Variable Cost

Variable cost is cost that changes with the amount produced. For a power plant this means fuel and variable operation and maintenance costs. Costs that do not depend on output, such as land and construction, are fixed costs.

Korea's power market is a cost-based pool, so generators do not write prices in their bids. Instead, the Cost Evaluation Committee assesses each generator's cost elements in advance, such as the fuel heat-unit price, heat-rate characteristics and start-up cost, and these values set the running order and SMP. The fuel heat-unit price may include environment-related variable costs and greenhouse gas allowance costs.

News-reading tip: in general, nuclear and coal have high fixed costs and low variable costs, while LNG is the opposite. So when fuel prices make the news, look at how the variable-cost order of generators, that is, the dispatch order and SMP, may change.

This describes the mainland market. Jeju has run a pilot real-time market and renewable bidding since June 2024.