On August 3, 2022, the New Renewable Energy Center (the “NREC”) of the Korea Energy Agency amended the Rules on the Issuance of Supply Certificates and Operation of the Trading Market (the “REC Rules”) to launch a fixed price contract auction system for wind power projects (which was the subject of an earlier Legal Update (Link). The first fixed price contract auction for wind power projects was announced in September 2022 per the amended REC Rules and a total of 374MW in wind power capacity (combined for both onshore and offshore wind) was selected from the auction.
The NREC made some further amendments to the REC Rules on September 22, 2023, and issued the 2023 Notice of Fixed Price Contract Auction for Wind Power Projects (the “2023 Notice”) on October 12, 2023 (available in Korean, Link). We outline the key details of the amended REC Rules and the 2023 Notice as follows:
Regularization and Timing of Auction Notices
It was previously unclear under the REC Rules whether the fixed price contract auction for wind power projects would take place twice a year (which is the case for the fixed price contract auctions for solar power projects) or only once a year (which was the case for last year). It has now been clarified in the amended REC Rules that the auction for solar power projects shall take place twice a year (in the first and third quarters) and the auction for wind power projects shall take place once a year (in the fourth quarter) (Articles 27 and 31-2). Accordingly, the 2023 Notice was announced in October 2023, and future auction notices are also expected to be announced in the fourth quarter of each year going forward.
Announced Capacity and Eligibility to Participate
Unlike last year, the 2023 Notice divided the bid capacity into onshore and offshore wind and provided that (i) the bid capacity for onshore wind power should be not more than 400MW, and (ii) the bid capacity for offshore wind power should be not more than 1,500MW. This change took into account feedback from the wind power industry that it is not equitable to group both offshore and onshore wind together in a single bid, given the difference between the two in the average generation cost and the weighted REC values.
Further, unlike last year, the 2023 Notice stipulated that in order for a bidder to participate in the auction, it “shall have completed the environmental impact assessment (the “EIA”) (strategic EIA, full-scale EIA or small-scale EIA) by the day before the auction notice date.” As such, whereas the completion of the EIA was given consideration for extra points in last year’s auction, under the 2023 Notice, only those wind power projects which have completed the EIA are eligible to participate in the auction.
Overall, the bidding process under the 2023 Notice is similar to the last year’s. However, the detailed evaluation criteria applicable to the bid price, industrial and economic effects and grid acceptance are different from last year’s under the amended REC Rules (Annex 3-2), and this has been reflected in the 2023 Notice.
Specifically, the allocation of points for the bid price (60 points out of 100 points) is the same as before, however, the evaluation standard has been revised to widen the difference in points based on the bid price. There have also been certain changes made to the qualitative evaluation standards (40 points out of 100 points), including, in particular, to the grid acceptance criteria (eight points) with the former evaluation criteria on “available margin for grid connection” (two points) being further subdivided into two parts: “(i) necessity for grid reinforcement (two points), and (ii) grid operation efficiency (two points).”
Future Timeline and Implications
After receiving applications for the 2023 fixed price contract auction for wind power projects (period: October 13 to November 10, 2023), the NREC will select the successful bidders in December 2023. As discussed above, compared to last year’s auction, a number of changes have been made, such as the separate bids for onshore and offshore wind, changes to the eligibility requirement and the detailed evaluation criteria including grid acceptance, in accordance with the amendment to the REC Rules and the 2023 Notice. Wind power projects intending to participate in this year’s auction should be aware of such changes. In addition, since the amended REC Rules now provide that the fixed price contract auction for wind power projects shall be announced and take place once a year (in the fourth quarter), wind power projects preparing for the auctions in the future should take this timeline into account in their business and strategic planning.