How can investors and developers capitalise on South Korea’s evolving energy market?

South Korea's energy market is undergoing a significant transformation in line with the global transition towards sustainable and renewable energy sources. Anchored by its draft 11th Basic Plan for Power Supply and Demand (11th BPLE), South Korea is working towards having 70% of its grid powered by carbon-free energy (including nuclear energy) by 2038.

As Asia’s fourth largest economy, South Korea's energy market reform and infrastructure development focus have significant global and regional implications, and present substantial opportunities for investment. The country has set ambitious targets for renewable energy, aiming for it to comprise of 32.9% of the generation mix by 2038. This includes aggressive solar targets of 30GW by 2030 and a positive outlook for long-term wind energy targets, despite medium-term adjustments due to delays in offshore wind project.

Although there is a shift towards expanding nuclear power capacity, there are numerous opportunities for solar, wind, hydrogen infrastructure, and battery energy storage systems (BESS). 

Baringa’s South Korea Reference Case Report provides an independent perspective on the demand and supply-side changes across South Korea's energy market, drawing on information from public sources as well as Baringa’s in-house views.

What are the key themes of the draft 11th BPLE?

South Korea's energy sector is adapting to increased demand projections driven by the expansion of the Data Center and Semiconductor industries. The government has laid out a detailed strategy within the 11th BPLE, and while there are plans to increase nuclear capacity, renewable targets remain ambitious.

The role and importance of flexible, dispatchable thermal plants to support the transition have also been highlighted. Plans include adding 5.5GW of new thermal capacity by 2036, primarily hydrogen co-fired, to ensure grid stability. South Korea will also be increasing its nuclear generation, with plans for a 0.7GW Small Modular Reactor (SMR) and three 1.4GW Advanced Power Reactors (APR1400s), totaling an additional 4.9GW of nuclear capacity.

In addition, Jeju Island has implemented a price-based pool in June 2024, with a pilot for the mainland expected later in the year, representing a significant step towards modernising South Korea's energy market.

Ambitious renewable targets to be fueled through renewable auctions 

Auctions are increasingly becoming the primary route-to-market for wind energy in South Korea. The government plans to phase out its renewable portfolio standard for Renewable Energy Certificates (RECs), shifting instead to achieve renewable goals through auctions. Public consultations on this shift are set to begin in the second half of 2024.

Each year, 2GW of wind auctions are conducted in the fourth quarter, and the latest auction in 2023 was over-subscribed, indicating healthy interest in the industry. The opposite is true for solar with participation in solar auctions declining as market players increasingly favour direct market participation or signing PPAs. This trend indicates a shift in how solar energy is integrated into the market reflecting the evolving dynamics of the renewable energy sector.

The PPA market has also undergone significant growth since the start of the year

The Power Purchase Agreement (PPA) market has seen significant growth, with over 1GW of agreements signed since the start of 2024. This surge in interest highlights the increasing attractiveness of PPAs as a viable mechanism for securing renewable energy investments.

In a groundbreaking move, South Korea launched its first clean hydrogen auction in May 2024, allowing hydrogen and ammonia co-firing to participate. The hydrogen produced must meet stringent emission standards, with well-to-gate emissions (excluding shipping) required to be less than 4kg of CO2 per kg of hydrogen. This is in line with South Korea’s broader strategy of becoming a hub for clean hydrogen in the region. 

Although offshore wind continues to face hurdles, industry stakeholders remain optimistic

Permitting processes for offshore wind projects remain a significant challenge. The complex process has delayed the development cycle for most developers, with some requiring up to 29 different permits across 10 ministries. Only 2% of initially licensed capacity have received approvals from all relevant ministries, and only 5% of initially licensed capacity have received approval for a single other permit.

Efforts to streamline this process through a "One-Stop Shop Act" have stalled at the national assembly level, but industry stakeholders remain hopeful for progress this year. If the act passes, the permitting process would be centralised into a single team within MOTIE, accelerating the development process significantly.

The South Korean Government is encouraging offshore wind projects in the interim. Local governments are provided financial support for pre-feasibility studies, and the Korea Energy Agency has established a consulting service to assist developers in navigating the existing permitting processes.

What can investors and developers do?

• Investors should keep up to date with South Korea’s latest regulatory, policy, and market developments and ongoing market reform announcements.
• For solar and wind developers, understanding auction dynamics and payment calculations will be crucial. This allows weighing the benefits between participating in the renewable auctions or negotiating a corporate PPA.
• For all participants in the market, forming a view on the development of the market both in terms of future generation mix as well as the evolution of the price mechanisms within the wholesale market.

Baringa supports investors and developers across Asia-Pacific with project financing transactions. Our South Korea Reference Case Report offers in-depth analysis and insights into the nation's evolving energy landscape, helping clients identify optimal investment opportunities and strategic entry points. We also provide fundamentals based competitive analysis for renewable auctions based on our deep experience from not just South Korea but with other similar auctions around the world.

For more detailed analysis and investment guidance, contact our experts at Baringa.