Sarosh Bana
Part 1. South Korea's domestic use of renewables is now growing and its companies are bidding to become major players in the global market, as Sarosh Bana reports in the first of our 4 part analysis of the South Korea renewable energy marketplace.
IT IS a spirited resolve to excel that lifted South Korea from abject poverty in the 1960s to become the 12th most powerful economy in the world today, with GDP now at $1.57 trillion, or $32,100 per capita.
With a population totaling 50 million, Korea has become an industrial powerhouse known for its vibrant consumer electronics, shipbuilding, automobiles, telecommunications, computers, steel, petrochemicals and semiconductors. Today, it is striving to become a growing force in the renewable energy market too.
It has some way to go, however, as Maggie Kuang, a research analyst at Bloomberg New Energy Finance (BNEF), notes. By August, South Korea had just 455MW of installed wind power capacity and 614MW of solar. “So the Korean market is really small,” she says, noting it accounted for just 1.08% of the global wind market in 2011 (global wind capacity reach 42GW at the end of 2011).
“Project developers have been beset with expensive capex and cheap power prices in Korea, while the issues of mountainous sites [South Korea is considered to be 70% mountainous] and land acquisition have been slowing development in the wind sector,” she explains. “For manufacturers, the difficulty has been the small size of the Korean market.”
But driven by President Lee Myung-bak's August 2008 pronouncement that “green growth” is the new growth engine for South Korea's national economy, its domestic use of renewables is now growing and its leading companies are bidding to become major global players in renewable energy project development and equipment supply.
Specifically, the country is aiming for 4.3% of its total energy needs to be met by renewable sources by 2015, 6.1% by 2020 and 11% by 2030, up from 2.61% today. These have all been formally set under its Renewable Portfolio Standard (RPS). South Korea's government wants to create a renewable energy market worth KRW54 trillion ($47.94 billion) by 2022, up from a targeted market worth of KRW4.1 trillion ($3.64bn) at end 2012. Its industry, meanwhile, has been set the challenge of cornering 10% of the global renewable energy technologies market by 2020.
The country's government has been trying to create demand through all sorts of programmes and incentives to develop the industry, Kuang continues, with the current market incentive mechanism being the RPS and a Renewable Energy Credit (REC) trading mechanism (see box).
Success “will depend on a number of factors”, says Kuang. “The key is the reduction rate of cost of renewable electricity over the next decade. If this cost decreases over the years to reach retail grid parity, then it's very likely to meet the [RPS] target, assuming the grid connection problem in Korea is minimum by then. The decrease in renewable energy electricity cost will, however, largely depend on how quickly Korea can grow its domestic manufacturing capacity of renewable energy equipment.”
She continues: “Looking at the current project pipeline in Korea, which totals 9GW, almost half of the estimated new capacity installation [required] to meet its RPS target, I think the RPS target is challenging but achievable.”
The need to go green
That is something South Korea's leaders will be pleased to hear. The 2008 green growth announcement was the first time a Korean administration combined domestic economic growth policies with environmental considerations. It was a significant shift.The country is heavily reliant on fossil fuel imports (96.5%) and is the ninth biggest energy consumer in the world – its total primary energy consumption soared from 43.9 tonnes of oil equivalent (TOE) in 1980 to 262.6mn TOE in 2010. Per capita energy consumption has similarly increased from 1.1TOE to 5.4TOE in the same period.
Its energy import bill in 2010 was in fact a staggering $121.7bn. With its domestic (non-renewable) energy resources limited to low-quality anthracite, Korea remains the world's fifth biggest importer of crude and the second largest buyer of LNG and coal. Meantime, it is the ninth largest emitter of greenhouse gases (GHG) in the world.
So for President Lee, adopting green technologies is an “unavoidable choice” and going forward “South Korea's future depends on its performance in this sector.” The National Assembly (or Gukhoe) passed the Framework Act on Low-Carbon Green Growth in January 2010, codifying a 50-year plan to address climate change and attain greater self-reliance in energy without compromising the country's economy.
Significantly, 80% of the Government's $38bn post-economic crisis stimulus package and 2% of its annual budget over five years has been earmarked to advance green growth. As the United Nations Environment Programme (UNEP) notes, this is the highest proportion of a fiscal stimulus package dedicated to green projects among comparable member-countries of the G-20. Korea has also set aside twice that of most other G-20 states as a percentage of GNP. The US has dedicated 11.6% of its $972.1bn stimulus package to green technology, while Japan allocated 2% of $485.9 bn.
Moreover, while not bound by mandatory emissions targets (classified as it is under the Kyoto Protocol as a non-Annex I party, or a developing economy) South Korea has voluntarily undertaken to cut emissions by 30% by 2020 to take them 4% below 2005 levels. Clearly, as with many other Asian countries, implementing renewable energy will be a major offensive in this strategy
Part 2. Solar power has so far been the main renewable energy technology deployed in South Korea.
In fact, the country's green energy growth programme is split between aiming to achieve a dedicated solar target and a ‘non-solar’ clean energy target.
The target for solar of 450MW by 2013 has already been surpassed, notes BNEF's Kuang. In her August 2012 research note (Is Korea's RPS achievable?) she says that with current solar capacity in the country standing at 614MW, the 2014 target for 690MW will also be achieved early. So the government plans to increase that target to 880MW and bring forward a target for 1.2GW of solar by 2016 to 2015 – the formal revision is due to be announced later this year.
The non-solar clean energy element of the country's plan is where the biggest capacity is planned though, with wind power expected to dominate the country's renewables sector in the long term. Indeed, a target for 23GW of installed wind capacity by 2030 has been set to meet a goal for wind power to generate 50TWh annually (and meet 10% of South Korea's forecast electricity demand). “The long-term non-solar RPS target may be achievable, but it will be difficult to meet this year's target,” Kuang notes. “The 3200MW of installed capacity reached to date is still 800MW below the 2012 target and pipeline projects are not moving quickly enough.”
Most of the utilities required to meet RPS targets may therefore incur penalties, unless they can negotiate a target revision or compliance delay with the government. “We believe the latter is very likely to occur,” says Kuang.
She adds: “It is wind power that will have to take the lead, as the government expects 10,200MW to be added in 2012–22.” Onshore wind accounts for 7.7GW of this, while 2.5GW will come from offshore – the government published its Offshore Wind Master Plan at the end of last year, specifically targeting $8.2 billion (€5.8 billion) in investment to develop 2.5GW of offshore capacity by 2019.
The wind market has however been slow to take off due to some initial public opposition to wind projects and the low feed-in tariff originally in place prior to the introduction of the RPS, notes the Korean Wind Energy Industry Association (KWEIA). Installed wind capacity has increased from 5.9MW in 2000 to just 455MW.
For 2012 though the government expects some 2.39GW of new wind plant to be installed (which would account for 70% of all renewable energy plant expected this year). KWEIA says this sudden growth spurt is being driven by the RPS requirements while companies are now realising the overall business opportunities in this segment. Kuang agrees. “The recent REC price is higher than the old FIT and thus should encourage more onshore wind development.” However she notes: “The onshore wind project pipeline is currently only 1600MW.”
Significantly, the testing/pilot phase for the offshore programme will start soon in the Young-Kwang area off the southwest coast of the Korean peninsula. Tenders will be invited shortly from companies to establish private-public partnerships (PPP) to install 500, 5MW turbines. The first phase aims for 100MW installed (originally planned by 2013), with a further 900MW planned by 2016 and the final 1.5GW by 2019. Local governments are also promoting a further 4.5GW of offshore wind projects across the country.
Part 3. Notably, Korea's powerful family-owned conglomerates (known locally as Chaebol) are now are muscling their way into the solar and wind spheres.
Key players
Several have started to include wind turbines in their portfolios, for example, so they can compete both domestically and in the international marketplace. Simiarly, the wind turbine ancillary market is also flourishing, with companies supplying or planning to supply towers, blades, main shafts, generators, transformers, gearboxes, nacelle control systems and cables. And, the small wind turbine manufacturing sector is also very active, with South Korean firms looking to provide equipment to small and island grid systems.“The country is aiming to develop its RE technologies into a strategic export industry, but I think before they become able to do that, they should enlarge their market shares in the domestic market,” says Kuang.
“Korea Electric Power Corporation (KEPCO), comprising six subsidiaries, is Korea's leading power company involved in RE power development. They will develop 85 to 90% of Korea's RE capacity over the next decade,” the BNEF analyst continues. “On the manufacture side [in Korea], major companies include foreign players Vestas, Acciona, Gamesa, and Mitsubishi, and Korean players Unison, Hyosung, Hanjin, Doosan and Samsung.”
Denmark's Vestas remains the leading wind turbine supplier in South Korea in terms of installed capacity to date. With 280 turbines installed in the country since 1998, the firm accounts for almost 70% of Korea's operating wind capacity. “We see a lot of similarities between our two countries, both having clearly acknowledged that wind energy is a reliable and sustainable energy solution for the future,” says Vestas President & CEO Ditlev Engel. Although its last project in the country was a 33MW installation at Jeju Island back in 2009, Engel says that with the right policy frameworks in place, business will make the investments, take the risks, and create the new business opportunities in South Korea. “Korea is leading the way by systematically implementing policies required to spur green growth,” he says.
The domestic firms are starting to make their presence felt though. With an annual production capacity of 1GW, Unison is the leading Korean manufacturer of wind power equipment. It supplies direct drive generator technology (its units employ a gearless permanent magnet synchronous generator).
Meantime, South Korea's shipbuilders are particularly expected to challenge the likes of Vestas and Germany's Siemens in the global offshore wind turbine market, according to a report on the Korean market by Young Il Choung and Jun Hyuk Yoo from analysts Ernst & Young (E&Y) suggests. “Korean shipyards, including the world's three largest, Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co., are looking to their experience of building oil sector infrastructure, including the laying of underwater pipes and cables, to prove that they can compete effectively in the offshore market, not only producing the turbines but also installing them at sea.”
In fact, these firms are active across the renewables spectrum, although it still makes up just a small portion of their overall business. “We are an emerging player in global solar and wind power markets with state-of-the-art manufacturing capabilities in Korea and China and projects installed or underway in Asia, Europe, and North America,” says Dr Chang-ryong Lee, General Manager of Green Energy Business Planning, Hyundai Heavy Industries Co. Ltd (HHI).
The 40-year-old engineering giant's green energy business (solar, wind and tidal current generation) accounted for just 0.7% of its overall 2011 sales, but its successes have been significant, Lee says. The company's solar business (which accounts for 91% of its green business sales) has booked over $200mn in orders across Europe, including a $60mn contract with Ukraine's Active Solar for 51 MW of solar modules. Similarly, its wind business has recently secured orders for eight 2MW wind turbines from Finnish Power (the first such order for a Korean firm from Europe) and for 23MW in £21mn contract for the UK.
But like everyone in the industry, HHI is having to deal with a tough economic climate and constraining market conditions for renewables right now. “Although the global renewable energy market faces challenges on many fronts with shrinking government support, falling prices due to the excess capacity and large inventories of Chinese makers, and an uncertain global economy, we believe that concerns over energy security and independence, rising oil prices, and environmental issues will help the solar and wind industries grow in 2012,” says the firm confidently.
Indeed, Chaebols like HHI and Samsung have denied recent media reports that they were scaling back their solar businesses significantly in light of the difficult market conditions. HHI (and its domestic counterparts) is confronting market uncertainties by ramping up production of high-efficiency solar modules for the growing small and medium-size rooftop installation market and by providing technical support for large-scale projects to major installers. In the wind business, it is expanding its onshore lineup with new models to meet a broader range of customer needs, while also accelerating development of offshore turbines to get an early foothold in that market.
Another Chaebol briskly getting into green energy is Pohang Steel Company (POSCO), the world's fourth largest steel-maker and Korea's largest private power producer. “POSCO has designated renewable energy as a new growth strategy, in line with the Korean government's low carbon green growth policy, while expanding R&D and investment in fuel cell projects, perceived as the next generation of environmental energy,” explains Yu-hyun Lee, corporate PR manager of POSCO Energy.
“Currently, the company is the leader in the fuel cell segment, running 20 fuel cell power facilities in Korea.” It also has a Sinan photovoltaic power station in South Jeolla province, a wind farm off Jeju island and has plans to build a photovoltaic power plant in Nevada, US, by 2015. “As a leading independent power provider, we are pushing ahead with renewable energy business using sunlight, wind and waste to energy,” says Lee. “We plan to install 1.5GW renewable power plants in the world by 2020.”
On the solar front, another leading domestic player is LG CNS, a subsidiary LG Group. Also taking the lead in developing electric vehicle charging infrastructure and smart grid technology for South Korea, the company has completed around 30 solar power plants, including the 2.21MW Mungyeong plant in North Gyeongsang Province and the 13.77MW Taean plant in South Chungcheong Province. Buoyed by its success at home, the company has also built solar power projects overseas, including Sri Lanka's largest solar facility. The 500kW plant meets the monthly needs of some 190 Sri Landkan households.
Tidal lead
South Korea is of course looking at other renewables too. In fact, a showpiece of its renewable energy efforts has been its first tidal power plant. At 254MW, the Shihwa Lake project is the world's largest tidal power plant (overtaking France's 240MW La Rance tidal power plant in the rankings and came on stream in August 2011 after a seven-year construction phase.Daewoo Engineering & Construction Co. Ltd, says his firm built the $276.7 million facility (the cost does not include dam construction, which was completed as part of an earlier project) for KOWACO (Korea Water Resources Corporation). Its 552GWh annual generation will offset 315,000 tonnes of carbon emissions a year, says Heekyong Oh, Daewoo's deputy GM, Environment & Energy Research Team.
Long-term feasibility studies have been completed on even larger tidal power plants at two other sites characterised by high tides and strong tidal currents on Korea's southern and western coasts. At Garolim, 480MW if tidal power capacity is planned, while a proposal for 1GW is being progressed at Incheon Bay.
Lastly, South Korea's clean energy target also includes fuel cells, high efficiency coal generation and nuclear. Nuclear, in fact, is a key plank of the country's green strategy – Seoul seeks to double South Korea's installed nuclear capacity from 29% today to 59% by 2030, with 10 new nuclear plants planned to add to seven already under construction and 21 currently operatin
(Source : www.renewvableenergyfocus.com)
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