Large-scale Power Plant Projects Promoted
Korea’s renewable market has grown, centering on solar power
Helped by the government’s renewable energy support policies, Korea’s renewable energy market has seen rising facility installations centering on solar power. With solar power facility installations being relatively free from the opposition that wind power farms often face from local residents, new installations exceeded 1GW on quarterly basis in 1Q20, and are likely to total 3.5GW in 2020.
Tepid REC and SMP prices expose small-sized power producers to greater risk of margin deterioration
The problem is that a rapid growth in renewable energy supply has driven down prices for renewable energy certificate (REC), a major source of revenue at renewable energy producers. With oversupply in RECs having continued since 2017, the REC price fell from W120,000/MW in Jan 2018 to W30,000/MW in early 2020. While the price has recently recovered to around W45,000/MW thanks to government schemes to stabilize REC prices, weak REC and SMP prices are exposing small-sized power producers to greater risk of profitability deterioration.
Large-scale renewable power plants to be constructed earlier than planned this year
With profitability declines rendering small-sized power producers increasingly reluctant to make new investments, the Ministry of Industry, Trade, and Energy (MOTIE) has rolled out this year renewable energy-related investment plans. These plans include large-scale power plant complex projects—32 projects (total capacity of 2.3GW; 1.6GW for solar power and 0.6GW for wind power) are to start construction earlier than planned by end-2020. Additional support measures are to be granted for wind power projects, which have shown comparatively slow progress thus far. Furthermore, in order to relieve local residents’ opposition towards offshore wind power projects, the MOTIE has recently announced that it aims to strengthen support for local communities in wind farm areas via the amending of related laws (centering on the calculation and distribution of support funds for local communities)
US and China: Renewable energy plants now have greater cost competitiveness versus traditional power plants
We note that renewable energy plants have come to have greater cost competitiveness versus coal-fired power plants in the US and China. And, although ESS-related projects have been showing slowing growth in Korea following a series of fires, they have remained largely popular in overseas markets. As for offshore wind power, production costs are to shrink rapidly moving ahead on rising adoption of large-sized turbines.
Korea: Production costs at renewable energy plants to further decline on emergence of large-scale power plant complexes
In Korea, the cost competitiveness of solar and wind power plants remains weaker than that for NPPs and CFPPs. Back in 2017, while production costs at NPPs stood at W64.5/kWh, the figure for solar power plants amounted to W141.7/kWh. That said, we believe that solar power production costs has been declining at a faster-than-expected pace from 2018 onwards in response to decreasing facility costs. Developments of large-scale solar power plant complexes will likely further drive down power production costs, helped by the effects of economies of scale. Over the mid/long-term, the competitiveness of solar and wind power could strengthen to levels on par with those for CFPPs and combined cycle power plants.