'Blueprint for Hydrogen Power' Is Promising... But What About Mandatory Compliance Entities and Supply-Demand Measures?

Interest in Which to Impose Obligations: Power Producers or Sellers
Possibility of KEPCO Monopoly Raised
Could Be a Factor in Electricity Price Increases
Concerns Over Contradictions in Government Decarbonization Policies

Prime Minister Chung Sye-kyun and Hyundai Motor Group Chairman Chung Eui-sun shake hands on the 15th at the '2nd Hydrogen Economy Committee' held at the Government Seoul Office in Jongno-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Moon Chaeseok] On the 15th, the government announced that it would introduce the world's first 'Hydrogen Power Obligation System (HPS)' starting in 2022, but sensitive details related to the electricity market, such as the obligated parties, the method of imposing obligations, and hydrogen supply measures, were left unresolved. Confusion is already increasing in the market. There are concerns that HPS costs will be added to the existing Renewable Portfolio Standard (RPS) costs, or that Korea Electric Power Corporation (KEPCO) might monopolize hydrogen power generation. Since hydrogen prices are high, the larger the share of hydrogen in energy supply, the more it could contribute to electricity rate increases. Because 'gray hydrogen,' which is produced from gas, must be used until 'green hydrogen' technology is developed, this contradicts the government's energy transition policy of 'decarbonization.'

Where will the HPS obligation be placed?

In the electricity market, the focus is on whether the HPS obligation will be imposed on power producers (six power subsidiaries of Korea Electric Power Corporation and private power companies) or on the electricity seller (KEPCO). Dissatisfaction is expected regardless of which side is assigned the obligation. If power producers bear the HPS obligation, they must comply with both the 7% RPS and HPS as of this year. This means that 7% of total electricity must be supplied by solar and wind power, and hydrogen must also be included. Currently, companies capable of producing hydrogen fuel cells are limited. In the private sector, Doosan Fuel Cell and POSCO Energy are among the few utilizing hydrogen fuel cells for power generation.

Given the strong political and governmental will to expand new and renewable energy supply, it is unlikely that the RPS ratio will decrease due to HPS. If the amendment to the 'Act on the Development, Use, and Promotion of New and Renewable Energy' proposed by Kim Seong-hwan of the Democratic Party passes the National Assembly, the 10% cap on RPS will be abolished in 2023. This means that more than 10% must be met by solar and wind power, and the hydrogen purchase obligation (HPS) will be added. This will increase the financial burden on power producers.

If KEPCO, as the electricity seller, is selected as the HPS obligated party, concerns arise that KEPCO will monopolize solar, wind, and hydrogen power. A bill granting KEPCO the authority for new and renewable energy power generation (so-called 'balpyeon gyeom-eob law') has already been submitted. If the amendment to the Electricity Business Act proposed by Song Gap-seok of the Democratic Party passes and coincides with the implementation of HPS, KEPCO's market monopoly over 'solar + wind + hydrogen' could become a reality.

This would financially impact not only private investors who invested in solar and wind power but also KEPCO's power subsidiaries. The increase in Renewable Energy Certificates (REC) supply for hydrogen fuel cells could lower prices, reducing profitability for small-scale power producers. Consequently, investment sentiment is expected to weaken.

Complete 'Decarbonization' is still far away

Some raise concerns that as the share of hydrogen energy in the national power supply plan increases, electricity rates will rise and 'decarbonization' will become more distant. The generation cost of hydrogen fuel cells was 241 KRW per kWh last year. According to the government's 'Hydrogen Economy Activation Roadmap' announced last January, it is expected to decrease to about 120.5 KRW by 2040.

According to the Korea Power Exchange, as of July, the generation cost per kWh was 76.6 KRW for nuclear power, 90.1 KRW for coal (bituminous coal), 126.8 KRW for liquefied natural gas (LNG), and 141.2 KRW for pumped storage. As of August, the purchase price per kWh for solar power under the Power Purchase Agreement (PPA) method was 103.65 KRW (with REC subsidies, 150?160 KRW). Compared to any power source, 'hydrogen electricity' is expensive. If the share of hydrogen electricity in the national power supply increases, the likelihood that operators will raise electricity rates also increases.

The development of 'green hydrogen,' which does not produce carbon during production, is still a distant prospect. The share of green hydrogen in Korea is known to be about 10%. According to the Korea Institute of Energy Technology, as of last year, Germany had 55 MW and Japan had 10 MW-class water electrolysis facilities, but Korea is still in the development stage.

The government also acknowledged at the 2nd Hydrogen Economy Committee that extracted hydrogen (gray hydrogen) must play a buffering role until green hydrogen becomes self-sustaining. A government official said, "The ultimate direction of the hydrogen economy is green hydrogen, but for the time being, extracted hydrogen must serve as a bridge."

Professor Jeong Dong-wook of the Department of Energy Systems Engineering at Chung-Ang University evaluated, "Using extracted hydrogen emits carbon as is, so increasing hydrogen fuel cells is not an eco-friendly hydrogen economy. It will be difficult to reduce carbon in the hydrogen economy until green hydrogen is developed."

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