Following the amendment to the Electric Utility Act, the Ministry of Trade, Industry and Energy (the “MOTIE”) issued the Notification on Direct Power Trading by Renewable Energy Power Suppliers (the “Notification”) on December 17, 2021. The Notification sets forth details on the direct power purchase agreement (“PPA”) system, under which renewable energy power suppliers will be able to supply electricity generated from renewable sources directly to electricity consumers. The Notification became effective on September 1, 2022 after the public comments period. The emergence of this new type of electricity trading scheme is expected to contribute to the establishment of the competition-based electricity market in a long term.

The key contents and implications of the Notification are as follows.
 

1.   Scope of Application and General Requirements 
 

To be eligible for a direct PPA, electricity must be generated from renewable sources (limited to solar, wind, water, bio, geothermal, and ocean energy) through power generation facilities with a capacity greater than 1MW. An electricity consumer must have power receiving equipment of at least 300kVA or be a general or industrial customer with a contracted power of at 300kW or greater. Also, a renewable energy power supplier must, at a minimum, supply the guaranteed annual volume agreed in the direct PPA to an electricity consumer, while the electricity consumer must purchase all of the electricity supplied by the renewable energy power supplier at each hour under a direct PPA to the extent of hourly consumption volume.
 

2.   Power Shortfall, Oversupply, and Split Sale
 

When renewable energy power generated hourly by a renewable energy power supplier falls short of an electricity consumer’s hourly electricity consumption, thereby creating a shortage, the electricity consumer may purchase shortfall electricity directly from the electricity market (limited to the situations where the guaranteed annual volume agreed in the direct PPA is at least 10% of the electricity consumer’s total consumption volume in the preceding year) or have the electricity sales business operator (i.e., KEPCO) fill in such a shortage. On the other hand, a renewable energy generator may sell any electricity in the electricity market, which exceeds the electricity consumer’s hourly electricity consumption.
 
Further, the Notification was revised so that the generated electricity can be sold partially under a direct PPA, and partially in the electricity market (“Split Sale”). In the event that the power generation facility’s capacity indicated on the electricity generation license exceeds the power generation facility’s capacity subject to a direct PPA by more than 20MW, a renewable energy generator may sell a portion of the generated electricity through the direct PPA, which shall be applied across all hours as agreed by the parties, and the rest in the electricity market. For those portions of the generated electricity sold in the electricity market, the renewable energy generator will be able to receive renewable energy certificates.
 

3.   Direct PPA Terms and Procedures
 

(i) A direct PPA between a renewable energy power supplier and an electricity consumer and (ii) an electricity supply agreement between a renewable energy generator and a renewable energy power supplier, must provide information on renewable energy generation facilities and the parties to the agreement, as well as specific terms of the power purchased such as guaranteed annual volume of supply, period, and unit price. In addition, a renewable energy power supplier must file a declaration with the MOTIE through the Korea Power Exchange (the “KPX”) when entering into or amending a direct PPA.
 

4.   Calculation and Payment of Charges for Purchased Power
 

The electricity purchase price will be calculated by multiplying the volume of renewable electricity purchased each hour by the unit price agreed between the parties and will reflect (i) grid usage fees set by the Regulations on Use of Electric Installations for Transmission and Distribution of Electric Power, (ii) transaction fees set by the KPX with regard to the performance of services, (iii) value-added settlement amount set by the KPX in accordance with the Rules on the Operation of the Electricity Market, and (iv) electric power industry base charge. Applying the electricity loss ratio, an electricity consumer will calculate and pay the electricity purchase price as explained above to a renewable energy power supplier by the due date indicated in the direct PPA.
 

5.   Implications
 

Direct PPAs differ from third-party PPAs (also referred to as indirect PPAs) in that electricity consumers directly enter into PPAs with renewable energy power suppliers, as opposed to back-to-back agreements signed among electricity consumers, KEPCO, and renewable energy generators. As the direct PPA system is now implemented, electricity consumers may purchase renewable energy either through a third-party PPA or a direct PPA. However, as the requirements or conditions to enter into the third-party PPA system and the direct PPA system differ, it would be important to comprehensively review pros and cons of each PPA system to identify the system ideal for your business.
 
Direct PPAs are intended to encourage the production and use of power generated from renewable sources and to contribute to the reduction of greenhouse gases by using power generated from clean energy sources. In this regard, energy consumers will be eligible for the following incentives.
 
First, the MOTIE will certify the use of renewable energy power, which can be utilized as a means of implementing RE100 initiative. This is expected to vitalize businesses’ participation into RE100 by expanding the options of purchasing renewable energy power for businesses, which are considering the implementation of, or already implementing, RE100.
 
Second, the Ministry of Environment’s guideline requiring certification of greenhouse gas emissions (effective January 1, 2022) provides that a company allocated with emissions permits, which enters into a direct PPA (and thereby reduces its indirect emissions through the use of renewable energy), can count such reduced emissions towards its greenhouse gas reduction performance.
 
Third, KPX’s transaction fees will be waived for three years, and small and medium-sized enterprises will be supported with grid usage fees for one year, using the green premium proceeds. Moreover, as split sale is now permitted (i.e., allowing the renewable energy power to be sold via a direct PPA as well as in the electricity market), the burdens of businesses that participate in the direct PPA system will be alleviated, and their options to implement RE100 will be diversified. These various supports are expected to stimulate the direct PPA system.
 

[Korean version]