Over the past couple of years, South Korea has undertaken considerable efforts to research and develop renewable energy generation across technologies such as fuel cell, solar, wind, geothermal heat, and tidal power. While supporting growth in several renewable energy sectors, the country has focused on expanding wind power generation in particular, given Korea’s access to strong and steady winds due to its long coastal line and mountainous terrain, as well as relatively well developed wind power technology and related skill set. We take a look at current state of affairs in the renewable energy sectors in Korea as well as the development of wind energy capacity goals set by the country’s government.
2. In 2012, South Korea Adopted An Ambitious Set Of Targets To Promote Clean Energy Generation
SOUTH KOREA’S ENERGY MARKET – STATUS QUO
As of 2012, South Korea was the 9th largest energy consumer in the world, and given the lack of its own reserves, the country is placed
amongst the largest energy importers (crude oil, coal, liquefied natural gas, etc.) globally
South Korea imports 95-97% of fossil fuels used for domestic power generation; in recent years, the country’s administration has realized that
there is an urgent need to develop alternative energy sources, in order to improve the country’s energy independence, increase energy efficiency,
and reduce energy import bill (estimated at about USD 121 billion in 2010)
Over the past few years, the South Korean government strengthened its commitment to increasing the share of clean and renewable
resources in the overall energy production, as part of the country’s efforts to diversify energy sources
In 2008, Korean president, Lee Myung-bak, announced the government’s decision to increase investment in renewable-generated energy
The total investment in renewable energy is estimated at about KRW 40 trillion (USD 34.2 billion) till 2015, 56% of it to be provided by
Korea’s largest industrial groups, 18% by the government, and about 26% by other private investors
In 2012, South Korea replaced its feed-in tariff for renewable energy with Renewable Portfolio Standard (RPS), a set of targets and
standards that promote the adoption of clean energy, reduce carbon emissions, and drive growth of the green energy industry
Korean RPS Target for Renewable Energy – Market Size
Despite an ambitious goal to grow the market over long
term, it is expected that South Korea’s renewable energy
industry is likely to shrink during 2013
KRW 54 trillion
(USD 47.94 billion)
KRW 7.4 trillion
(USD 6.9 billion)
2012
2022E
This is expected to be another year of decline in the combined
sales of local renewable energy companies, as the market
shrunk by about 7.8% in 2012 over 2011
In comparison, global renewable energy market witnessed a
38% growth during 2011-2012
The decline of the Korean market is believed to be driven by
still insufficient support from the government to
encourage the energy sector to develop renewable energy
space, leaving energy companies sluggish in their efforts in
this area
Source: Renewable Energy Focus; Yonhap News; Energy Korea; Enerone; Renewable Energy World; BC Bioenergy Network; IFLR; FuelCell Energy
2
3. Focus On Renewable Energy Has Grown With South Korea Experiencing Rising Energy Demand
SOUTH KOREA’S ENERGY MARKET – RISING DEMAND
South Korea’s need for developing new energy sources is apparent, given
the country’s rapid economic growth, including the expansion of energyintensive industries
Korean RPS Target for Final Energy Use
(Consumption)
Primary energy consumption increased by about 440% between 1980
and 2007, to an estimated 236-240 million TOE1
2012
2015E
2020E
2030E
2.6
4.3
6.1
11.0
This energy consumption growth is expected to slow down over the coming
years, and there are considerable shifts expected in the composition of the
energy consumption by source
RPS Ratio in Power
Consumption (%)
South Korea is aiming to increase the share of renewable energy in the
overall domestic energy use by over three times, with a minimum of 11% of
its total energy needs to be met by renewable sources by 2030
Final Energy Consumption Composition, by Source
(2007)
100% = ~240 million TOE
Final Energy Consumption Composition, by Source
(2030E)
100% = ~300 million TOE
Atomic
27.8%
Charcoal
25.3%
Oil
43.4%
Renewable
2.5%
Atomic
14.9%
LNG
13.8%
LNG
12.0%
Renewable
11.5%
Charcoal
15.7%
Oil
33.0%
Note: 1) TOE - Tonne of oil equivalent
Source: Korean Energy Management Corporation; Renewable Energy Focus; Enerone
3
4. To Support Renewable Energy Growth, A Range Of Policies And Incentives Have Been Developed
SOUTH KOREA’S ENERGY MARKET – RENEWABLE ENERGY SUPPORT POLICIES
Support Type
Support Policy
Status in South Korea
Feed-in tariff (including premium payment)
Electric utility quota obligation/ RPS
Biofuels obligation/mandate
Capital subsidy, grant, or rebate
Investment or production tax credits
Reductions in sales, energy, CO2, VAT, or other taxes
Energy production payment
Public Financing Support
Net metering
Tradable REC
Fiscal Incentives
Heat obligation/mandate
Regulatory Policies
-
-
Public investment, loans, or grants
Public competitive bidding
-
The Ministry of Knowledge Economy is responsible for formulating and implementing energy policies, administering the energy industry,
and providing support for activities in the field of new energy technologies research and development
While still considered insufficient, the development of renewable energy projects receives ever increasing government support in
terms of financial and fiscal help
All renewable energy technologies are subject to a 5% tax credit
Korean government provides subsidies to local authorities of up to 60% for the value of renewable facilities installation
Local authorities can receive low interest loans (5.5%-7.5%) for renewable energy development projects
It is estimated, that during 1993-2012, the government spent KRW 2.77 trillion (USD 2.6 billion) in subsidies and loans on this sector
Source: Renewable Energy Focus; Bloomberg; ‘Renewables 2012 Global Status Report’, Renewable Energy Policy Network For the 21st Century, 2012
4
5. RPS Has Been Critical In Pushing Energy Companies To Adopt Renewable Sources Of Generation
SOUTH KOREA’S ENERGY MARKET – RPS TARGET FOR ENERGY GENERATION
Energy Generation
1,000,000 MWh/annually
X
Target Share of Renewable-generated
Energy : 2% (2012)
Electricity producer
Renewable-generated Energy
(mandatory volume): 20,000 MWh (2012)
=
National RPS Requirement
Renewable Energy Credits/Certificates
(RECs)
An obligation for energy producers to generate a portion of power using renewable energy resources
2012
RPS Ratio in
Power
Generation (%)
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2.0
2.5
3.0
3.5
4.0
5.0
6.0
7.0
8.0
9.0
10.0
↑ 0.5% p.a.
↑ 1.0% p.a.
Under the RPS policy, 13 of the largest power producers in South Korea (public and privately-owned generators with over
500MW of power generation capacity) are required to produce a certain mandatory volume of energy using renewable energy
sources
RPS mandatory renewable-generated energy volumes are calculated by multiplying fossil fuel power generation volume and annual RPS ratio in
power generation
RPS pushes to increase the use of renewable sources in power production by expanding the mandatory share of renewable-
generated energy in the overall energy production, by additional 0.5% annually during 2012-2016, accelerating to 1% increase
annually during 2016-2022
This also brings a requirement of additional 350 MW renewable energy capacity annually through 2016, increasing to 700 MW per annum till 2022
The ratios are subject to review and modification by Ministry of Knowledge Economy every three years, depending on technology review,
performance of generators, and other relevant factors
Source: Renewable Energy Focus; Yonhap News; Energy Korea; Enerone; BC Bioenergy Network; IFLR; FuelCell Energy
5
6. RPS Also Rewards Energy Companies Which Actively Undertake Renewable Power Generation
SOUTH KOREA’S ENERGY MARKET – RENEWABLE ENERGY CREDITS
Energy Generation
1,000,000 MWh/annually
X
Electricity producer
Target Share of Renewable-generated
Energy : 2% (2012)
=
Renewable-generated Energy
(mandatory volume): 20,000 MWh (2012)
National RPS Requirement
Renewable Energy Credits/Certificates
(RECs)
Before introducing RPS in 2012, a feed-in tariff mechanism was used, which guaranteed
fixed rates for renewable-generated energy
Feed-in tariff mechanism also put a cap on renewable-energy generation capacity and resulted
in heavy cost burden for energy producers
Therefore, the 2012 RPS replaced the feed-in tariff and introduced tradable Renewable Energy
Credits/Certificates (RECs), resulting in the revenues from renewable energy being
determined by the market
Under the RPS, revenue from renewable-generated energy is derived from the wholesale
electricity price plus sale of RECs , with one REC valued at about KRW 40 (USD 0.035)
Multipliers:
0.25 for integrated gasification
combined cycle (IGCC), and byproduct gas
RECs are issued by the Korean New and Renewable Energy Center of the Korean
0.5 for wastes and landfill gas
Once the energy producer is awarded with RECs, it is registered with the New and Renewable
Energy RPS Management System, which is used for trading and tracking RECs
RECs are issued on a monthly basis and are calculated per unit of renewable-generated energy;
each unit of such energy generates one REC
Renewable-generated power receives price above the market rate based on the price of
the REC multiplied by the weighted value of the renewable energy source, depending on
its type, with off-shore wind, tidal and fuel cells receiving the highest multiplier
If the obligated generator fails to meet the pre-set RPS ratio in their energy production
volumes, penalties apply in the amount of 150% of the weighted average market price of
each unit of green energy produced below the mandatory volume
1.0 for hydraulic, on-shore wind,
bio-energy, refuse-derived fuel
(RDF) full firing and tidal
(including dams)
1.5 for wood biomass full firing
and off-shore wind (under 5km)
2.0 for off-shore wind (over 5km),
tidal (not including dams) and
fuel cells
Energy Management Corporation
Source: Renewable Energy Focus; Yonhap News; Energy Korea; Enerone; BC Bioenergy Network; FuelCell Energy; IFLR
6
7. Korea Will Depend On Wind Energy To Achieve A 10% RPS Ratio In Power Generation By 2022
SOUTH KOREA’S ENERGY MARKET – RENEWABLE ENERGY GENERATION, BY SOURCE
With the RPS and RECs system in place, as well as government support
across regulatory, fiscal and public financing policies, the Korean
government plans to achieve a targeted share of 10% of renewable
resources to be used in power production by 2022
RPS Target 2022
Renewable Energy Generation, by Source
Total Wind Energy Share: 46.8%
A large part of this planned renewable energy generation is planned
to be wind and tidal generation, which together is expected to
contribute to two-thirds of renewable-generated power
While these two resources are expected to be dominant amongst
renewable sources used for energy generation, government support (in
the form of research and capabilities advancements) is expected to
extend its focus to also include solar and waste power
Off-shore
Wind
38.7%
Waste
0.4%
Biogas
0.8%
Biomass
2.1%
In case of solar power, the major motivator for focus on this technology
comes from lower production costs of solar-only energy versus wind-only
energy (costs account for an estimated 10% and 66% of overall value of
energy generated, respectively)
The focus on waste-generated power is driven by its efficiency and
sustainability due to large quantity of waste readily available, with
additional benefit of reducing the environmental burden of waste
However, despite lobbying for solar and waste-based energy generation,
it is still expected that majority of new capacity will be added in
wind power in the long term, which finds reflection in the anticipated
share of wind energy in the overall renewable energy generation mix by
2022 (a total of over 46%)
On-shore
Wind
8.1%
Tidal
20.0%
IGCC
3.1%
Hydraulic
6.8%
Solar
7.5%
Landfill Gas
0.4%
Fuel Cells
12.1%
“The Korea wind power industry has an aggressive target of reaching 23 GW of wind power by 2030, which would, with a production
of around 50 TWh, provide around 10% of the country’s total energy demand.” – Global Wind Energy Council
Source: Enerone; Renewable Energy Focus; Korean Ministry of Environment
7
8. Thanks To Its Natural Landscape, South Korea Is An Ideal Location For Wind Power Development
SOUTH KOREA’S ENERGY MARKET – WIND POWER – INTENSITY MAP
Given the country’s natural landscape, South Korea’s wind power industry can benefit from great potential offered by mountainous
terrain and long costal line
For off-shore farms locations, south and south-eastern waters surrounding Korea offer the strongest air currents and are currently the focal point
for wind power generation development
For on-shore wind power production, Korea offers numerous locations, as the country is 70% mountainous; the most steady winds are observed
along the eastern coast with the highest hill elevation
It is believed that, with the right plan and sufficient investment, wind power alone might help solve Korea's energy dependency issues;
the country has also entered an ambitious path of becoming one of the global leaders in wind power generation over the next 20 years
South Korea is believed to have some of the world’s largest wind resources,
large part of which offer high wind speeds
The country's’ natural potential of total wind resources (on-shore and off-
shore) is estimated at 294 million TOE annually (equivalent to installation
capacity of 433GW)
The available potential, considering the geographical accessibility to construct wind
farms, is estimated at 85 million TOE annually, equaling to installation capacity of
approximately 127GW
Given the country’s enormous wind potential, wind energy stands high on
renewable-generated energy priorities in Korea
Wind power generation is likely to continue to develop rapidly in South Korea, due
to increasing technology maturity and its economic feasibility, as well as focus on
low wind speed turbines development allowing to extend wind energy generation
to locations previously excluded from capacity expansion plans
Source: Renewable Energy World; Korea Wind Energy Industry Association; Korea Institute of Energy Research; Offshorewind
8
9. In Early 2013, 41 Wind Power Projects With Total Capacity Of 491.65MW Were Operating In Korea
SOUTH KOREA’S ENERGY MARKET – WIND POWER – CAPACITY DISTRIBUTION, BY PROVINCE1
Incheon City
Number of projects: 1
Total installed capacity: ~22MW
Gyeonggi-do
Number of projects: 3
Total installed capacity: ~8.3MW
Jeollabuk-do (Jeonbuk)
Number of projects: 2
Total installed capacity: ~9.9 MW
Jeollanam-do (Jeonnam)
Number of projects: 4
Total installed capacity: ~17MW
Jeju-do
Number of projects: 12
Total installed capacity: ~111MW
Gangwon-do
Number of projects: 10
Total installed capacity: ~195.9MW
Gyeongsangbuk-do (Gyeonbuk)
Number of projects: 6
Total installed capacity: ~122.2 MW
Ulsan City
Number of projects: 1
Total installed capacity: ~1.7 MW
Busan City
Number of projects: 1
Total installed capacity: ~0.8MW
Gyeongsangnam-do (Gyeognam)
Number of projects: 1
Total installed capacity: ~3.0 MW
Total number of projects: 41
Total installed capacity: 491.65MW
Total number of units: 295
Note: 1) Data as of February 2013; both on-shore and off-shore projects
Source: Korea Wind Energy Industry Association
9
10. Initially Slow To Take Off, South Korean Wind Energy Market Is Now Expected To Accelerate…
SOUTH KOREA’S ENERGY MARKET – WIND POWER – CAPACITY AND GROWTH
Wind Power Capacity Growth (MW, 2003-2013)
At the end of 2012, installed wind power capacity
CAGR 2003-2013 = 39%
482.6
304.1
177.7
18.2
2003
68.1
2004
348.4
373.3
491.61
406.3
Though
wind power capacity has recorded
significant growth over the past decade, the wind
market in Korea has not been developing as
fast as it was hoped for, due to several
challenges
196.1
98.7
2005
2006
2007
2008
2009
2010
2011
2012
2013
Wind Power Generation Growth (GWh, 2003-20122)
CAGR 2003-2012 = 49%
812.4
857.2
911.5
680.2
375.6
47.4
2003
2004
energy market in place, along with the RPS
mechanism, wind farm projects have become
economically more viable; it is expected that
wind power capacity development will speed up in
South Korea
129.9
2005
2006
2007
2008
Initial public reluctance and opposition to wind
farm development projects
Relatively low tariffs assigned to wind power under
the pre-RPS feed-in tariff mechanism, resulting in
low revenue as compared with solar or hydro
power
Difficulty in development of suitable on-shore sites
Slow advancements in wind-generated power
transmission
Currently, with reforms supporting the wind
436.0
238.9
24.9
in South Korea exceeded 482 MW, vast majority of
which was on-shore
2009
2010
2011
2012
Note:
1) Data for 2013 is as of February ; the year-end data might reflect new capacity added post 2013
2) Data for 2013 is not available
Source: Korea Wind Energy Industry Association; Renewable Energy Focus; Global Energy Network Institute; Offshorewind
10
11. …With An Ambitious Goal To Develop 23GW Of Wind Generation Installed Capacity By 2030
SOUTH KOREA’S ENERGY MARKET – WIND POWER – INSTALLED CAPACITY TARGET
Targeted Wind Power Installed Capacity (MW, 2010-2030E)
23,000
CAGR 2012-2030E
17,000
Reference Scenario: 16.0%
Moderate Scenario: 20.9%
Advanced Scenario: 22.8%
380
1,900
2,700
3,500
13,500
5,800
2020E
Targeted Wind Power Generation
(2012 and 2030E)
CAGR 2012-2030E = 24.9%
50
TWh
6,000
Advanced Scenario
2025E
2030E
In 2010, Korea’s government set a plan for wind capacity development, outlining
three scenarios starting with 2010 capacity level of 380MW
Capacity development was marginally behind schedule as of 2010, with planned 380MW
versus the actual 373.3MW; similarly, 2011 and 2012 targets were lower than planned
though it is believed that long-term targets are still achievable
Moderate scenario was based on private investors’ as well as national and local
governments’ plans and capacity development projects already under development
Reference scenario represented an option scaled down by 30-50% to account for potential
unfavorable factors affecting capacity development, while the ambitious advanced scenario
is quoted as the actual achievable target
As on-shore locations for wind power development are limited, the country
911.5
GWh
2012
7,400
3,000
2015E
2010
Moderate Scenario
10,000
7,500
Reference Scenario
increasingly focuses on off-shore locations
2030E
Off-shore wind power capacity development alone is expected to receive USD 8.2
billion by 2019, primarily in the south Korean waters with favorable volcanic seabed
Source: Korea Wind Energy Industry Association; Renewable Energy Focus; Korea IT Times
11
12. Wind Energy Sector Development Is Also Expected To Boost Local Manufacturing And Exports
SOUTH KOREA’S ENERGY MARKET – WIND POWER – PROMOTING LOCAL MANUFACTURING
South Korea’s plans of wind energy development are not only driven by the country’s need to become more self-sufficient in its energy
needs, but also by the objective of becoming one of the leaders in the wind power industry globally, aiming to become net
exporter of technologies, equipment, and skill-set over long term
Korean heavy industry companies have been receiving considerable support from the government
Korean suppliers are provided with majority of opportunities in installation, cable laying as well as development and manufacturing of
the key equipment needed in wind farm construction and operation, such as generators, transformers, control systems, switchgears, towers,
shafts, and, increasingly, turbines
The government also continues to allocate considerable R&D budgets to support development of local component supply chain and strong
know-how of core technologies and skills for wind power industry
Government co-sponsored development projects cover production of components such as brake calipers, pitch system and controllers, offshore floating simulation codes, condition monitoring, yaw bearings, blade damage smart sensing, shrink disks, gearboxes, yaw and pitch drives
Majority of Korean shipbuilding and heavy industry companies are adding components used in the wind power industry in their
product portfolios
Companies, including Hyundai Heavy Industry, Samsung Heavy Industry, Daewoo Shipbuilding and Marine Engineering, and Doosan Heavy
Industry, have started working on the development of key parts needed for wind production; Unison is currently the leading Korean
manufacturer of wind energy equipment, including turbines
Most of these Korean manufacturers focus mostly on R&D of products and technologies, with limited actual production
Those components that reached production stage, are largely installed and operated for testing purposes to accumulate track record of their
performance as part of the overall wind energy generation system; it is, however, estimated that with the current commitment to R&D, these
manufacturers’ equipment might hold a lion share in the equipment installed in the new wind farms
Several other domestic companies, such as Pyongsan, Taewoong, Hyunjin Materials, Younghun Base Materials, Dongkuk S&C and CS Wind, supply
a range of components, including wind turbine parts, to international wind power systems producers including Vestas, Siemens, and GE
"If the Korean government’s proactive wind power policies go hand-in-hand with investment by local companies and efficient R&D
projects, the wind power industry will create synergy with Korea’s world-class technologies related to shipbuilding, automobiles and
the heavy industry. This will catapult Korea into the ranks of the world’s wind powerhouses in the near future.” – Rim-taig Lee,
Chairman of Korea Wind Energy Industry Association (KWEIA), June 2012
Source: Renewable Energy World; Global Energy Network Institute ; Offshorewind.; International Energy Agency; Korea IT Times
12
13. Korea’s Renewable Energy Plans, Largely Wind Power Focused, Is A Step In The Right Direction
A FINAL WORD
With an energy bill in excess of USD 125 billion, it is not surprising that South Korea has taken a step towards transitioning from fossil
fuels to renewable sources for domestic energy production; the fact that about USD 35 billion has been allocated for investment in
renewable energy by 2015 clearly indicates the country’s will to reduce its reliance on imports and, in time, become clean energy
dependent
To support renewable energy growth, a range of policies and incentives have been developed; feed-in-tariff was replaced with a
Renewable Portfolio Standard system, which pushes to increase the use of renewable sources in power production by expanding the
mandatory share of renewable-generated energy in the overall energy production
The government aims to achieve a targeted share of 10% of renewable resources to be used in power production by 2022; a large part of
this planned renewable energy generation is to be wind and tidal generation
Favorable geographic location, with mountainous terrain and long coastal lines, provides South Korea with the ideal environment to
develop wind farms to harvest energy; it is estimated that over 45% of renewable energy in 2022 will be generated by wind power, with an
ambitious goal to develop 23GW of wind generation installed capacity by 2030
The country's’ available potential of total wind resources (on-shore and off-shore), considering the geographical accessibility to construct wind
farms, is estimated at 85 million TOE annually, equaling to installation capacity of approximately 127GW
With clear indication that wind power harvesting is key to Korea’s ambitious renewable energy plans, it seems natural that the
government, together with the country’s leading industrial groups, is keen on developing the wind energy space into a long-term business
opportunity
Several Korean shipbuilding and heavy industry companies are already adding components used in the wind power industry in their product
portfolios; in time, it is expected that South Korea will become a net exporter of wind energy technologies, equipment, and skill-set
The renewable energy development plan is an important step for South Korea to achieve a sustainable energy environment for its future;
with strong government and business commitment, and a holistic approach to developing the sector into a long-term business
opportunity, the country is on the right direction of fulfilling its clean energy ambition
However, as with several such initiatives globally, the cost and the time-to-generate is significant and countries have failed to keep on the
path originally envisioned; it is important that the Korean government maintain the momentum and ensure that investment on projects is
undertaken in a planned manner
13
14. Perspective
What is your perspective on South Korea’s ambitious wind energy plans? Do you believe that wind energy is the right solution
for South Korea’s energy woes?
What investment opportunities exist in the wind energy sector in South Korea? What impact will growth of local South Korean
players have on global wind energy companies?
We would like to hear from you. Write to us with your perspective at rediscover.research@eos-intelligence.com.
Notes
14
