South Korea’s energy transition plan will see a gradual shift away from coal and nuclear generation to gas and renewables, but the shift will fall far below government targets, Fitch Solutions said in a recent report.
The research firm expects coal and nuclear generation to fall from an estimated 38.8 percent and 28.5 percent, respectively, of the energy mix in 2020 to 34 and 25 percent by 2030. At the same time, non-hydro renewables – with offshore wind showing the greatest growth potential – are expected to increase from 4.9 percent to 10.8 percent.
However, the targets the government set out in its Ninth Basic Power Supply Plan on 28 December 2020 are much more ambitious, aiming for non-hydro renewables to account for 20.8 percent of the power mix by 2034.
Despite the country’s ambitious goals, Fitch Solutions said the growth in renewables capacity will be largely insufficient to offset Korea’s thermal [gas and coal] and nuclear reliance. It noted that renewable energy remains more expensive than nuclear and thermal generation in Korea, “and remains economically unviable without sufficient incentives to support growth at present”.
Yeon-seung Jung, an analyst at NH Investment & Securities, pointed to three factors that could determine whether the country achieves its targets or not: a sustainable increase in solar power generation, expansion of offshore wind power and a realistic plan that the current government can execute consistently.
“Solar and offshore wind power are expected to lead the renewables generation expansion of Korea by 2030, according to the Fifth Basic Renewables Plan announced on 29 December 2020,” he said.
The plan, which focuses exclusively on renewables, targets offshore wind power’s share to increase from 3 percent in 2022 to 23.8 percent by 2030. Jung said it’s unclear how the government will accomplish such a large expansion.
According to Fitch Solutions, renewables growth potential will be concentrated in offshore wind, “as the country’s limited land availability and growing public opposition to large-scale inland solar and wind pose challenges to a substantial build out”.
Solar power is still expected to comprise a large share of the renewable energy mix, but is expected to account for 38.9 percent in 2030, down from 47.4 percent in 2022, due to offshore wind’s expansion, according to the renewables plan.
“Solar power generation has steadily increased in Korea,” Jung said. “However, whether it will keep increasing is unclear. According to our research, about 98 percent of the domestic solar power providers are small and mid-sized with capacity of 1,000kW or less, [making it] quite difficult for them to enter the bidding market of long-term power purchase agreements for 15 to 20 years.”
Another ambitious target is in connection with the percentage of renewable energy that producers who generate over 500MW are required to include in their production portfolio under the Renewable Portfolio Standard scheme introduced in 2012. The target ratio was 7 percent in 2020 and is set at 10 percent by 2023.
“I expect the 10 percent target by 2023 to be achieved smoothly,” Jung said. “However, the government doesn’t have a concrete plan [on] how to increase it from 10 percent in 2023 to 28 percent by 2030, which is a new target.”
The administration needs a plan that is sustainable and can be executed within the remaining 18 months of its term, he added.