1 Legal and regulatory framework
1.1 What role does the state play in the renewables industry and which national legislative and regulatory provisions have relevance for the renewables industry in your jurisdiction?
The Korean government began to devote attention to the energy transition with the adoption of the Act on the Promotion of the Development, Use and Diffusion of New and Renewable Energy ('NRE Act') in 2002.
In December 2017, the government adopted the Renewable Energy 3020 Roadmap to expand the ratio of power generation using new and renewable energy (NRE) to 20% by 2030 by transitioning from a large-scale centralised energy supply and management structure to a small-scale distributed energy supply and management structure. Local municipalities are also expanding their participation in this initiative by adopting a number of policies in relation to permits for development.
Key statutes and regulations in relation to the NRE industry include the following:
- The NRE Act provides for:
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- the regulation of the development, use and supply of NRE, which serves as a basis for the government's overall roadmap to promote the NRE industry;
- the establishment by the Ministry of Trade, Industry and Energy of the Basic Plan for Development, Utilisation and Deployment of New and Renewable Energy every five years, setting forth the long-term goals of the government in the NRE sector as required under the NRE Act; and
- the regulation of the issuance and trading of NRE certificates.
- The Electric Utility Act provides for:
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- the issue of permits to entities intending to supply electricity generated using NRE; and
- the regulation of electric utility businesses, power supply by renewable energy electricity suppliers and power trading.
Other relevant statutes and regulations include:
- the Electrical Construction Business Act, which regulates the installation, maintenance and repair of electric generation facilities;
- the National Land Planning and Utilisation Act, which regulates the installation of buildings and spatial structures; and
- the internal regulations of Korea Electric Power Corporation (KEPCO), such as the Terms of Use of Electric Transmission and Distribution Facilities, which regulate grid connection and the sale of the generated electricity.
1.2 Which bilateral or multilateral instruments or treaties with effect in your jurisdiction have relevance for the renewables industry?
Bilateral or multilateral instruments or treaties with effect in Korea include the following:
- International Renewable Energy Agency (IRENA) Statute: Effective in Korea as of 8 July 2010, IRENA advocates for the increased adoption and sustainable use of renewable energy by:
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- providing policy advice, recommendations and platforms for debate; and
- promoting the transfer of knowledge and technology, the development of capacity and research and development.
- Paris Agreement: Parties to the Paris Agreement must propose their nationally determined contributions (NDCs). Korea has proposed a reduction in greenhouse gas emissions by 24.4% in 2030 as compared with 2017. The government is transitioning to an NRE industry to achieve its NDCs.
The renewables organisations to which Korea is a party include the following:
- Asia-Pacific Economic Cooperation (APEC) Energy Working Group: This promotes the exchange of information and cooperation in the area of energy efficiency and the NRE sector among APEC member states.
- ASEAN+3 Plan of Action for Energy Cooperation (Renewables/Energy Efficiency Forum): This is a joint initiative to promote energy cooperation among the 10 member states of the Association of Southeast Asian Nations and Korea, China and Japan
1.3 Which national regulatory bodies are responsible for enforcing the applicable laws and regulations? What powers do they have and what is their general approach in regulating the renewables industry?
The main regulatory body for the NRE sector is the Electricity Regulatory Commission (ERC) under the Ministry of Trade, Industry and Energy. The major functions of the ERC include:
- issuing electricity business licences and making any modifications thereto;
- approving the acquisition of electric utilities or the division or merger of corporations in the sector;
- revoking electric utility licences, suspending business operations, reducing business zones and imposing surcharges;
- approving charges and other conditions for using electric installations for the transmission or distribution of electric power;
- approving basic terms and conditions of supply and supplementary terms and conditions of supply of an electric sales business entity;
- approving the basic terms and conditions of supply of a district electric business entity;
- determining the maximum electricity trading price;
- approving the rules on operating the electricity market and the rules on operating the brokerage market;
- handling matters concerning annual plans and managing the credibility of electric power systems and the enactment, amendment and repeal of related rules; and
- handling matters concerning the reorganisation of the electric power industry, such as introducing competitive systems to the electric power industry.
1.4 What role do regional or local government or public bodies play in the renewables industry?
If the capacity of a power plant is below a certain threshold, the head of the local municipality with jurisdiction will be delegated as the authority for the approval or revocation of the permit for an electric utility business, as well as any acquisition thereof. The local municipalities also regulate the development of NRE projects by instituting local regulations.
KEPCO:
- engages in:
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- the sale of electricity purchased from developers; and
- the construction and operation of the transmission and distribution channels; and
- operates as an enterprise participating in the NRE sector indirectly through private developers.
An electric business entity equipped with NRE generation facilities and selling such generated electricity may participate in the power market or trade electricity by entering into a power purchase agreement. The Korea Power Exchange connects sellers (developers selling electricity) and buyers (companies purchasing power) in the power market, regulating the volume and price of electricity being traded.
2 Renewables industry
2.1 Which renewable technologies are considered relatively mature in your jurisdiction, and which are emerging as potentially new technologies in the market?
Under the Act on the Promotion of the Development, Use and Diffusion of New and Renewable Energy:
- 'New energy' is defined as energy that either:
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- is converted from existing fossil fuels; or
- uses electricity or heat generated through the chemical reaction of hydrogen and oxygen, including hydrogen energy, fuel cells, energy from liquefied or gasified coal and energy from gasified heavy residual oil; and
- 'Renewable energy' is defined as energy converted from renewable energy sources such as sunlight, water, geothermal, precipitation or bio-organisms, including solar energy, wind power, water power, marine energy, geothermal energy and bioenergy converted from biological resources.
Based on the generation capacity of renewable energy facilities as of 2020, solar power constituted 71% of the overall capacity, followed by wind power and hydroelectric power (8%), and bioenergy (6%). Accordingly, solar power technologies can be deemed relatively mature in Korea.
The area with the largest growth potential appears to be wind power. The Korean government is planning on increasing the ratio of wind power among new and renewable energy (NRE) sources by up to 35.1% by 2034, as stated in its Fifth Basic Plan on the Development, Utilisation and Deployment of New and Renewable Energy.
2.2 Who are the key players in the renewables industry in your jurisdiction?
- Individual NRE companies generate and sell electricity from the installation of renewable energy facilities.
- The Korea Electric Power Corporation purchases electricity from developers and sells it to retail customers, while also operating the transmission and distribution channels.
- The Korea Power Exchange operates the power market, connecting sellers and buyers of electricity.
- The government and local municipalities determine the overall direction of the NRE industry by introducing laws and regulations. In addition, they have the authority to:
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- issue permits for electric utility businesses; and
- determine the price and terms of transmission and distribution facilities.
2.3 How much do renewables currently contribute to the domestic energy mix? What are the near-term projections for the role they will play?
As of 2021, power generation by energy type consisted of:
- coal (34.3%);
- liquefied natural gas (LNG) (29.2%);
- nuclear (27.4%); and
- NRE (7.5%).
According to the Tenth Basic Plan of Long-Term Electricity Supply and Demand published by the government in January 2023, the ratio of NRE will dramatically increase to approximately one-third of all power generation in Korea over the next decade, with:
- the projected ratio in 2030 consisting of:
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- nuclear (32.4%);
- coal (19.7%);
- LNG (22.9%); and
- NRE (21.6%); and
- the projected ratio in 2036 consisting of:
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- nuclear (34.6%);
- coal (14.4%);
- LNG (9.3%); and
- NRE (30.6%).
3 Utility-scale renewables projects
3.1 What utility-scale renewables projects are currently operational or planned in your jurisdiction? What are their key features?
New and renewable energy (NRE) projects with a planned generation capacity of 100 megawatts (MW) or more are largely solar or offshore wind farm projects. Based on a proposal that is scheduled to commence in 2023, published by the Ministry of Trade, Industry and Energy for the Hydro Portfolio Standard bidding, large-scale fuel cell development projects with capacity of 100 MW or more are expected to be given unfavourable treatment in the bid assessment. Accordingly, there are concerns among developers that large-scale fuel cell projects may be discouraged in the future.
3.2 What authorisations are required for the construction and operation of utility-scale renewables projects in your jurisdiction?
Anyone that intends to operate an electric utility business should obtain:
- an electricity business licence (EBL) from the Ministry of Trade, Industry and Energy if the generation capacity exceeds 3 MW;
- an environmental impact assessment if the generation capacity is 10 MW or more; and
- approval of the works plan if the output of the power plant is 10 MW or more.
3.3 Do these authorisations vary in respect of the location of the energy source, the location of the asset or the involvement of a foreign entity?
The authorisation required will depend on the source of energy and the location of the assets. For instance, solar power plants require a development permit pursuant to the National Land Planning and Utilisation Act, as they constitute spatial structures. They may also require permission to divert farmland pursuant to the Farmland Act or permission to convert a mountainous district pursuant to the Mountainous Districts Management Act, depending on the nature of the land where the power plants will be installed. Offshore wind farms may require a permit for occupation/use of public waters and approval of the plan for the occupation or use pursuant to the Public Waters Management and Reclamation Act.
A foreign entity's ownership of interest in a Korean developer will not affect the requirements for the permits mentioned above. However, additional permits may be needed for offshore wind farm projects where a foreign entity owns at least half of the interests, such as approval of marine scientific research.
3.4 What is the procedure for obtaining such authorisations? How long does this typically take? Who is responsible for issuing them?
For power plants with a generation capacity exceeding 3 MW, an application for the EBL must be submitted to the Ministry of Trade, Industry and Energy. Before the ministry makes its decision, the EBL application will be open for comments from the Korea Electric Power Corporation in relation to technology and grid connection to transmission and distribution lines, with ultimate review by the Electricity Regulatory Commission. The EBL will typically be issued within 60 days of the date of the application.
If the generation capacity is 10 MW or more, an environmental impact assessment must be obtained from the Ministry of Energy by way of a request by the agency that approved the developer's development project. The typical procedures include:
- submission of the draft environmental impact assessment;
- the resident comment period;
- review and supplementation of the environmental impact assessment; and
- implementation of the agreed action.
The total duration of this process is generally more than one year.
Installation of a power plant with an output of 10 MW or more requires the approval of a works plan by the Ministry of Trade, Industry and Energy, which takes about 20 days.
3.5 What are the key features of such authorisations, including any process for renewal and the rights and obligations of the holder?
The Ministry of Trade, Industry and Energy imposes deadlines for:
- the preparation of the EBL (from the date on which the developer obtains the generation permit until the date of commencement of business filed with the ministry); and
- approval of the works plan (from the date on which the developer obtained the generation permit until the commencement date of the construction upon due approval of the works).
The preparatory period permitted is:
- three years for solar power development; and
- four years for wind power development.
However, if a power plant constitutes a facility required for the stability of power supply, the preparatory period and the deadline for approval of the works plan may be adjusted or extended upon demonstration of an unavoidable reason why the developer could not commence its project as planned during the prescribed preparatory period.
3.6 Can these authorisations be transferred? If so, how and subject to what consents? Do any restrictions apply to the transfer?
Anyone that intends to acquire an electric utility business with a generation capacity of 20 MW or more, fully or partially, must obtain approval from the relevant authority. Approval will be granted if the acquirer:
- satisfies the criteria that the electric utility business had satisfied for its initial EBL (ie, the financial and technological capacity to conduct the electric utility business and implement the business as planned); and
- is not likely to undermine public interests as a result of the acquisition by adversely affecting electricity supply and demand or lowering the quality of electricity.
Furthermore, solar power generation businesses are subject to an additional requirement that the business must commence within the preparatory period for the EBL in principle.
3.7 What obligations apply in relation to decommissioning? How is this funded?
Where an NRE facility is installed on houses or buildings as part of a subsidy pursuant to the Rules on Subsidy for NRE Facilities:
- approval must be obtained from a relevant NRE centre established by the Ministry of Trade, Industry and Energy within energy-related institutes in Korea if the facility is decommissioned within five years of the date of installation; and
- a simple notification must be made to the NRE centre if the facility is decommissioned after five years from the date of installation.
A bill for the partial amendment of the Act on the Promotion of the Development, Use and Diffusion of New and Renewable Energy was introduced in 2020 to add subsidies for processing and recycling of decommissioned facilities into project funding for the technological development, use and distribution of NRE, in order for the government to take initiative in handling decommissioned NRE facilities. However, the bill was never passed.
3.8 What are the main barriers to the development of utility-scale renewables projects in your jurisdiction?
There are many barriers, including:
- regulation by the government and local municipalities; and
- delays in the permit process.
One of the major barriers is civil complaints by residents in areas adjacent to generation facilities. The government must pay attention to such complaints and business may be suspended even after an EBL has been obtained while additional permits are obtained from local municipalities for this reason.
3.9 Environmental issues
- What environmental regulations or requirements must renewables generators in your jurisdiction observe on an ongoing basis (from pre-development to decommissioning)?
- What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?
- Which national and regional regulatory bodies are responsible for the enforcement of environmental obligations, and what is their general approach in regulating the renewables industry?
(a) What environmental regulations or requirements must renewables generators in your jurisdiction observe on an ongoing basis (from pre-development to decommissioning)?
The main environmental regulation for renewable energy developers is the Environmental Impact Assessment Act. During an environmental impact assessment under the act, the impact of the contemplated project on the following will be considered:
- air (weather, atmosphere, odour, greenhouse gas);
- waters (water quality, marine environment);
- land (use of land, soil, geography, geology);
- ecology (fauna and flora, natural environment);
- living environment (noise, vibration, entertainment, landscape, sanitation, public health, radio interference, interference with sunlight); and
- society and economy (demography, habitation, industry).
Renewable developers must implement actions agreed on as a result of the environmental impact assessment. The Ministry of Environment or a relevant authority will manage and monitor the agreed actions and may issue corrective orders.
(b) What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?
If a renewable energy developer fails to obtain an environmental impact assessment where this is required under the Environmental Impact Assessment Act, it will be unable to carry out the project, as any approval or disposition that has been granted to the project will be automatically null and void. The developer may also be subject to administrative fines.
Developers that conduct an environmental impact assessment but that fail to implement all actions agreed with the Ministry of Environment may be subject to an order by the relevant authority to:
- make corrective measures;
- suspend construction; or
- restore the site.
If an order to suspend construction or restore the site is issued, the project itself may not be feasible.
At the generation stage, after completion of the development of the power plant, issues typically arise in relation to compliance with emission or processing standards under relevant environmental laws (eg, the Clean Air Conservation Act, the Water Environment Conservation Act, the Soil Environment Conservation Act and the Waste Control Act).
(c) Which national and regional regulatory bodies are responsible for the enforcement of environmental obligations, and what is their general approach in regulating the renewables industry?
The central regulatory body in charge of the enforcement of environmental obligations is the Ministry of Environment. Underlying agencies such as the river basin environmental offices (Han River, Nakdong River, Geum River and Yeongsan River) and the regional environmental offices (Wonju, Daegu, Jeonbuk and Capital Area atmosphere offices) separately manage their respective areas.
If a project contemplated by a renewable energy developer is subject to an environmental impact assessment, the parties usually consider this to be an obligation in order to deal with any environmental issues in advance.
3.10 Health and safety issues
- What key health and safety requirements apply to renewables projects in your jurisdiction and are there best practices in relation to health and safety that should be adopted?
- What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?
(a) What key health and safety requirements apply to renewables projects in your jurisdiction and are there best practices in relation to health and safety that should be adopted?
Upon the occurrence of an industrial accident, the Occupational Safety and Health Act and Serious Accidents Punishment Act may apply. Thus, the general practice for the employer of a project is:
- to appoint a safety and health manager;
- to prepare and implement a manual and guidelines for safety and health management; and
- not to directly control, operate or manage the construction itself, in order to minimise the risk of punishment for such accidents.
(b) What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?
If an industrial accident or serious accident (as defined in the relevant statutes) occurs and it is found to have been caused by a violation by the employer or a contractor of its obligations:
- the owner or executive officer (who represents the business and is authorised to supervise the business, or who supervises safety and health aspects in similar capacity) of the employer or contractor may be subject to imprisonment or penalties; and
- the relevant corporate entity may also be subject to penalties pursuant to joint penalty provisions.
4 Distributed generation projects
4.1 What are the key differences in relation to small-scale distributed generation projects compared to utility-scale projects in your jurisdiction with regard to the regime discussed in question 3?
Projects with a generation capacity of 10 megawatts (MW) or more will typically be required to conduct environmental impact assessments. Projects with a smaller capacity:
- may only require small-scale environment impact assessments, depending on the region; or
- may not be required to conduct any environmental impact assessment if the impact on the environment is minimal.
In addition, anyone that intends to engage in an electric utility business with generation capacity exceeding 3 MW must obtain an electricity business licence (EBL) from the Ministry of Trade, Industry and Energy. However, those with a generation capacity of up to 3 MW can obtain an EBL from the relevant local municipality.
The installation of a power plant with an output of 10 MW or more requires approval of the works plan; but a simple notification is sufficient for power plants with a lower output.
4.2 What are the main networks that apply to small-scale distributed generation projects in your jurisdiction?
Transmission and distribution channels are operated and managed by Korea Electric Power Corporation.
5 Taxes and incentives
5.1 What national, regional and/or local incentives are available as subsidies or support to facilitate the deployment of renewables projects in your jurisdiction?
The Korean government procures project funding to supply new and renewable energy and implements subsidies for companies that install new and renewable energy facilities. According to the 2022 New and Renewable Energy Financial Subsidy Notice published by the Ministry of Trade, Industry and Energy in February 2022, a total subsidy funding of KRW 654 billion was budgeted for individuals and small to medium-sized enterprises (SMEs) that manufacture, produce or install new and renewable energy facilities as defined in the Act on the Promotion of the Development, Use and Diffusion of New and Renewable Energy ('NRE Act').
The government also instituted a new and renewable energy certificate (REC) system to promote the supply of new and renewable energy (NRE). Businesses can preserve profits by obtaining and selling RECs in addition to selling electricity generated from NRE facilities.
5.2 Are any tax reliefs available for investment in renewables projects?
By 31 December 2023, SMEs will be eligible for tariff incentives on:
- machinery for the production and use of NRE pursuant to the NRE Act; or
- machinery for the improvement of grid connections that is imported and is impractical to be manufactured in Korea.
Previously, an investment in energy-saving facilities made by a Korean entity before 31 December 2021 could be eligible for a deduction of income tax or corporate tax in the range of 1% to 7% of the investment; but these incentives have now expired.
5.3 Have there been any interventions affecting renewables projects in terms of their ability to be constructed or operated, or their ability to earn revenue, in your jurisdiction?
See question 5.1.
5.4 What other incentives are available to promote the development of the renewables industry in your jurisdiction?
The Renewable Portfolio Standard (RPS) and mandatory installations in public institutions.
The RPS is a policy that requires a mandatory supply of NRE by designating a particular entity as a 'mandatory supplier' to use NRE for generation above a certain threshold. The government has designated developers with a capacity of 500 MW or more as mandatory suppliers and has imposed individual supply quotas. Mandatory suppliers must obtain RECs and submit them to the government. The cap for the annual total quota of the mandatory supply of NRE was recently increased from 10% to 25%.
Meanwhile, the Ministry of Trade, Industry and Energy may oblige the government, a municipality or a public institution to install NRE facilities in buildings to be newly built, extended or remodelled in order to use NRE-generated power above a certain portion of the energy use, where this is deemed necessary to promote the NRE industry.
6 Financing structures
6.1 Is debt financing typically used and are there any particular structures that are common for renewables projects in your jurisdiction?
Debt financing is widely used in new and renewable energy development projects.
6.2 What are the advantages and disadvantages of these different types of structures?
Through project financing, large expenditures for a project – such as the engineering-procurement-construction contract price – can be provided for.
6.3 What other considerations and concerns should parties bear in mind when deciding on a financing structure for a renewables project?
The development of renewable projects in Korea increasingly involves increased resident participation, in order to enhance residents' receptiveness to the installation of NRE facilities and to share profits from the development with the residents. The government also runs a resident participation fund to lend money needed by residents to invest in the equity of development projects or to participate through bonds or funds.
6.4 What main financing institutions are active in your jurisdiction?
Major financing institutions include banks and funds.
6.5 Which financing markets are usually turned to for sources of debt in your jurisdiction, (eg, local, London, New York)?
Financing is usually procured from domestic financial institutions and funds in the form of project financing; but recently foreign private developers and large foreign investments have been entering the Korean market.
7 Transmission, distribution and export
7.1 What are the applicable processes for connecting renewables projects with transmission, distribution and export networks in your jurisdiction? Do these processes differ between different types of renewable technologies and between renewables and non-renewable projects?
In order for a developer to transmit the electricity generated from solar power plants to a transmitting entity such as Korea Electric Power Corporation (KEPCO), it must use the transmission facilities owned by KEPCO. KEPCO has established the Terms of Use of Electric Transmission and Distribution Facilities pursuant to the Electric Utility Act, which provide that:
- an application for new use of transmission facilities must be submitted; and
- the developer must enter into an agreement to use such facilities in a form prescribed under the terms of use.
There is no difference in transmission among renewable energies; but the route, terms and certification of supply for renewable energy are distinguished from those for non-renewable energy under the Electric Utility Act.
7.2 What requirements and restrictions apply to the export of renewable energy onto the network?
Korea does not export electricity and is dependent on imports for approximately 92.8% of its energy consumption. Accordingly, there are no provisions on exports under:
- the Electric Utility Act;
- the Act on the Promotion of the Development, Use and Diffusion of New and Renewable Energy; or
- the Overseas Resources Development Business Act.
7.3 What other considerations and concerns should be borne in mind in relation to the transmission, distribution and export of renewable energy in your jurisdiction, including participation in ancillary services, wholesale electricity trading markets, network charging arrangements specific to renewables and the ability to construct part of the connection infrastructure? Are there long queues and delays for connection?
In Korea, there is an issue with connection delays for renewable energy developers. In southern parts of the country, where renewable energy facilities are concentrated, transmission and distribution facilities have been reinforced (ie, repaired with additional materials to enhance their durability and capacity), due to the insufficient connection capacity of the facilities; but this has not completely resolved the issue. Such reinforcement often results in protracted construction works, due to resident complaints and a lack of land through which the connection routes can pass. KEPCO is responding to this issue by continuing to reinforce facilities, while also expanding the connection capacity for renewable facilities without reinforcing substations or transmission lines by operating facilities with due consideration of the minimum load on the transmission lines, as it proposed in late 2021.
7.4 Are there any initiatives, reforms or consultations relating to the connection of renewables projects?
The criteria for permits for new generation business in solar power, wind (onshore and offshore) power and fuel cells, as well as the conditions for the extension of the permit period, are expected to become more stringent. The Electricity Regulatory Commission under the Ministry of Trade, Industry and Energy held an information session on 8 March 2023 regarding the proposed amendment of its Public Notice on the Detailed Criteria for Generation Business Permit, explaining that the criteria on the financial capacity of applicants will be increased so that the construction of power plants can be completed as was proposed in the plan submitted for the generation permit.
8 Storage
8.1 What processes and rules apply to parties wishing to construct and operate a storage (eg, battery, hydrogen, hydro) project in your jurisdiction?
Construction criteria: The applicable criteria include:
- Korea Fire Safety Standard KFS-41 (Korea Fire Protection Association);
- electro-technical regulations; and
- NFPA 855 (an international standard).
KFS-41 and NFPA are optional standards that were adapted from leading international safety standards. The criteria under the electro-technical regulations are administrative rules subsidiary to the Electric Utility Act and are mandatory. The above standards prescribe matters such as:
- maximum capacity;
- separation distance;
- location;
- mitigating conditions; and
- fire-fighting partitions.
Operation criteria: On 2 May 2022 the Ministry of Trade, Industry and Energy published the Plan to Enhance the Safety of Energy Storage Systems (ESSs), which mainly focuses on:
- the adoption of a guaranteed lifecycle for batteries;
- the functions of residual current devices;
- the installation of a decompression function;
- mandatory regular monitoring (once a month);
- the addition of safety standards for used batteries;
- the addition of installation standards for portable ESSs;
- the adoption of a recall regime;
- mandatory insurance subscription; and
- mitigation of separation distance.
8.2 Are there any barriers to the development of storage projects in your jurisdiction?
Economic feasibility is an issue due to the high price of batteries. In particular, it is difficult to secure profitability simply from trading on the spot market, given that electricity prices are low on the Korean power market.
The Korea Power Exchange (KPX) tested a low-carbon power contract market in Jeju Island in 2023. If the contract market is introduced to ESSs, contracted volumes will enter the market through bidding before facilities are constructed. ESS companies will then be able to collect project funding during the construction phase in accordance with their plans.
8.3 What other considerations and concerns should be borne in mind in relation to the development of storage projects in your jurisdiction?
The Korean government is proactively considering the growth of ESS business to resolve issues with the power system. Although safety regulations in relation to ESS have been tightened since 2017, a total of 39 fires have occurred in ESS facilities in Korea – six in 2022 alone. In light of these circumstances, it is important to comply with relevant safety regulations when conducting an ESS business.
9 Competition
9.1 Are there any dominant players, including dominant purchasers, in the renewables industry in your jurisdiction?
As of December 2022, 5,454 businesses were participating in the Korean power market, consisting of:
- one seller, Korea Electric Power Corporation (KEPCO);
- 5,419 developers; and
- 34 personal and district electric businesses.
The Korea Power Exchange (KPX):
- facilitates power trading;
- instructs developments; and
- is responsible for the stable operation of the power system.
Developers and the seller can only trade electricity through the KPX and will be subject to sanctions if trading outside of the KPX.
KEPCO is the sole seller of electricity in Korea, but the current laws do not guarantee its status as the sole seller. The 2000 amendment to the Electric Utility Act only prohibited persons or corporations other than KEPCO from obtaining permits for the business of electricity sales for three years as an addendum. However, there is as yet no precedent of any such permits for electricity sale being issued and the criteria for the issue of such permit have not been confirmed. Accordingly, it is unclear whether another enterprise may obtain a permit for the business of electricity sales.
The suppliers active in Korea are:
- KEPCO's six subsidiaries (five thermal power developers and Korea Hydro & Nuclear Power Co, Ltd); and
- private new and renewable energy developers. SK E&S is the largest private renewable energy company, operating solar power projects and wind power projects with a capacity of 150 megawatts (MW) and planning on developing an additional 3 GW of renewable energy projects both in and out of Korea.
9.2 Are there any pro-competition measures that are targeted specifically at renewables generators?
Competitive bidding: Bidding is solicited for pricing purposes and the government will enter into a contract with the lowest-bidding company upon evaluation of the bids. Before there was competitive bidding, it was difficult to drive cost reductions, because most contracts were private contracts entered into with public developers. The competitive bidding process was adopted for solar projects in 2017 and for wind power projects in 2022 to promote the supply of solar power and wind power in a cost-efficient manner.
Transition to auction: The Renewable Portfolio Standard (RPS) is currently in place, but it has attracted criticisms for the following reasons:
- It is disadvantageous in the market because there are many steps to be undertaken and the billing practice is complicated;
- There is little incentive for cost reduction; and
- The generation is overly concentrated in solar power and bioenergy, for which the implementation of the RPS is relatively more convenient.
In response, the Ministry of Trade, Industry and Energy stated in November 2022 that it will terminate the RPS in the long term and transition to an auction system. The government plans to prepare the proposed changes by the first half of 2023 and to begin implementing them in 2027.
10 Disputes
10.1 In your jurisdiction, do disputes typically go to arbitration or litigation, and does this vary for different types of disputes? What sorts of matters tend to come up in disputes?
Disputes are typically resolved through litigation or arbitration. There has recently been a discussion on the need for a dispute resolution mechanism in the new and renewable energy sector.
Wind power generation: Disputes frequently arise among developers due to the excessive number of wind resource assessment devices. The priorities in wind resource measurement were unclear and the boundaries of the effective region for wind resource assessment can easily be extrapolated. In response, the Ministry of Trade, Industry and Energy announced on 8 March 2023 a proposed amendment to its Public Notice on the Detailed Criteria for Generation Business Permit to re-establish the criteria and the scope of the effective region.
Solar power generation: Disputes frequently arise in relation to the location of facilities. More than half of the local municipalities in Korea have passed local ordinances requiring certain separation distances for solar power generation facilities. Residents in adjacent areas have claimed interference with the use of buildings and living due to:
- the reflection of sunlight;
- the risk of personal and financial damage in case of fire or destruction of the facilities;
- electromagnetic waves;
- radiant heat; and
- aesthetic nuisance.
10.2 Have there been any important disputes in the public domain that relate to or may potentially impact on the renewables industry or the deployment of renewables projects?
In 2022, the government inspected a sample of 12 out of 226 local municipalities in Korea to investigate the status of the Power Industry Foundation Fund in relation to solar power generation. The inspection revealed 2,267 cases of illegal or unfair practices. The amounts of money that were unfairly loaned or paid totalled nearly KRW 261.6 billion. These cases involved activities such as:
- submitting false tax statements in relation to solar power projects to obtain a loan;
- borrowing money after illegally installing solar power facilities on farmland;
- executing private contracts by technically splitting up power plants; and
- committing accounting fraud (eg, falsification of the accounts).
The government stated that it had requested an investigation into unfair loans under the charge of fraud and will reclaim unfairly paid subsidies pursuant to the Subsidy Management Act.
The Korea Solar Energy Development Association and the Korea Solar Power Generation Enterprise Association are also preparing a lawsuit in relation to Korea Electric Power Corporation's (KEPCO) cap on the system marginal price (KEPCO imposes a cap if the wholesale electricity price dramatically increases above a certain threshold). If the associations prevail, the profitability of the solar power generation business will also be affected.
11 Trends and predictions
11.1 How would you describe the current renewables landscape and prevailing trends in your jurisdiction?
According to the 2020 Status Report on the New and Renewable Energy Industry published by the Korea Energy Agency, the new and renewable energy (NRE) industry in Korea is valued at approximately KRW 25 trillion, demonstrating significant growth when compared with other industries. The capacity of renewable energy facilities between 2017 and 2021 was 18.3 gigawatts (GW), more than three times the capacity between 2012 and 2016 (5.9 GW); and the ratio of renewable energy in generation was 6.4% in 2021, nearly double that in 2017 (3.2%). However, the push for the radical expansion of supply is also causing issues, such as:
- poor cost efficiency;
- heightened pressure on the power system;
- an increase in resident complaints; and
- a weakened industrial ecosystem.
11.2 What influence are net zero commitments having on the development of the renewables industry in your jurisdiction?
In October 2020, the Korean government declared its plans to become carbon neutral by 2050. In December 2020, it confirmed the initial draft of the 2050 Low-Emission Development Strategy and its nationally determined contribution (NDC) for 2030. In order to achieve these goals, the government has published strategies to proactively transition from fossil fuels to NRE. In other words, the power supply system will focus on renewable energy, including solar power and wind power; and generation from fossil fuels will be interlinked with carbon capture technology to shift from a baseload generation source to a supplementary source that fills the gaps presented by renewable energy. In order to achieve these goals, the government has decided to:
- increase:
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- the ratio of renewable energy in the energy mix to 70.8% by 2050; and
- the self-sufficiency rate of clean hydrogen to 60% by 2050; and
- promote private investments in carbon neutrality by subsidising carbon-neutral investments in the amount of KRW 94 trillion and policy financing of KRW 35 trillion by 2025.
11.3 What new developments are anticipated in the next 12 months, including any proposed legislative reforms?
The current administration's position is to adjust the direction and goal of carbon reduction to a realistic level. The Ministry of Environment has announced that it will prepare its 2030 NDC by March 2023, to reflect changing circumstances both within and outside of Korea.
The government is also considering:
- expanding the subsidy for greenhouse gas reductions in facilities from KRW 97.9 billion to KRW 138.8 billion; and
- adopting carbon contracts for difference (CCfDs) to solicit corporations to invest in innovative reduction technology. CCfDs allow corporations to enter into contracts with the government when they invest in reduction facilities and to be indemnified for any difference between the agreed price and the price of the emissions.
12 Tips and traps
12.1 What are your top tips for renewables generators in your jurisdiction and what potential sticking points would you highlight?
The current administration is inclined to expand nuclear power generation and reduce new and renewable energy (NRE). Based on the Tenth Basic Plan of Long-Term Electricity Supply and Demand, the government modified the previous administration's target generation by 2030 from 23.9% nuclear and 30.2% renewables to 32.4% nuclear and 21.6% renewables. The proportion of the Renewable Portfolio Standard which had been dramatically increased in 2021 was also lowered from 25% to 15% by 2026. While newcomers in the market will need to be careful in their approach to the feasibility of NRE business, the prospects remain optimistic in the long run.
One ongoing issue in the industry is the delay in the government permit process. It is necessary to seek advice from legal professionals before communicating with government officials, to ensure that companies intending to engage in NRE business do not fall victim to arbitrary decisions of agencies or officials that are not based on relevant laws.
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