The Paradox of South Korea's Renewable Energy... Growing in Size but Plummeting in Profitability

REC Spot Price Down 39% Compared to January Last Year
Surge in Bids for 20-Year Fixed Price Guarantee Contracts
Many Companies Apply Without Facility Completion
Concerns Over Investment Loss and Industrial Ecosystem Collapse

A solar power plant site in Cheonan, Chungcheongnam-do. (Photo by Moon Chae-seok)

[Asia Economy Reporter Moon Chaeseok] According to the government's plan to supply 20% of total energy from renewable energy by 2030, the scale of renewable energy distribution in South Korea is rapidly increasing; however, conversely, the profitability of renewable energy operators is plummeting. Industry insiders are voicing complaints that "the renewable energy industry is growing in size but is weak at its core."

A representative indicator to gauge the profitability of renewable energy businesses is the price of Renewable Energy Certificates (REC). RECs are certificates that prove power producers have generated and supplied electricity using renewable energy facilities. They are issued in megawatt-hour (MWh) units and traded in the market. According to the Korea Power Exchange on the 4th, the closing price of REC spot market on the 2nd was 44,700 KRW, a 39% plunge compared to 72,000 KRW on January 3rd last year. Renewable energy power producers, including solar power, sell RECs to generate revenue, so the lower the unit price, the more profitability declines sharply.

The main reason for the REC price collapse is the oversupply caused by operators flocking in, relying solely on the government's renewable energy transition policy. According to the Korea Power Exchange, 12.13 million RECs were oversupplied between 2017 and 2019.

As REC prices are expected to continue falling, operators are rushing to participate in the government's 'Renewable Portfolio Standard (RPS) 20-year fixed price bidding' system, which allows trading at a fixed price for 20 years. In the bidding conducted by the Korea Energy Agency on the 26th of last month, 12,469 small-scale power producers with facility capacities under 100 kW applied. This is a 37.8% increase compared to 9,049 applicants in the second half of last year. Among them, quite a few applied without even constructing facilities. According to the agency, 22.2% (by capacity) of small-scale operators (under 100 kW) who applied have not yet completed facility verification. This reflects a mentality of applying first before REC prices drop further.

This situation further darkens the outlook for renewable energy power generation businesses. The sharp decline in operator profits could lead to prolonged payback periods for facility investments → increased industry risks → collapse of the industrial ecosystem. Professor Jeong Dongwook of the Department of Energy Systems Engineering at Chung-Ang University said, "The fact that operators are flocking to 20-year long-term fixed price bidding is evidence that they perceive increased uncertainty in the industry," adding, "This is an ironic situation considering the government's strong commitment to promoting renewable energy."

Despite these circumstances, the government plans to further expand renewable energy distribution, raising concerns. On the 8th of last month, the 9th Basic Plan for Electricity Supply and Demand General Subcommittee announced that renewable energy, which currently accounts for 15.1% (by capacity) of national energy supply, will be increased to 40% by 2034. Coal will be reduced from 27.1% to 14.9%, and nuclear power from 19.2% to 9.9%. This is a declaration of 'renewable energy self-sufficiency.'

This content was produced with the assistance of AI translation services.