On August 20, 2026, Korea’s National Assembly approved an amendment (the “Amendment”) to the Act on the Promotion of the Development, Use and Diffusion of New and Renewable Energy (the “Renewable Energy Act”) which formalizes Korea’s transition away from its current Renewable Portfolio Standard (the “RPS”) system to a new government-led market tender-based system (the “Official Auction Scheme”). The Amendment is scheduled to take effect on January 1, 2027, and will result in the expiration of Korea’s RPS scheme, which has acted as the primary catalyst of renewable energy development in Korea since its implementation in 2012.
The new Official Auction Scheme introduced by the Amendment is expected to act as the primary path for the development of new renewable energy generation power projects in Korea, and its adoption is expected to portend a material restructuring in the development and revenue models for Korea’s renewable energy sector.
Key elements of the Amendment are summarized below.
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Key Elements of the Amendment
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(1)
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Introduction of Official Auction Scheme
The Renewable Energy Act (as revised by the Amendment) (the “Amended Renewable Energy Act”) will empower the Korean government to operate the Official Auction Scheme based on long-term fixed-price contracts. By comprehensively considering national energy supply targets, resource security, and RE100 implementation volumes, the total capacity of renewable energy power generation facilities subject to Official Auction Scheme bidding (and the capacity by energy source) will be pre-determined and officially announced in advance of government-led auctions.
A statutory basis will be established for mandatory offtakers, represented by Korea Electric Power Corporation acting on behalf of itself and district electricity business operators to enter into long-term contractual arrangements to purchase the entire volume of electricity produced by the winning bidders under the Official Auction Scheme, and to recover corresponding costs through retail electricity tariffs. Consequently, winning bidders under the Official Auction Scheme can expect to secure stable long-term revenue projections significantly improving the bankability of project financings for new renewable power generation developments.
In addition, a separate bidding track for the protection of small-scale renewable energy project operators and a statutory framework for designating and supporting renewable energy service companies will be introduced.
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(2)
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Management of Supply Obligations and Targets Based on Facility Capacity
The Amended Renewable Energy Act replaces legacy RPS obligations (which required designated utilities to source an annually-increasing percentage of total power generation from renewable energy sources either through direct renewables generation or through the purchase of renewable energy certificates (“RECs”)) with a supply obligation and target management system based on total installed facility capacity.
Under the new Official Auction Scheme, entities such as public power generation enterprises are designated as primary supply obligors, whereas private independent renewable power producers (“IPPs”) and public institutions exceeding certain capacity thresholds to be specified are designated as target management entities. Compliance under the new framework will be recognized exclusively where an entity contributes to the deployment of renewable energy through direct development of, or equity investment in, new renewable energy generation projects.
Failure to fulfill statutory obligations may result in the imposition of administrative fines or public disclosure of non-compliance. To facilitate flexible compliance, the statutory framework permits the carryover of surplus volumes and the deferment of shortfalls (subject to parameters to be detailed in subordinate regulations), while introducing an alternative compliance payment mechanism as a supplementary recourse.
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(3)
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REC Sunset and Transitional Measures
Following the enforcement of the Amended Renewable Energy Act on January 1, 2027, RECs will no longer be issued to new market entrants, and the REC mechanism will be restructured into non-transferable Power Generation Information Certificates (which can be retired by obligors under the Official Auction Scheme newly introduced by the Amendment to demonstrate satisfaction with the requirements of this new scheme).
However, to protect legitimate expectations and ensure the stable operation of existing developers, the issuance and trading of RECs under the existing RPS scheme will remain permitted until December 31, 2029 for existing renewable power generation facilities and holders of power generation business licenses (“EBL”) meeting certain requirements.
During this transitional period, the mandatory supply quotas for obligors under the existing RPS scheme will be fixed at the 2026 RPS levels, and the existing REC spot market will be phased out gradually through the operation of a transition market over a grace period of two to three years.
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Implications
Following the enforcement of the Amended Renewable Energy Act on January 1, 2027, securing an award under the government-led Official Auction Scheme will serve as a de facto prerequisite for long-term revenue certainty for new renewable energy power generation projects. Renewable power developers in Korea will need to carefully consider the applicability of “grandfathering” transitional provisions and the necessity of realigning their business development strategies with Official Auction Scheme bidding schedules and capacity allocations by energy source. While winning bidders under the Official Auction Scheme can expect to secure predictable cash flows through long-term fixed-price contracts to support project finance bankability, the importance of managing equity returns and bidding strategies is expected to increase significantly due to the structure of price-cap competitive bidding.
Investors holding power generation businesses based on existing RECs and the spot market (including, e.g., re projects that have already entered into REC SPAs or obtained EBLs), or those considering acquiring existing businesses, need to carefully review the scope of application of transitional measures, the grace period and the conditions for contractual conversions.
Furthermore, procurers of renewable power in Korea pursuing RE100 targets must carefully consider the interaction between the government procurement system and the corporate PPA market, including overall volume allocations, when structuring their renewable procurement portfolios.
Finally, it is important to note that certain key regulatory details relating to the implementation of the Amendment (e.g., the scope of supply obligors and target management subjects, bidding evaluation criteria and specific requirements for transitional measures) remain to be determined through subordinate legislation and official notices from applicable ministries. Market participants are encouraged to closely monitor ongoing legislative developments and reach out to us to discuss more detailed analysis and strategic responses as may be appropriate.
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[Korean Version]
