South Korea to boost renewables with Green New Deal

Details for the $10.8bn programme will be finalised next month, but some existing policies may discourage private investment in the country’s renewables PPP projects.  

South Korea plans to invest a total of 12.9 trillion won ($10.8 billion; €9.5 billion) by 2022 through its recently announced Green New Deal, part of the government’s supplementary budget, to boost the green energy sector and create 133,000 jobs in the process.

The Green New Deal, unveiled earlier this month, is based on the following three pillars: green energy infrastructure, the green energy industry ecosystem, and low-carbon and decentralised energy expansion.

Of the total amount, 5.8 trillion won will be allocated to green energy infrastructure, aiming to improve energy efficiency in social infrastructure by installing solar power generation and eco-friendly insulation. This part of the programme will apply to kindergartens; public health administrative offices; clinics and hospitals; and social housing that is more than 15 years old. Additionally, it will improve nationwide water quality management efficiency using artificial intelligence.

Korea will also support the green energy industry ecosystem with a 1.7 trillion won of investment. The funds will be used to support start-ups developing green technologies, such as biomass energy and hydrogen energy; and create green industrial clusters in five cities: Busan, Incheon, Gwangju, Chuncheon, and Pohang. It will also implement a pilot programme of smart energy systems to decrease carbon dioxide emissions in seven industrial clusters. The list of seven clusters has not yet been confirmed, a spokeswoman for the ministry of environment told Infrastructure Investor.

The remaining 5.4 trillion won will go towards low-carbon and decentralised energy expansion. This will include investing in research and development to find ways to convert inactive mines and old thermal power plants to renewable power plants; increase lending for solar energy-related companies and support buildings and rural areas in adopting solar energy.

PPPs pivotal to success

According to Yeon-seung Jung, an analyst at NH Investment & Securities, whether the Green New Deal succeeds, will depend on how the government approaches renewables public-private partnership projects.

An oversupply of renewable energy certificates has been a key concern for private investors because the oversupply erodes profitability, Jung said.

The Korean government requires electric power providers, with more than 500MW of capacity, to produce a certain ratio of their total energy production from renewable energy sources. The ratio, under Korea’s renewable portfolio standard, is 7 percent this year and is expected to reach 10 percent by 2023. If power producers fail to meet the ratio, they must purchase renewable energy certificates from renewable energy producers.

Driven by the government’s renewables power policy, RECs have been oversupplied for a number of years. NH Investment & Securities noted that the REC price has fallen from approximately 140,000 won in 2016 to 40,000 won in late 2019. This has especially affected profitability of small and mid-sized solar power projects.

“This can slow down private investment in Korea’s renewables industry, especially [the] solar energy sector, as 98 percent of solar power providers are small and mid-sized [with capacity of 1,000kW or less],” said Jung. “The government should consider raising the RPS ratio more quickly or increasing electricity charges in the long term,” he noted.

Korea, through its Third Energy Plan, approved in June 2019, aims to increase the share of renewable energy generation to 20 percent by 2030 and to between 30 and 35 percent by 2040. Currently, renewable energy accounts for roughly 8 percent of the country’s power output.

The government also plans to reduce its reliance on coal and nuclear energy, though it does not state specific targets.