On the other hand,the results implied that as the profitability is greatly affected by the procurement prices and Japan's market environment,long-term contracts on a negotiation basis may be required for secure business operations.

If General Electricity Transmission and Distribution Utilities invest in interconnectors and recover the construction costs by grid tariff,construction costs of the transmission lines divided by all electricity demand in each service area will be approximately 0.1 JPY/kWh.If consumers who pay the charges can gain benefits worth their payment,and understand the value of investment,construction of the interconnectors with the regulated grid tariff model may be feasible.

Due to difficulty in predicting transmission rights prices,the transmission rights sales model has many uncertainties as to the feasibility of investment recovery.In some cases,in the United States and European countries,this business model is operated together with the congestion charge model.There are still some obstacles to recovery of investment solely by sales of transmission rights at present.To use this business model for investment recovery,two realistic options could be considered.One is the sales of transmission rights by interconnector operators in market coupling as a tool to earn revenues,and the other is the long-term sales of transmission rights,which is similar to the generators/suppliers dedicated line model.

Finally,the estimation with the congestion charge model was made based on the premise that the wholesale electricity markets in Japan and South Korea are coupled under the current system of each country,and investors in interconnectors can earn revenues from the market price differences.The congestion charge model has more opportunities for profits than the generators/suppliers dedicated line model and enables investment recovery even with a relatively low capacity factor because interconnectors can be used according to price differences.However,if the markets are actually coupled,the difference between the wholesale electricity prices of both countries will be smaller and the profitability will be affected by the system change and special rules for new market coupling.In order to adopt the congestion charge model,discussions by investors in transmission lines,market operators and governmental regulatory bodies are required.