South Korea overhauls solar power system after 15 years
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The South Korean government will replace its 15-year-old Renewable Portfolio Standard (RPS) with a competitive bidding system that guarantees long-term fixed prices through contracts with Korea Electric Power Corporation (KEPCO).
The Ministry of Climate Change, Energy and Environment announced the amended “Act on the Promotion of Development, Utilization and Supply of Renewable Energy” was enacted on September 15th and will take effect January 1st.
The RPS, introduced in 2012, required large power companies to supply a set amount of renewable energy. They could meet this obligation by producing renewable energy themselves or by purchasing Renewable Energy Certificates (RECs) from other renewable energy producers. However, fluctuating REC prices made it difficult for renewable energy businesses to predict their long-term profits. Currently, power companies can fulfill their obligations through self-generation, direct contracts, government fixed-price contracts, or the spot market.
Companies participating in RE100, a global initiative for 100% renewable energy sourcing, use self-generation, power purchase agreements, green premiums, and REC purchases. This created two REC markets, one for power companies fulfilling RPS obligations and another for voluntary RE100 participants, and the price in the RPS market influenced REC transactions in the RE100 market, raising costs for companies seeking renewable energy.
The new system will require newly built solar and wind power plants to compete in bids below a government-set upper limit, securing long-term contracts with KEPCO. This eliminates the need to separately buy and sell RECs for profit, and aims to lower energy costs while ensuring stable income for renewable energy producers. The bidding process will also consider factors beyond price, such as contributions to the domestic supply chain and energy security.
The government plans to lower renewable energy generation costs and electricity procurement costs, while also supporting domestic industries. Existing facilities will transition gradually, with existing RECs remaining valid for up to 20 years, and the current REC market remaining operational until the end of 2029.
