On November 3, 2022, the Ministry of Trade, Industry and Energy (the “MOTIE”) announced a Renewable Energy Policy Improvement Plan to Meet Changes in the Energy Sector (the “Improvement Plan”). According to the MOTIE, the capacity of renewable energy facilities and proportion of renewable energy production have increased since the establishment of the “Renewable Energy Plan 3020” back in 2017, but the following issues still remain outstanding: (i) disproportionate supply of solar power, (ii) growing disputes among developers and conflicts with local fisheries in the offshore wind sector, (iii) unbalanced development of generation facilities by different regions, and (iv) reduced competitiveness of the domestic supply chain due to increase in import of major facilities.
The Improvement Plan was established for the purpose of resolving the above mentioned issues and to promote a more reasonable/feasible renewable energy policy. The main policies and their implications are as follows.
1. Adjustment of Renewable Energy Supply Goals
The renewable energy target ratio by 2030 has been adjusted to 21.6%, which is 8.6% lower than the previous NDC target of 30.2%, but increased from 20.8% of the 9th Basic Plan for Power Supply and Demand. Accordingly, the RPS ratio under the Enforcement Decree of the Act on the Promotion of the Development, Use and Diffusion of New and Renewable Energy will be lowered next year. However, the share of wind power in the ratio of solar to wind power, among different renewable technologies, will increase significantly. The new annual renewable energy capacity will reach 5GW per year, which is higher than the previous government’s 3.7GW per year.
Regarding offshore wind power, the government will (i) reduce the cap on the effective areas for wind measurement to prevent disputes and (ii) expand the supply of offshore wind power in an organized manner by changing the development method to a planned selection method, which includes government-led discovery of sites, designation of districts, and a comprehensive support for authorizations and permits.
The supply system, which has been led by the public sector supported by the RPS program, will be led and expanded by the private sector promoting the RE100 initiative. An alliance consisting of 25 RE100 companies as of November of this year will be established to support members’ effort to achieve the RE100 targets. A full package of incentives will be provided to RE100 companies, including tax credit for investment in renewable energy facilities, preferential interest rates and insurance premiums, recognition of greenhouse gas reduction performance, and support for improving energy efficiency. Further support will also be provided such as creating an RE100 fund and giving priority to loans for RE100 projects.
2. Improvement of Economic Feasibility of Mid-to-Large Scale Projects
The government will change the existing REC weights, which are focused on small-scale power generation capacity. Such change will improve the economic feasibility of mid-to-large scale projects. In order to promote competition among power generation companies, the government already applied the fixed-price competitive bidding program, which used to apply only to solar power projects, to wind power projects since 2017. For more information, please refer to our Newsletter dated on August 18, 2022 (link).
In the medium and long term, the government will (i) abolish the existing RPS program in 2027 and replace it with an auction program and (ii) soon revise the Notification on Cap on Electricity Transaction Prices to limit the cap on the SMP to a fixed price to prevent renewable energy generators from being compensated more than the fixed contract price according to the recent increase in the SMP.
3. Measures to Reduce the Burden on Power Systems
The government will take a series of measures to enhance the responsibility of renewable energy generators in the power grid. The government is considering implementing a pilot program in Jeju-do next year, which requires bidding for renewable energy generators of a certain size or above, in the electricity market one day in advance, and expanding the program nationwide by 2025. Businesses will be required to install inverters, which can provide information, to both existing and new renewable energy facilities.
The government will also (i) abolish the unlimited access program, which has been available for solar power generation companies with installed capacity of less than 1MW since 2016, and (ii) provide improvement measures, such as introducing permit quotas for regions by reflecting the grid accommodation limit when granting power generation business permits.
4. Establishment of Guidelines to Ensure Acceptance of Residents
The government plans to establish guidelines for improving acceptance of residents. The guidelines will include requirements that business operators and local governments shall meet at each stage of a renewable energy project and matters regarding the establishment of a public-private regional council. In addition, the government will actively utilize idle sites, such as reservoirs and water/drainage channels, to minimize solar power related complaints from residents and prepare another guidelines for separation distances, which will encourage local governments to improve their own regulations for separation distances.
5. Promotion of R&D and Use of Korean Parts
To improve competitiveness in the photovoltaic industry, the government will (i) pursue early commercialization of next-generation photovoltaic technology through R&D, (ii) evaluate and grade carbon emissions throughout the entire production process, and (iii) implement a more comprehensive carbon verification program that gives preference to low-carbon products in the Korean FIT supply program.
For the wind power industry, the government will (i) encourage the use of parts made in Korea by promoting domestic production of core parts, including large turbines, which have been dependent on imports, (ii) strictly evaluate businesses’ contribution to the industry in the competitive bidding process for wind power fixed price contracts, and (iii) make further efforts to improve the domestic value chain in the wind power industry.
With the announcement of the Improvement Plan, the government demonstrated its continued commitment to pursuing renewable energy supply policies at a reasonable and practical level.
Some concern that new investment in renewables will shrink and as a consequence, the renewable energy industry will slow down. However, the goal of renewable energy distribution was set high in the existing NDC plan, not adequately taking into consideration the actual time it takes for the development of technology and distribution of renewable energy. Considering the above, the Improvement Plan includes more reasonable and practical goals and measures to improve renewable energy policies to achieve such goals.
In other words, the renewable energy industry will further strengthen itself supported by a series of measures, such as reduction of support for small-scale solar power, scaling-up of renewable energy projects, reduction of RPS, promotion of RE100, expansion of private-led supply, improvement of efficiency through market competition, and selection of companies reflecting their contribution to the industry. On top of these improvement measures, the government will pursue specific policies to support the supply of renewable energy, which will ultimately contribute to a faster transition to greener energy.