Electricity Tariff Overhaul Essential
The authors are analysts of NH Investment & Securities. They can be reached at ys.hwang@nhqv.com. -- Ed.
Green energy: Decentralized and renewable-centric power generation and related infrastructure construction to pick up
The Korean New Deal plans envision the creation of a low-carbon, eco-friendly country through the wider distribution of renewable energy. In order to achieve this goal, the government plans to invest W11.3tn by 2025 in large-scale R&D/demonstration projects and related facility installations, focusing on the creation of a renewable (solar and wind) energy eco-system.
In detail, the government is to take the initiative in constructing large-scale offshore wind farms. Regarding solar power, it will provide strong support for local resident-participating solar power projects, expand loans for such projects, and promote the installation of household solar systems, all of which are designed to expand the nation’s decentralized power generation system. Meanwhile, plans to develop hydrogen-fueled power generation technologies and create hydrogen-fueled cities are also to be implemented. As of end-2019, the combined capacity of Korea’s solar and wind power generation facilities stood at 12.9GW, but the government aims to expand the capacity by 5GW pa to 26.3GW in 2022 and 42.7GW in 2025.
Preparation for intelligent smart grid construction
We note that the shift in centralized/fossil fuel-centric power generation towards decentralized/renewable energy-centric power generation will necessitate the installation of smart grids for power demand management. The government’s new policy includes: 1) the installation of advanced metering infrastructure (AMI) at 5mn apartment units; 2) the replacement of diesel-fueled power generators in remote areas and on islands with more eco-friendly power generation devices; and 3) underground installation of electric and telecommunication lines. In addition, there was mention of a smart green industrial complex where real-time monitoring and control/management of electricity consumption will become possible. We expect demand for ESS and transmission systems (including smart meters) to grow as well.
Electricity tariff overhaul essential for companies to participate in RE100 initiative
At the same time, the government is considering revising the enforcement decree of the Electric Utility Act in order to permit companies to sign third-party power purchase agreements (PPAs) with non-KEPCO renewable energy power suppliers. This revision is designed to lay the legal foundation for Korean firms to voluntarily participate in the global RE100 campaign (RE100 is a collaborative global initiative of influential businesses committed to 100% renewable electricity, working to massively increase corporate demand for - and delivery of - renewable energy). Meanwhile, by permitting electricity purchase contracts between power consumers and private renewable energy generators, power consumers’ choices should widen—today, KEPCO is the sole supplier of electricity in Korea. That said, we believe that a fundamental overhaul of the existing electricity tariff system will be a pre-condition for this to happen. Going forward, we predict that the barriers between buyers and suppliers in the power trade market will become blurry and mutual trade of electricity will become possible.
