Renewable Energy 2024 Comparisons

The proportion of new and renewable energy (NRE) in South Korea’s energy mix is gradually increasing. The term “NRE” is not widely used globally. While the OECD defines “renewable energy” as energy derived from solar, wind, water, biomass, ocean sources, and biodegradable waste – sources that are both renewable and environment-friendly – Korea’s definition of NRE is broader and includes energy sources that may not be classified as renewable by international standards, such as liquefied/gasified coal or heavy residual oil. 

According to the 2024 Korea Energy Agency (KEA) Energy Handbook, the proportion of NRE sources accountable for total domestic power generation in South Korea increased from 4.99% in 2018 to 5.81% in 2019, 7.44% in 2020, 8.29% in 2021, and 9.22% in 2022. It is projected to increase to 10.6% in 2023.

Furthermore, according to the working draft of the 11th Basic Plan for Electricity Supply published by the Ministry of Trade, Industry and Energy (MOTIE), the proportion of power generation by NRE sources is expected to reach 21.6% by 2030 and 32.9% by 2038. This trend signals the ongoing transition from fossil fuels to NRE sources in South Korea.

Currently, solar power accounts for the largest share of power generation by NRE in South Korea. According to the KEA’s NRE supply statistics in December 2023, the proportion of each NRE source in 2022 was as follows:

• solar power 53.2%;
• biomass 20.6%;
• fuel cells 9.4%;
• hydropower 6.1%;
• wind power 5.8%;
• Integrated Gasification Combined Cycle 3.4%;
• ocean energy 0.7%; and
• renewable waste (industrial waste, municipal waste, solid recovered fuel (SRF), etc) 0.7%.

As in many other jurisdictions, offshore wind power is expected to become a more important NRE source in South Korea due to its potential for large-scale energy supply. Due to the increasing importance of NRE, the industry is focusing on developing larger wind turbines with expanded rotors and enhanced generator capacities.

Despite increased demand for the NRE supply expansion, the market has slowed down due to high global interest rates, domestic grid limitations, complex permitting processes, and increasing costs and regulations.

Additionally, South Korea’s focus is shifting from solar to offshore wind. The 2023 fixed-price competitive auction results from KEA illustrate this trend: although 1,000 MW was offered for solar power, only 66 MW was bid for and 60 MW was awarded. On the other hand, 1,500 MW was offered for offshore wind, 2,067 MW was bid for and 1,431 MW was awarded.

The principal laws governing the South Korea energy market in general are:

• the Energy Act; and
• the Framework Act on Carbon Neutrality and Green Growth for Coping with Climate Crisis (the “Carbon Neutrality Act”).

The Act on the Promotion of the Development, Use and Diffusion of New and Renewable Energy (the “NRE Act”) is the principal law regulating NRE, based on which a number of related regulations are promulgated by the MOTIE to promote the distribution of NRE, namely:

• the Guidelines on the Management and Operation of the Renewable Portfolio Standard and Renewable Fuel Standard (the “RPS Guidelines”);
• the Guidelines on the Subsidy for the Cluster Creation Projects; and
• the Regulations on the Subsidy for New and Renewable Energy Facilities.

In line with the NRE Act, the KEA has established the following:

• the Guidelines on the Subsidy for New and Renewable Energy Facilities; and
• the Rules on the Issuance of Renewable Energy Certificates and Operation of the REC Market.

Other relevant laws and regulations include:

• the Electric Utility Act and the Public Notice on the Detailed Criteria for the Electric Business Licence, Calculation Criteria for Electricity Cost, Margin of Error permitted for the Electric Meter, and the Management of Power System (governing licensing and operation of electric businesses); and
• the Hydrogen Economy Promotion and Hydrogen Safety Management Act (to develop hydrogen as a major energy source).

In respect of upcoming changes in law and regulations, MOTIE is currently considering potential changes to the Renewable Portfolio Standard (RPS) system, which was established under the NRE Act and the RPS Guidelines. Currently, the RPS systems requires operators with generation facilities of 500 MW or more to supply an annual quantity of NRE. However, the potential changes include:

• phasing out the RPS system and transitioning to a government auction system (ie, shifting the supply obligation from RPS obligators to the government); and
• phasing out the renewable energy certificate (REC) spot market due to concerns about price volatility and market uncertainty.

The primary regulator for NRE activities in South Korea is MOTIE, which oversees NRE legislation, budget allocation, directives, regulations, guidelines and licensing of electric businesses (although local governments are in charge of issuing licences for power generation under 3 MW).

The Electricity Regulatory Commission (ERC) under MOTIE reviews electric business licences (EBLs), promotes competition, regulates unfair practices, protects consumer rights, regulates abuse of market power in monopoly sectors, and monitors the power market and power system operations.

While the KEA, Korea Power Exchange (KPX) and Korea Electric Power Corporation (KEPCO) are not regulating authorities, they are parties that a developer must closely co-ordinate with for their electric business operations. In particular:

• KEA promotes financial support for NRE distribution, certifies NRE facilities, and manages fixed-price competitive bidding for solar and wind power.
• KPX operates the power market and monitors power trading between the developer and the sellers, handling the bidding, pricing, metering, settlement and payment. It also plays a practical role in government policies such as the government’s mid-to-long-term basic plan for electricity supply.
• KEPCO purchases power produced by developers and sells it to consumers, while also operating transmission and distribution facilities.

The main regulated activities regarding NRE in South Korea involve the construction and operation of power generation facilities. The applicable regulations vary depending on the scale of the facility and the type of renewable energy.

For power generation businesses with a capacity exceeding 3 MW, the following process applies:

• the applicant must submit an application for EBL to MOTIE;
• MOTIE receives technical feasibility reviews and grid connection reviews from KPX and KEPCO;
• the ERC conducts a final review; and
• MOTIE grants the EBL.

Additional requirements include:

• for generation facilities with a capacity of 10 MW or more, an environmental impact assessment (EIA) will typically be required; and
• when installing a power plant with a capacity of 10 MW or more, a construction plan must be submitted to MOTIE for approval.

Different types of renewable energy projects may require additional permits depending on the energy source or asset location:

• solar power facilities –
1. a permit for development activities under the National Land Planning and Utilisation Act because it is a type of structure; or
2. a permit to divert farmland under the Farmland Act, a permit to divert mountainous districts under the Mountainous Districts Management Act, or permission to occupy and use a road under the Road Act, depending on the location; and
• offshore windpower facilities –
1. a permit to occupy or use public waters;
2. authorisation of an implementation plan for occupancy or use under the Public Waters Management and Reclamation Act; or
3. additional processes including: (i) surface inspection for underwater cultural heritage under the Enforcement Decree of the Act on Protection and Inspection of Buried Heritage; (ii) a marine traffic safety examination under the Maritime Safety Act; (iii) a review of military operability (including electric wave impact assessment) under the Protection of Military Bases and Installations Act; and (iv) consultation on the utilisation of sea areas, marine geophysical surveys and sea area utilisation impact assessments under the Marine Environment Management Act.

Restrictions on ownership and transfer of NRE assets in South Korea are primarily governed by MOTIE, with oversight from the ERC. The following cases require approval from MOTIE after review by the ERC (except when the licensing authority is a municipality, which does not require ERC review):

• transfer of all or part of an electric business;
• division or merger of a corporation that is an electric business; and
• acquisition of shares with the purpose of substantially controlling the management rights of an electric business (excluding developers with capacity less than 20 MW), which would result in dominant influence on major management decisions.

When granting such approvals, MOTIE evaluates:

• compliance with the criteria for an EBL;
• absence of significant harm to the public interest, such as disruption to or lowered quality of power supply; and
• commencement of operations during the business preparation period (limited to solar power generation businesses, unless there are justifiable reasons such as difficulties in business operations).

Notably, as of 1 August 2023, the Detailed Criteria for an Electric Business Licence were revised to strengthen the financial capacity for EBLs, requiring more robust thresholds for equity ratio and the reasonableness of the financing plan, as well as a heightened requirement for credit rating.

These regulations aim to ensure the financial stability and operational capability of entities involved in NRE projects, while maintaining oversight of significant changes in ownership or control of these assets.

There are no specific legal restrictions on foreign investment in the NRE market other than the requirement for foreign capital to report under the Foreign Investment Promotion Act or the Foreign Exchange Transactions Act when investing in the NRE market in South Korea.

Key Features

The electricity production/generation sector from renewable sources in South Korea involves the following key features.

Market structure

• Currently, domestic power production is handled by six power generation companies (see below), private power generators, and district electricity operators; and
• the sector has evolved from a monopoly under KEPCO to a more competitive structure following a restructuring in 2001 (see below).

Key parties and assets

• In 2001, KEPCO was divided into six main power generation companies: Korea Hydro & Nuclear Power (KHNP), Korea Energy (KE), Korea Midland Power (KOMIPO), Korea Western Power (KWP), Korea Southern Power (KOSPO), and Korea East-West Power (EWP);
• private power generation companies; and
• the KPX for system and market operations.

Applicable rules and regulations

• Renewable Energy 3020 Roadmap: This roadmap aims to increase NRE’s proportion to 20% by 2030. The draft was first announced on 20 December 2017 by MOTIE, at the Second Renewable Energy Policy Forum. The main target is to distribute a cumulative installed capacity of 64 GW of clean energy, with over 95% of new installed capacity to be supplied by clean energy sources such as solar and wind power.
• Renewable Portfolio Standard (RPS): This standard requires power generators with over 500 MW capacity to supply a certain amount from renewable sources. The target businesses include the six KEPCO generation subsidiaries, including KHNP, and private power generation companies. RECs are used as a means to certify compliance with RPS obligations. RECs are issued by the government to obliged entities, who can obtain them through their own facilities, the facilities of external NRE developers, or the certificate trading market. The government then determines compliance based on these certificates and imposes penalties for non-compliance.
• Electric Utility Act: This Act establishes the basic system for electric utility businesses and regulates electric business operations by electric utility operators, thereby protecting the interests of consumers.
• Electrical Technology Management Act: This Act regulates the installation and supervision of power facilities to ensure public safety.
• NRE Act: This Act promotes NRE production and distribution. See 3.4 Hydrogen and Other Biofuels and Renewables.
• Regulations on the Subsidy for New and Renewable Energy Facilities (public notice of MOTIE) and Guidelines on the Subsidy for New and Renewable Energy Facilities (the NRE Centre): These stipulate the requirements for installation of NRE facilities.

Biogas

Market structure

• Biogas, produced from organic waste, is a primary renewable gas source in South Korea.
• The biogas market is in its early stages, with plans for expansion in both the public and private sectors.
• A representative example of biogas is the business of converting gas from food waste and other sources into fuel and supplying it. To this end, Korea is actively developing technology to upgrade its biogas capabilities, including purifying biogas generated during the treatment of organic waste such as food waste, sludge (sewage residue), and livestock manure for reuse as fuel. With such technology, it is possible to transform gas generated from food waste into “renewable natural gas” (RNG) which is similar to natural gas.

Key parties and assets

• Public and private sector entities involved in organic waste management and biogas production; and
• companies developing biogas upgrading technologies to produce RNG.

Applicable rules and regulations

• The Act on the Promotion of the Production and Use of Biogas Using Organic Waste Resources (the “Biogas Act”): This Act promotes biogas production from organic waste. The key features of the Act are as follows:
1. the Ministry of Environment must establish and manage biogas production targets for public and private mandatory producers to promote biogas production;
2. local municipalities must understand how organic waste resources are treated in their jurisdictions and install and operate biogas production facilities; and
3. businesses that discharge or treat organic waste resources should actively participate in biogas production.
• The government plans to assign biogas production targets to the public sector form 2025 and to the private sector from 2026.

However, the proportion of biogas in the overall gas market is not significant. The more widely used gas types in South Korea are liquefied natural gas (LNG) and liquefied petroleum gas (LPG).

Market Structure 

• The market structure for renewable heat production is not clearly defined due to a lack of specific regulations. 
• There is currently no mandatory supply target system for the heat supply sector, and no specific law defining the concept and scope of thermal energy. For example, there is currently no mandatory RPS that requires a certain percentage or more of renewable heat energy to be mandatorily supplied to newly constructed buildings of a certain size or above, or to integrated energy suppliers.

Applicable Rules and Regulations

These are as follows:

• the Carbon Neutrality Act;
• the Energy Act;
• the Energy Use Rationalisation Act;
• the NRE Act;
• the Green Buildings Construction Support Act;
• the Integrated Energy Supply Act;
• the Special Act on Promotion of Distributed Energy;
• Technical Criteria for Integrated Energy Facilities; and
• Inspection Criteria for Heat Supply Facilities.

Market Structure

In May 2024, MOTIE announced pioneering plans to establish the world’s first clean hydrogen-power bidding market. This initiative aims to reduce GHG emissions by promoting clean hydrogen as a carbon-free power source (ie, zero-carbon hydrogen, low-carbon hydrogen, and low-carbon hydrogen compounds), while procuring clean hydrogen at economically viable prices through bidding among suppliers. Key features of this bidding market are:

• participation criteria – limited to developers using fuel that meets clean hydrogen certification standards;
• certification standard – GHG emissions of 4 kg CO₂e (carbon dioxide equivalent) or less per 1 kg of hydrogen produced;
• initial bidding volume – 6,500 GWh;
• contract period – 15 years;
• timeline –
1. business preparation period: three years (with an additional one-year grace period); and
2. commencement of power generation: by 2028.

Key Parties and Assets

Currently, 99 companies are registered as hydrogen-specialised enterprises.

Applicable Rules and Regulations

• The NRE Act: According to the Act, new energy is defined as energy converted from existing fossil fuels or derived from chemical reactions of hydrogen and oxygen. This includes hydrogen energy, fuel cells, energy from liquefied or gasified coal, energy from gasified heavy residual oil (HFO), and other non-conventional energy sources (excluding petroleum, coal, nuclear power and natural gas).
• The Hydrogen Economy Promotion and Hydrogen Safety Management Act: This Act fosters the development of hydrogen-related industries. It covers companies involved in hydrogen production, storage, transportation, charging, and sales, as well as manufacturers of fuel cell-related products, parts, materials and equipment. It offers “hydrogen-specialised enterprises” certification for companies meeting specific criteria in hydrogen-related business sales or R&D expenditure.

There is a growing trend towards decentralised electricity generation in South Korea, characterised by increased adoption of privately installed solar panels for electricity production and proliferation of energy co-operatives managing community-based solar power generation projects.

Rules and regulations for small-scale renewable energy production in South Korea include:

• the Electric Utility Act – this Act governs electrical installation for private use; and
• local government initiatives – provision of subsidies to encourage the adoption of mini solar power generation systems.

Generally, electricity produced from these installations cannot be traded in the power market. Exceptions include:

• solar power facility owners trading surplus electricity after meeting their own needs; and
• owners of non-solar renewable facilities trading up to 50% of their annual total power production.

Market Structure

• Generation: Electricity is produced by six public power companies, private power companies, and district electricity providers. KEPCO purchases electricity from the KPX and distributes it to general customers via the grid.
• Transmission: The two main types are overhead and underground.
1. overhead uses transmission towers and utility poles; and
2. underground is increasingly popular in urban areas due to aesthetic benefits and higher stability, despite higher installation costs.
• Geographical challenges: In Korea, electricity production and consumption areas are unevenly distributed. Most power generation facilities are located along the coastline, while 40% of the electricity is consumed in Seoul and Gyeonggi area. This necessitates long-distance power ’transmission networks. To reduce power loss, high-voltage and high-capacity grids are required. To this end, KEPCO operates a “multi-loop” transmission and substation system that connects the entire country like a web.
• NRE distribution: Currently, Korea’s NRE generation facilities are geographically concentrated, with 75% of capacity coming from Jeollanam-do (2,476 MW), Jeollabuk-do (2,024 MW), Chungcheongnam-do (1,983 MW), Gangwon-do (1,334 MW), Gyeongsangbuk-do (1,740 MW), and Jeju (932MW). However, these regions have small industrial complexes, necessitating the transmission of the generated energy to areas with high industrial power demand like Gyeonggi-do or Gyeongsangnam-do. Currently, there is a shortage of grid facilities to support this, which is why legislative support such as the special act on expansion of national power grid facilities is needed. Direct current transmission could be an alternative for remote, large-scale renewable energy complexes.

Key Parties and Assets Involved

• Power generators: public and private power companies, district electricity providers.
• Market operator KPX:
1. predicts the demand for the next day and receives bids for available capacity from power generation companies;
2. issues power supply instructions to the power generation companies that won the bids; and
3. based on the instructions, the companies operate their generators.
• Grid operator KEPCO:
1. operates and maintains the grid connections;
2. implements grid expansion and modernisation projects;
3. develops and operates smart grid systems; and
4. purchases electricity from the power market through the KPX and supplies it to consumers through the grid connection.
• Assets:
1. transmission lines (overhead and underground);
2. substations (step-up and step-down);
3. distribution networks;
4. smart grid components (energy storage systems, smart meters, energy management systems); and
5. renewable energy generation is geographically concentrated, with about 75% of domestic renewable generation capacity located in six regions – Jeollanam-do, Jeollabuk-do, Chungcheongnam-do, Gangwon-do, Gyeongsangbuk-do and Jeju.

Applicable Rules and Regulations

• Electric Utility Act: This Act regulates transmission and distribution businesses.
• Smart Grid Construction and Utilisation Promotion Act: This Act promotes and facilitates smart grid adoption.
• Special Act on Expansion of Grid Facilities (proposed): This Act addresses the need for improved transmission facilities in areas with high renewable energy generation.

Batteries and Storage Solutions

Smart grids, which combine IT with power grids to optimise energy use, are gaining attention as the next-generation PowerGrid. The current system maintains a reserve margin of around 15%, based on expected demand. This requires additional power generation facilities and results in a large amount of wasted electricity, reducing energy efficiency. However, smart grids equipped with various systems – from heating and cooling operation facilities that can control electricity, gas and water within buildings, to energy storage systems, smart meters, energy management systems, and intelligent transmission and distribution systems – can solve these problems by improving energy efficiency, thereby eliminating wasted energy and reducing carbon dioxide emissions.

The intermittent nature of NRE sources presents unique challenges to power grid stability. When combined with existing grid limitations, this intermittency can lead to grid congestion, potentially resulting in financial losses for NRE developers. To address these challenges, South Korea has implemented a multi-faceted approach.

Legal Framework

The main legal bases for addressing grid congestion and curtailment in South Korea include:

• the Electric Utility Act;
• Criteria for Maintenance of Credibility of the Electric Power System and Quality of Electricity;
• Rules on Operating the Electricity Market; and
• Regulations on the Use of Transmission and Distribution Facilities.

Curtailment System

South Korea has a system of compulsory curtailment. Article 18 of the Electric Utility Act allows MOTIE to order necessary measures, including equipment repair and modification or improvement of operation methods if electricity supply services are not adequately maintained or if consumers’ interests are harmed. Additionally, Article 17 of the Criteria for Maintenance of Credibility of Electric Power System and Quality of Electricity obliges the KPX and transmission/distribution operators to monitor, predict, evaluate and control the output of NRE developers (who should comply with these curtailment measures when implemented) to maintain grid stability.

Grid Expansion

To address potential congestion, the government has announced plans to expand grid connection by 1.6 times and substation facilities by 1.5 times by 2036, as part of the 10th Basic Plan for Electric Supply.

Dispersion Energy

The Special Act on the Promotion of Distributed Energy, effective from 14 June 2024, aims to enhance grid stability by promoting dispersion energy systems. Key features include:

• mandating a portion of energy consumption in certain areas to be supplied by dispersion energy;
• designation of specialised dispersion energy zones; and
• enabling dispersion energy operators to supply electricity directly to consumers within these zones and trade surplus or deficit power with electricity sellers.

The Energy Storage Systems (ESS) market is expected to grow as a solution for storing renewable energy. However, due to fire incidents caused by batteries since late 2017, ensuring safety through technological development is crucial for wider adoption.

As for off-grid solutions, the Special Act on the Promotion of Distributed Energy allows for more localised energy production and distribution, which could be considered a form of off-grid solution for transporting and supplying NRE to end users within specialised zones.

Market Structure

Biogas is produced from organic waste resources and upgraded for injection into urban gas pipelines. It is used for urban gas and compressed natural gas vehicles.

Key Parties and Assets Involved

Biogas producers include waste treatment facilities, sewage plants, etc.

Applicable Rules and Regulations

The following acts stipulate obligations, safety standards and transportation standards that must be complied with regarding gas transportation and storage:

• the High-Pressure Gas Safety Control Act; and
• the Urban Gas Business Act.

Market Structure

Thermal energy

Thermal energy is distributed via heat transport pipes.

Agricultural Republic Project

This project is part of the government’s Smart ZEC (Smart Zero Energy City) Development R&D Project, implemented by the Seoul Energy Corporation, a subsidiary of Seoul since May 2018. It features a “smart heat grid” incorporating AI and IoT integration with the power grid and real-time monitoring of heating supply and consumption, thereby facilitating information exchange between heat producers and users.

Busan Eco Delta City

This project was designated as a national smart city pilot complex under the Act on the Promotion of Smart City Development and Industry. Residential occupancy was completed in March 2022, and it is currently in the demonstration phase. The entire complex is equipped with building-integrated solar panels and receives thermal energy through a hybrid system of hydrothermal and geothermal energy. It features an energy sharing and trading platform that can identify shareable resources by optimising energy loads based on building purpose and status, predicting energy production and consumption, and networking at the community level.

Applicable Rules and Regulations

• The Integrated Energy Supply Act; and
• the Public Notice on Heat Pipe Safety Inspection.

Market Structure

Korea’s hydrogen transportation and storage sector is in its nascent stages in terms of technological advancement and commercialisation.

Currently, technological limitations constrain transport primarily of gaseous hydrogen in high-pressure tanks or pipelines. However, long-distance or large-scale transportation is expected to utilise liquefied hydrogen or chemical transport technologies.

Key Parties and Assets

These include:

• Jeju Haengwon-ri Green Hydrogen Demonstration Complex (see below);

• wind power plants for electricity generation;
• hydrogen production facilities;
• storage tanks; and
• hydrogen refuelling stations (eg, Hamdok-ri charging station).

Operation of Hydrogen Grids and Infrastructure

The Jeju Haengwon-ri Green Hydrogen Demonstration Complex, a collaborative effort involving 11 institutions, commenced operations in August 2023. This project exemplifies Korea’s approach to hydrogen infrastructure development and operation with:

• green hydrogen production through water electrolysis, powered by electricity from nearby wind farms;
• a production capacity of up to 55 kg of hydrogen per hour;
• direct hydrogen transport to the Hamdok-ri charging station for vehicle fuelling; and
• utilisation of large-scale stationary tanks for storage, offering higher efficiency compared to short-term, small-scale ESS.

The Power Market

In Korea, developers, district electricity businesses, and large-scale consumers (direct buyers) participate in the power market to determine the price and volume of electricity. The KPX operates the power market by overseeing the bidding, settlement, measurement, market supervision, disclosure of information, and dispute resolution in accordance with the Rules on the Operation of the Power Market.

Wholesale

The wholesale power market was established in Korea in April 2001 pursuant to the Basic Plan for Reorganisation of the Power Industry of 1999. At that time, six developers were split off from KEPCO (KE, KHNP, KOMIPO, KOSPO, KWP and EWP) to introduce competition to the wholesale market. Only the government and private developers with a generation capacity of 20 MW or more can participate in this market, and KEPCO is still managing the sale of electricity.

Market price

The market price in the Korean power market is determined one day before the date of the power transaction. KPX forecasts the demand for the given transaction date and solicits bidding from developers that can supply the volume one day before the transaction date. Based on the foregoing forecast, KPX establishes the generation plan in line with the demand for each timeslot to determine the market price. This is why the Korean power market is called a “day-ahead market”, since the bidding and pricing take place one day before the transaction.

The market price is determined by the cost of supply by the power plants in operation on a given date – the power is generated by the participating generation facilities in the order of those with the lowest cost to those with the highest cost. The facility with the highest cost is designated a marginal plant, and the price of electricity generated by the marginal plant (ie, the System Marginal Price or SMP) becomes the market price.

Retail price

On the other hand, the price of electricity used in households is the retail price, which is fixed by KEPCO after it buys electricity from a number of developers at fluctuating prices. In order to promote the economical use of electricity, KEPCO determines the price of electricity for households on a progressive scheme where the price depends on the amount of electricity that has been used.

In the “day-ahead market”, it is difficult to incorporate the volatility of generation with NRE precisely in the market price. Accordingly, the government is contemplating establishing an intra-day or balancing market that can accurately incorporate the supply and demand that constantly evolves in real time by accounting for the volatility of generation of NRE.

For biogas, the total volume of usage was 316 million cubic metres as of 2022, which consists of own use (49.9%), power generation (23.1%), and urban gas supply (4.9%) according to the Ministry of Environment. The proportion of biogas that is not used and ultimately combusted has been gradually decreasing, from 16.8% in 2020 to 15.3% in 2021 and 14.6% in 2022. Under the Biogas Act, local governments may recommend that urban gas businesses use biogas in order to promote its use.

A business entity that is designated as an integrated energy business, pursuant to the Integrated Energy Supply Act, may supply heat and electricity to users.

An integrated energy business refers to the business of supplying (selling) energy (heat, or heat and electricity) generated from integrated energy facilities (eg, combined heat power plant, heat-only boiler, or resource recovery facility) that are constructed on a regional scale, to users within residential/commercial areas or industrial complexes rather than within individual buildings. The integrated energy business is further divided into the regional air-conditioning/heating business and the integrated energy business for industrial complexes.

Under the Integrated Energy Supply Act, a “heat producer” is defined as a person who produces or generates heat, and a “business entity” is defined as a person who engages in the supply of integrated energy.

A heat producer cannot supply heat directly to users. In other words, a heat producer must supply heat to business entities by entering into a supply agreement, and is prohibited from refusing to supply such heat, without just cause, upon execution of the supply agreement.

The business entities are also prohibited from refusing to supply integrated energy to users within the permitted service area without just cause, and they must report the rules on the supply to MOTIE, including the terms such as the price to be collected from users and available discounts, as well as any amendments thereto.

Note that Korea District Heating Corporation, one of the most representative integrated energy businesses in Korea, is expanding the scope of transactions for waste heat or unused heat from other industrial complexes or power plants.

Appropriate power systems and technological developments are required to support the production of a sufficient volume of clean hydrogen. In Korea, the supply of clean hydrogen is increasing following notable technological advancements in fuel cells, and there has been rising interest in investments in technology relating to carbon capture.

Electricity generated from hydrogen, waste or other sources is supplied as explained in 5.1 Electricity, and heat generated from hydrogen, waste or other sources is supplied to ultimate users as explained in 5.3 Heat.

A business entity that owns facilities with a generation capacity of 500 MW or more (“Mandatory Supplier”) is obliged to directly supply certain electricity generated from NRE, or to purchase RECs pursuant to the RPS, as prescribed under the NRE Act. An REC is similar to a security issued corresponding to the volume of power generation by NRE and is used to demonstrate that a Mandatory Supplier fulfilled its obligations.

NRE developers may earn profits by selling RECs to Mandatory Suppliers in the REC market operated by the KPX. In addition, a long-term fixed-price agreement scheme is in effect whereby an NRE developer enters into a long-term (ie, around 20 years) agreement with a Mandatory Supplier to sell RECs at a price that is predetermined upon execution of such agreement regardless of the fluctuations in the market price, allowing stable development. The Mandatory Supplier that purchased the REC may be compensated up to the average price of an REC by the regulatory authorities who will in turn be entitled to be paid by KEPCO upon request.

Power purchase agreements (PPAs) are also well established in Korea as follows:

• direct PPAs – an NRE developer with generation capacity exceeding 1 MW may enter into an agreement on the direct power supply with an NRE supplier and user;
• third-party PPAs – NRE developers, KEPCO and users may enter into an agreement on power supply; and
• relevant regulations – government public notices on direct power purchase transactions with NRE suppliers.

Among onshore renewable energy projects in Korea, wind power projects are relatively slow in supply and small in scale due to limited location and civil complaints, while solar power projects comprise a significant portion of the aggregate generation capacity. Below is a summary of the general stages of an onshore renewable energy project development in Korea.

Development Stages

• Business entity and site
1. Incorporation or acquisition of a business entity to engage in the NRE development.
2. Site selection after the investigation of energy generated from sunlight (for solar power projects) or measurement of wind resources (for wind power projects, which may also require a temporary use permit pursuant to the Mountainous Districts Management Act or the Farmland Act if the measuring device is installed on a field or a farm).
3. Procurement of the project site through land purchase, auction or lease.
• Electric Business Licence
1. Relevant laws: the Electric Utility Act; and the Public Notice on the Detailed Criteria for the Electric Business Licence, Calculation Criteria for Electricity Cost, Margin of Error permitted for the Electric Meter, and the Management of Power System.
2. If the generation capacity of the project is 3 MW or less, the relevant municipality will issue the licence. If the generation capacity exceeds 3 MW, the ERC will review the feasibility of the project (the developer’s financial capability, technological capability, ability to implement the project, adequacy of grid connection, etc) and MOTIE will make the final decision.
3. Resident receptibility (consent) needs to be procured (in the case of resident participatory projects where the residents will make certain investment in, and share profits from, the NRE project, additional REC weight may be awarded and distributed to residents).
• Transaction documentation
1. Performance under the EPC agreement and construction documents.
2. Terms of Use of Electric Transmission and Distribution Facilities for Grid Connection (KEPCO).
• Development Permit
1. Relevant laws: the National Land Planning and Utilisation Act; and other ordinances or guidelines issued by individual municipalities.
2. The municipality will review the adequacy of the site, infrastructural plan, surrounding environment, and protection of the landscape before making the final decision.
3. It must be identified in advance whether an EIA is required to obtain the Development Permit.
• Construction plan: Either an approval (from MOTIE for a capacity of 10 MW or more) or filing (to MOTIE or the relevant municipality for capacity below 10 MW) is required.
• Construction of the power plant
• Pre-use inspection (Korea Electrical Safety Corporation, KESCO): inspection of the installation and construction of the electrical facilities and confirmation of their compliance with the construction plan and the Technical Criteria for Electrical Facilities.
• Trial run and completion of construction
• Commercial operation.

Operational Stages

• Confirmation of facilities subject to issuance of REC (KEA), application for issuance of REC and sale of REC
1. REC Purchase Agreement: the NRE developer (the “Seller”) and Mandatory Supplier (the “Buyer”) to engage in transactions on the KPX trading system.
2. REC Spot Market: Buyer and Seller may participate in transactions in the KPX spot market by bilateral bidding.
• Power purchaser
1. Direct PPA: direct sale and purchase of electricity among the NRE developer, supplier, and user.
2. Third-party PPA: sale and purchase between NRE developer and user mediated by KEPCO.
3. Power market: power supply agreement entered into with the KPX.
• Auction for Fixed Price Agreement: KEA solicits bidding for purchase agreements at a fixed price of the REC for 20 years.
• Facility maintenance
1. Appointment of safety manager pursuant to the Electric Utility Act.
2. Operations and maintenance (O&M).

The aggregate generation capacity of the offshore wind power projects that obtained EBLs as of 2023 is approximately 7 GW (a little over 28 GW cumulatively), but the capacity of the actual power plants that have been installed is only about 124.5 MW. The principal reasons for the delay in the development include delays in permitting, residents’ complaints, and difficulty in procuring grid connection. However, the practical notes for the 11th Basic Plan for Electric Supply suggested a projected capacity of 74.8 GW for solar power and 40.7 GW for wind power by 2038, compared with 21.1 GW for solar power and 1.9 GW for wind power in 2022. Accordingly, offshore wind power projects are expected to take up a larger portion of NRE development in Korea.

Below is a summary of the general stages of the offshore renewable energy project in Korea.

Development Stages

• Business entity and site
1. Incorporation or acquisition of a business entity to engage in the NRE development.
2. Measurement of wind resources (along with the occupancy and use permit described below to install the measuring device), followed by site selection.
• Electric Business Licence: see 6.1 Onshore Project Development.
• Transaction documentation
1. Wind Turbine Supply Agreement (WTSA).
2. Performance under the EPC agreement and related construction documents.
3. Terms of Use of Electric Transmission and Distribution Facilities for Grid Connection (KEPCO).
• Occupancy and Use Permit for Public Waters for the Construction of the Power Plant
1. Relevant laws: the Public Waters Management and Reclamation Act and other ordinances or guidelines by individual municipalities.
2. Permit authority: Ministry of Oceans and Fisheries, relevant cities and municipalities.
3. See 2.3 Regulated Activities for more detailed requirements.
• Approval of the Plan for Occupancy and Use
• Construction of the power plant

• Pre-use inspection (KESCO): see 6.1 Onshore Project Development.

• Trial run and completion of construction
• Commercial operation.

Operational Stages

• Confirmation of facilities subject to issuance of REC (KEA), application for issuance of REC and sale of REC: see 6.1 Onshore Project Development.
• Power purchase: see 6.1 Onshore Project Development.
• Auction for Fixed Price Agreement: see 6.1 Onshore Project Development.
• Facility maintenance
1. Appointment of safety manager pursuant to the Electric Utility Act.
2. LTSA for the main equipment.
3. O&M.

The key characteristic of project financing for NRE assets is that the repayment term for the principal and interest of the loans is long term (15 to 20 years) due to the relatively low profitability of NRE compared with other assets.

Accordingly, lenders typically review whether the NRE facilities are constructed in a timely manner, operated in an ordinary manner, and generate stable profits from generation, while they also tend to consider security (including credit or guarantee by the developer or its parent) as an important factor. In addition, any changes in government policies to be aligned with the global trend in the expansion of NRE are also an important factor in the execution of the PF loans because they are directly related to the cashflow and profitability of the NRE facilities.

The following are reviewed for timely completion of construction of the NRE facilities:

• the legitimacy of all permits issued for the NRE business, including the EBL;
• the existence of resident receptibility and any residents’ complaints;
• the procurement of the grid connection; and
• the credit and completion guarantee by the EPC contractor.

The following are reviewed for ordinary operation of the NRE facilities and stable profits:

• the location of the project site on which the NRE facilities are installed;
• the REC weight for each source of NRE;
• the execution of a fixed price (SMP plus REC) agreement; and
• the expertise, track record and adequacy of the operational costs of the O&M contractor for maintenance of the facilities.

One of the most representative means of NRE supply in Korea is the RPS pursuant to the NRE Act, which imposes an obligation on the Mandatory Supplier to supply a certain ratio of power using NRE each year while gradually increasing the minimum ratio. Accordingly, an NRE developer may earn profits not only from the sale of power but also from the sale of REC to Mandatory Suppliers.

With regards to hydrogen power generation (including fuel cells), there is a (Clean) Hydrogen Energy Portfolio Standard ((C)HPS) pursuant to the Hydrogen Economy Promotion and Hydrogen Safety Management Act, which requires electric sales businesses or district electric businesses, as defined under the Electric Utility Act, to purchase a certain volume of hydrogen, while a separate bidding market (the hydrogen power bidding market) exists for hydrogen power generation.

Furthermore, the government has implemented Korean RE100 (K-RE100) pursuant to the Regulations on the Subsidy for New and Renewable Energy Facilities (public notice by MOTIE) since 1 January 2021 in order to join the global trend towards RE100 and alleviate the financial burden on the government and government companies following the expansion of NRE. When an electricity consumer completes registration on KEA’s RE100 system and fulfils the target by such means as using electricity generated from NRE and the purchase of an REC, such consumer may obtain a certificate for the use of NRE from the KEA that can be accounted for as a reduction in the indirect emission of greenhouse gas, or used in marketing activities.

Meanwhile, a small or medium-sized company that imports machinery necessary for the production or use of NRE, as well as for improvement in the grid connection condition, may be entitled to customs benefits until 31 December 2026 pursuant to Article 118(1)(iii) of the Act on Restriction on Special Cases Concerning Taxation if it would not be feasible to produce such machinery in Korea.

Small and medium-sized companies that engage in the NRE generation business may be entitled to tax credits on the income tax or corporate tax accrued from the power plants at a prescribed percentage up to the tax year that ends before 31 December 2025, pursuant to Article 7 of the Act on Restriction on Special Cases Concerning Taxation.

The NRE Centre within the KEA has been working on the efficient follow-up management of the NRE facilities upon cessation of activities or decommissioning of the facilities. If a developer received a subsidy when installing the NRE facilities, the owner of the facilities must obtain approval from the NRE Centre if the owner changes or disposes of the installation site within five years of the date of installation or make a filing to the NRE Centre if the owner intends to relocate or dispose of the facility after the five-year anniversary of the date of installation.

NRE facilities that have reached their end of life are disposed of pursuant to the Wastes Control Act, but end-of-life solar panels must be recycled by a producer with recycling obligations as prescribed under the Act on the Promotion of Saving and Recycling of Resources (ie, the manufacturer or importer of products, the recovery and recycling of which can be facilitated by improving the quality of materials, the structure or recovery system in the production and distribution stage, or which generate a large volume of waste after use).

South Korea is currently facing major challenges in addressing the climate crisis and transitioning its energy system. To meet these challenges, the utilisation of NRE resources is essential. Among these, wind energy is gaining particular attention as an optimal solution that can maximise Korea’s geographical advantages.

Offshore wind power, which involves constructing wind farms at sea, is emerging as a key focus of the future renewable energy policy. This technology offers several advantages over onshore wind:

• fewer location constraints;
• potential for larger-scale development and higher power generation;
• avoidance of noise and other environmental issues associated with onshore wind; and
• higher efficiency due to stronger and more consistent sea winds.

However, the offshore wind sector currently faces several challenges:

• complex individual permitting processes;
• the need to address concerns from various stakeholders in local communities; and
• difficulties in securing grid connections.

To address these issues and accelerate offshore wind power development, significant legislative efforts are under way:

• Special acts on promoting offshore wind power supply and expansion of the national power grid facilities were proposed during the 21st National Assembly (30 May 2020 – 29 May 2024). However, these bills were automatically discarded at the end of the legislative session.
• A special act on site planning for offshore wind power projects and the promotion of the offshore wind power industry was proposed again during the 22nd National Assembly (30 May 2024 – 29 May 2028).

The proposed act aims to streamline the previously complex permitting procedures and reduce uncertainties regarding local acceptance. Its potential passage is a key point of attention for the future of offshore wind in South Korea. The key features include:

• transition from developer-led project development to government-led planning;
• the establishment of an offshore wind power committee under the prime minister; and
• government support throughout the entire offshore wind power development process in environmentally friendly development zones with secured local acceptance.

The act also proposes a shift from the current “Open-door System” where developers individually select sites and obtain permits, to a “One-stop System” where the government leads the process from site selection onward. Accordingly, the anticipated offshore wind development process under the act would involve:

• the government establishing and operating the offshore wind power site information network;
• the government designating preliminary zones after committee review;
• the government developing basic plans for the preliminary zones;
• local government forming public-private councils to secure residents’ acceptance and notifying the results to the committee;
• the government designating power generation zones after committee review;
• the government being able to ask transmissions operators for joint connection facilities;
• the government designating offshore wind power developers after committee review; and
• the developer creating implementation plans, subject to committee review and the approval of MOTIE (when approved, it is deemed to have obtained permissions under other laws).

Additionally, the national assembly is currently discussing legislation to establish definitions and concepts for thermal energy, separate from electrical energy, and to develop related mid-to-long-term strategies. This represents another important area of future policy development in the renewable energy sector.