South Korea: Renewable energy in the Asia Pacific: a legal overview (3rd edition) - Republic of Korea

REPUBLIC OF KOREA

PROFILE

Korea's Joseon Dynasty was overrun by Japan which occupied the Korean Peninsula from 1910 to 1945. Korea regained its independence after the Second World War, however the Korean War (1950 – 1953) resulted in an armistice which split the communist north from the democratic south. The division along the 38th parallel remains to this day. It was not until 1987, after decades of economic growth, that South Korea (also known as the Republic of Korea) held its first free and direct presidential election under a revised constitutional structure. South Korea is now Asia's fourth largest economy. It has a non-permanent seat on the UN Security Council and elected its first female President in December 2012. Peace talks between the two Koreas have recently been agreed to following a period of bellicose threats from the north.

ELECTRICITY INDUSTRY OVERVIEW

• Korea is the 10th largest energy consuming nation in the world, and despite an abundance of gas and coal reserves, the country currently relies on energy imports for 97% of its energy needs.
• In 2011, Korea generated 79.3GW of electricity. Of this amount:
• • thermal accounted for 64.6%;
  • nuclear accounted for 23.6%;
  • hydropower accounted for 8.1%; and
  • others (including renewable energy) accounted for 3.7%.
• South Korea has a 100% electrification rate, which is indicative of its highly developed economy
• Household electricity prices in Korea are the cheapest in the OECD at around US$0.08 per kWh.
• The Korea Electricity Commission is the Government regulator in the electricity sector. It was created under the Electricity Business Act 2000 as part of Government efforts to increase competition in the electricity market. The Commission is ultimately responsible to the Ministry of Trade, Industry and Energy.

Generation, distribution and transmission

• The Basic Plan for Restructuring the Electricity Industry 1999 unbundled and privatised Korea Electric Power Corporation (KEPCO).
• As a result, five thermal generation companies and one hydropower and nuclear power corporation were formed in April 2001. These five thermal generation companies were to be privatised in stages, however this was not completed by the Korean Government. Consequently, the Government has retained a 51% interest in KEPCO and its five subsidiaries.
• KEPCO continues to control 100% of the transmission and distribution in the market and 93% of total power generation.
• The Ministry of Trade, Industry and Energy (formerly known as the Ministry of Knowledge Economy) is assigned ultimate regulatory responsibility under the Electricity Business Act 2000.
• Electricity is transmitted to the major distribution networks on 765kV and 345kV lines. The major distribution networks then transmit electricity amongst themselves over 154/55kV lines.

RENEWABLES INDUSTRY OVERVIEW

• The Government wishes to expand its renewable energy use to 11% by 2030.
• Between 1993 and 2012, the Government spent US$2.6 billion on fostering a domestic market for renewable energy.
• On 15 August 2008, the Government announced the Low Carbon and Green Growth strategy, which is largely a two-pronged plan to reduce carbon emissions and also promote renewable energy, energy efficiency and environmentally conscious buildings. Other government strategies have since been introduced (see below).
• The Seoul Metropolitan Government has been active in promoting renewable energy. Seoul recently announced the introduction of its own feed-in tariff program and is also seeking to halt the expansion of all nuclear power plants. Korea's capital accounts for about 10% of the country's electricity consumption.
• Between 2021 and 2030 Korea hopes to complete the nationwide "Smart Grid". This will include:
• • electric car charging/discharging system;
  • advanced smart meter;
  • green energy micro-grid;
  • a high-voltage direct current in collaboration with North Korea and north-east Asia; and
  • a supply of electricity of diverse quality.
• The world's largest test-bed for a Smart Grid is currently being built on Jeju Island, which was chosen due to its abundant wind and solar energy resources.

Hydropower

• In 2011, 7.8TWh of hydropower was produced, making hydropower the country's top renewables source.
• It has been estimated that Korea has small-scale hydropower potential of 1.5GW. Installed capacity represents less than 5% of domestic potential, indicating significant untapped resources.

Wind energy

• The south-east of Korea is a good location for offshore wind farms. Korean conglomerates have begun to invest significantly in offshore wind farms.
• Most wind farm developments however, have been onshore turbines. Present onshore installed capacity is 480MW.
• The Government is aiming for 15.66GW of wind power to be generated by 2022.
• In 2011, the Government announced a strategy to attract US$8.2 billion to develop offshore wind farms with a capacity of 2.5GW by 2019.

Solar energy

• The greatest economic potential for solar thermal is in Korea's southern coastal area.
• In 2008, 276.3MWp of solar power was connected to the grid.

Geothermal energy

• Current installed geothermal capacity is 229.3MW.

Biomass energy

• By 2010, 4,000 residential boilers capable of using biomass pellets had been installed.
• KEPCO and most of its subsidiaries are focusing on biomass as a means of achieving the Renewable Portfolio Standard (RPS, see below).

Ocean energy

• Tidal flows around the Korean coastline are highly conducive for ocean energy.
• Korea has the largest tidal energy station in the world (see below).
• Korea has a basic three-stage strategic plan for ocean energy development:
• • between 2008 and 2012, the Government's focus was on funding new technologies;
  • from 2012 to 2020, the strategy is to increase industry involvement and to exploit relevant technologies; and
  • from 2020 to 2030, the industry will take the lead on the commercial development of ocean energy.
• The Government's goal is to produce 1,540ktoe of ocean energy by 2030.

CURRENT ISSUES IN THE RENEWABLES INDUSTRY

• The South Korean Government has tried to encourage more private firms to 'take the lead' by taking advantage of the renewable energy incentives on offer. However, South Korea's renewable energy industry is expected to lag behind global competitors in 2013. One of the main reasons being cited by international developers for such current and predicted stagnation is a lack of government support.
• In recent years, reductions in subsidies for solar power generation equipment have resulted in a decline in small-scale producers.
• The global economic downturn affected Korea during its rollout of ambitious green policies and its effects are still being felt by the industry today.

RENEWABLES LAWS

Basic Law on Low Carbon Green Energy 2010 (the Basic Law)

• The Basic Law establishes a national strategy for low carbon, green energy, which includes:
• • matters concerning the realisation of the green economic system;
  • green technology and green industry; and
  • policies on energy.
• It also establishes and supports the Green Industries Investment Company. The Government may provide funds for a public institution to invest in the Green Industries Investment Company.
• Under the Law, the Government must establish and enforce a basic energy plan every five years. Such plans must include measures for the supply and use of renewable energy.

Promotion Act on Development, Use, Deployment of New and Renewable Energy 2010 (the Promotion Act)

• The Promotion Act requires that whenever the Government or a public organisation constructs, expands or remodels a 1,000m2 building (or larger), new renewable facilities must be installed to ensure that a certain percentage of the estimated volume of energy use (computed as at the time of its design) comes from renewable energy sources. This percentage was 10% in 2012 and it will increase by 1% every year until it reaches 20%.
• Where 3,000m2 buildings (or larger) are constructed, expanded or remodelled by the Government or a public organisation, a minimum of 5% of the total construction costs are required to be invested in renewable energy facilities.

GOVERNMENT INCENTIVE PROGRAMS

• There is an existing policy of supplying long-term low interest loans through the Special Account of Energy and Resources, with a five-year grace period and 10-year repayment period.
• Renewable energy technologies receive a 5% tax credit.
• Import duties on components and equipment for renewable energy power plants were halved in 2009.
• Feed-in tariffs have recently been replaced by the RPS. It is believed that the feed-in tariff rates were too low to support wind power development. This policy position is a different approach to most of the Asia Pacific countries which are using feed-in tariffs instead of a RPS.

Renewable Portfolio Standard

• Introduced in 2012, the RPS applies to power providers with more than 500MW of power generating capacity. Power providers can meet the RPS by installing qualifying technologies. For example, by using stationary fuel cells or by buying renewable energy credits.
• A fee of US$0.04 per renewable energy certificate is charged at the time of issuance and subsequent purchase and sale of renewable energy certificates. In the case of a sale/purchase sale transaction, both the buyer and the seller are required to pay this fee.
• The tariff for power generated from renewable sources will be made up of a system marginal price plus a renewable energy certificate.
• The renewable energy certificates are weighted as follows: one certificate is for 1kWh of hydraulic, onshore wind, bio-energy, refuse derived fuel firing or tidal energy. Two certificates are for 1kWh of offshore wind (over 5km), tidal (not including dams) or fuel cells. 4kWh of integrated gasification combined cycle or by-product gas is necessary for one renewable energy certificate.
• The scheme requires that the 13 largest public and private utilities will be required to purchase or generate renewable energy at a rate equal to 10% of their share of total energy generation by 2022. In 2013, the quota is 2.5%.

MAJOR PROJECTS/COMPANIES

• A 2.5GW offshore wind farm on the southwest coast of Korea is to commence construction in 2013 and be fully operational by 2019. The project will be one of the largest offshore projects in the world, although actual generation may only be around 1GW.
• Lake Sihwa tidal power station is also the largest of its kind in the world. Completed in 2011, it has total output capacity of 254MW. The project was partly funded by the Korean Government.
• In May 2013, Hyundai announced that it will install the nation's largest rooftop PV plant at its factory in Asan. The company is aiming to install 40,000 panels by the end of 2013.
• Hyundai Heavy Industry, Samsung Heavy Industry, Daewoo Shipbuilding and Marine Engineering and STX are some of the big names that have taken an interest in offshore wind energy
• CK Solar Korea signed a memorandum of understanding with the Baluchistan provincial government in Pakistan to install a 300MW solar power plant. The plant is expected to cost nearly US$1 billion to construct and implement.

FOREIGN INVESTMENT/OWNERSHIP

• The Foreign Investment Promotion Act 1998 grants foreign-owned companies the same rights as Korean companies, and applies the same taxes as would apply to Korean companies and nationals.
• Foreign ownership of Korean companies is common and the rules governing the formation of companies allows for 100% foreign ownership.

RELEVANT INTERNATIONAL TREATIES

• Korea is a signatory to the United Nations Framework Convention on Climate Change and the Kyoto Protocol, albeit it is not an annex one party.
• Korea is incorporating clean development mechanisms into its overseas investment and foreign aid.

© DLA Piper

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