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Progress on the Amendment to the Subordinate Laws of the Hydrogen Act for the Establishment of a Tender Market for Hydrogen-fueled Power Generation

2022.09.27

The June 10, 2022 amendment to the Hydrogen Economy Promotion and Hydrogen Safety Management Act (“Hydrogen Act”) introduced changes such as a clean hydrogen certification system, obligations to sell and use clean hydrogen, and obligations to purchase and supply electricity generated using hydrogen.  Alhough the changes regarding clean hydrogen certification will be implemented within five years after a mid-to-long-term review process, the changes regarding the purchase and supply obligations will become effective on December 11 of this year.

Accordingly, on August 31, 2022, the Ministry of Trade, Industry, and Energy (“MOTIE”) issued a legislative notice for the drafts of the amendments to the Enforcement Decree and the Enforcement Rules of the Hydrogen Act, which specify the details of the purchase and supply obligations.  The key details are as follows:
 

Who is Obliged to Purchase Hydrogen-generated Electricity and How Much
 

Article 25(6) of the Hydrogen Act obliges certain types of electricity business operators identified by the Enforcement Decree to purchase or supply hydrogen-generated electricity in the amount set forth by the Enforcement Decree.  The amendment to the Enforcement Decree identifies “electricity sales business operator” and “regional electricity business operator” as the businesses that are required to purchase hydrogen-generated electricity (Article 34-20(1)).  The amount of hydrogen-generated electricity will be determined based on factors such as the amount traded on the power market in the previous year and the amount voluntarily purchased by the business, while the exact formula for calculating the amount will be the method specified in the rules for the tender market (Article 34-20(2)).  Pursuant to these regulations, the Minister of Trade, Industry, and Energy will issue a public notice announcing the businesses who will need to comply with the purchase obligations and the amount they will be required to purchase at a future date (Article 34-20(4)).
 

The Hydrogen-generated Electricity Tender Market and Criteria for Selecting Tender Winners
 

A tender market will be established for the sale and purchase of hydrogen-generated electricity.  Winners will be selected through a competitive bidding process from among the participating hydrogen electricity generation businesses according to criteria published by the Minister of Trade, Industry, and Energy, which take into account factors, such as (i) the cost of power generation, (ii) local acceptability, (iii) the impact on technological and industrial development, (iv) the impact on the establishment of a decentralized power source and stabilization of power supply, and (v) improvement of energy efficiency (Article 34-21(2) and (3) of the draft amendment to the Enforcement Decree).  The tender market will be operated by a managing organization designated by the Minister of Trade, Industry, and Energy, and the specifics of the operation will be detailed in the rules for the tender market.

The managing organization must draft the rules for the tender market and obtain the approval of the Minister of Trade, Industry, and Energy (Article 25-7(2) of the Hydrogen Act).  These rules are to include details about (i) the establishment of the tender market, (ii) the requirements for participating in the tender market, (iii) price and non-price assessment criteria, (iv) the execution of agreements with the winning facilities, and (v) follow-up management of hydrogen-fueled power generation facilities (Article 9-6(1) of the draft amendment to the Enforcement Rules).
 

Tender Market Operating Volume and Agreements on Electricity Generation Outputs
 

The Minister of Trade, Industry, and Energy will determine, on an annual basis, the volume of hydrogen-generated electricity to be put up for bidding in the tender market which must be within 10% of the total amount of electricity generated in the previous year.  This volume can be adjusted in accordance with the results of the previous year’s tender market.  The exact annual volume is to be determined by a Notification by the Minister of Trade, Industry, and Energy (Article 24-23 of the draft amendment to the Enforcement Decree).

The hydrogen electricity generation business selected as the winner in the tender market will execute an agreement with the buyer of the relevant volume of hydrogen-generated electricity and such agreement will aim to compensate for the bid price (Article 34-22(1) of the draft amendment to the Enforcement Decree).  Details about the agreement, such as its format and duration, will be included in the MOTIE Notification that will be enacted separately (Article 34-22(2)).
 

Implications
 

The legislative notices for the draft amendments to the Enforcement Rules and the Enforcement Decree of the Hydrogen Act are part of the government’s efforts to create the policy foundations for operating the hydrogen-generated electricity tender market, following the passage of the amendment to the Hydrogen Act in June.  According to the working-level plan of the General Subcommittee on the 10th Basic Electricity Supply and Demand Plan, which was published on August 30, the target for hydrogen ammonia mixed-use power generation is set at 2.3% of total power generated by 2030, suggesting that such mixed-use power will prime the market for hydrogen-generated power in the beginning.

It will be necessary to monitor discussions among stakeholders regarding the design of the tender market.  Since the details about the tender market’s operation will be set forth in the MOTIE Notification and the rules for the tender market, it will also be necessary to monitor discussions about those two regulations as well.

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