Incentives Needed to Attract Private Investment
South Korean President Moon Jae-in confirmed the initiation of the Saemangeum Renewable Energy Project on Oct. 30 by unveiling his renewable energy vision during a ceremony held at the floating solar power plant of Gunsan, North Jeolla Province.
The project involves building solar power generation facilities with a capacity of 2.8 GW, wind power generation facilities with a 0.1 GW capacity, and 0.1 GW-capacity fuel cell generation facilities in a sprawling site inside the Saemangeum Seawall, along with a 1 GW-capacity floating wind power plant outside the seawall.
According to the Saemangeum Development and Investment Agency (SDIA), the amount of sunlight the region receives a day is 3.61 kWh per square meter. Although it exceeds South Korea’s average, 3.48 kWh, it is not enough to build the world’s largest solar power generation facilities as the facilities can be in operation for just 3.61 hours a day.
Such a low utilization rate means a significant burden on the part of the Korea Electric Power Corporation (KEPCO). The facilities’ annual power generation volume is estimated at 3.692 billion kWh. Given that KEPCO purchases power from generators at 209 won (US$0.18) per kilowatt hour, it pays them 768.9 billion won (US$692 million) a year. Meanwhile, the corporation applies an electricity price of 110 won (US$0.01) per kilowatt hour to power consumers, which is equivalent to an annual total of 404.7 billion won (US$364 million). In short, the corporation has to incur a loss of 364.2 billion won (US$327 million) each year.
According to the recently released plan of the government, its 569 billion-won (US$512 million) subsidies are not going to be provided unlike what was said before. The government is planning to attract a fund of 10 trillion won (US$9 billion) from the private sector, yet specific measures to that end have yet to come out. The SDIA said that a private investment of 10 trillion won can lead to the attraction of 100 renewable energy companies along with 100,000 new jobs and an economic effect of 25 trillion won (US$22.5 billion).
On the part of power suppliers in the private sector, the project can be a great opportunity in that KEPCO is going to purchase the electricity they produce there with no strings attached and at a price equivalent to 200% of its electricity price. Nonetheless, the project entails huge policy risks. “Companies cannot be free from the possibility of a change in policy to lead to less subsidies,” said an expert, adding, “They are likely to refrain from joining the project unless a fixed price is guaranteed for the 20-year project period, and then Korea Hydro & Nuclear Power and the five state-run power companies will have to participate in the project to share the burden.”
At the ceremony, Moon remarked that the Saemangeum region will become the hub of renewable energy-based power generation of South Korea as a whole. Still, the local community is lukewarm about his remark. This is because the president said last year that the government would develop the region into the center of the pan-Yellow Sea economic zone yet changed the direction of development, even without listening to the opinions of the community, more recently.
The Saemangeum region, which began to be developed in 1991, has gone through frequent changes in development direction for 28 years. The initial purpose of the development consisted in food security, but the region’s non-farming land ratio was raised to as high as 28% in the Roh Moo-hyun administration. Besides, the following government planned to increase the ratio to up to 70%. In the previous administration, the agriculture-centered development policy was replaced with plans for more economic cooperation between South Korea and China. This is why the current government’s goal for the region is unlikely to be achieved.