Media Release
SEOUL, SOUTH KOREA [TAC] – Despite new policies and increased efforts to expand South Korea’s renewable energy capacity, actual renewable energy growth in the national grid has been lackluster.
A new report by the Institute for Energy Economics and Financial Analysis (IEEFA) attributes this to three major bottlenecks: an inadequate grid, inefficient power purchase agreements (PPAs), and ineffective renewable portfolio standard (RPS) systems.
Data from the Korea Electric Power Corporation (KEPCO) shows that renewable energy capacity in South Korea has increased sixfold from 2013 to 2023, while actual generation delivered to consumers rose by only half, expanding just threefold.
“South Korea has yet to achieve meaningful renewable energy growth in its national grid,” says report author Michelle (Chaewon) Kim, IEEFA’s energy finance specialist. “One criticism is the lack of renewable energy integration in the national grid due to the delayed expansion and modernization of transmission and distribution infrastructures.”
Electricity demand is expected to rise with the development of large-scale semiconductor clusters in Yongin and AI data centers in Seoul and Gyeonggi provinces. However, power grid construction and modernization delays raise concerns about an unstable power supply and a potential weakening of industrial competitiveness.
The report highlights fundamental problems with the Power Purchase Agreement (PPA) and Renewable Portfolio Standard (RPS) systems. These include high PPA prices due to rigid regulations and KEPCO’s grid monopoly, limited supply of renewable energy, and reliance on indirect compliance through Renewable Energy Certificates (RECs). These challenges have contributed to the lack of tangible growth in renewable energy.
Addressing ineffective PPAs
According to the report, ineffective PPAs are hindering South Korea’s renewable energy growth, which has led to the country lagging at least 15 years behind other nations.
Continued underinvestment in the power grid could threaten the reliable, high-quality power supply essential in industrial complexes, particularly those in AI, semiconductor, and biotechnology areas. Additionally, it would hinder progress toward carbon neutrality – a goal prioritized by initiatives like RE100, which has over 160 member companies operating in South Korea, including 36 headquartered in the country.
“While more than 31% of RE100 member companies worldwide procured renewable electricity through PPAs in 2022, only around 20.2% of export-oriented companies in South Korea did so – either through direct PPAs (10.1%) or third-party PPAs (10.1%),” says Kim, “Delays in grid construction and modernization may threaten industrial competitiveness and carbon neutrality goals for international companies.”
A proposed solution is to consolidate and streamline the current PPA systems. Direct and third-party PPAs could be unified to reduce unnecessary rigidity and complexity.
“Current PPA rules add unnecessary costs and undermine renewable energy development efficiency between sellers and buyers. Moreover, PPA prices are exacerbated by limited renewable energy supply, which is reflected in the increasing costs of RECs,” explains Kim.
Unlike South Korea, PPA participants in the United States, Australia, and many European countries, including renewable energy generators, providers, and consumers, can freely procure any shortfall from the market.
South Korea could facilitate a buyer’s PPA market, activating the self-sustaining, ‘virtuous cycle’ by increasing corporate demand while expanding renewable energy investments, achieving economies of scale, increasing renewable energy supply, and lowering prices.
Report: Bottlenecks to renewable energy integration in South Korea
