[The Editors' Verdict] "Suspicious Solar Power"... Business Structure Must Be Improved

At a recent performance analysis meeting of Company A's affiliates, a thrilling incident that nearly wiped out the entire investment amount became the topic of discussion. It was about losses from a solar power fund investment. This private equity fund, managed by Aegis-affiliated asset management company as the General Partner (GP), had alternative investment funds amounting to hundreds of billions of won deployed by NH Nonghyup Life Insurance, Hanwha Life Insurance, Lotte Insurance, and others.

Financial companies, which had previously suffered large-scale losses from overseas alternative asset misinvestments and endured hardships from selling Lime and Optimus private equity funds, grew increasingly concerned about being engulfed once again by the fire of bad investments. Aegis pledged to normalize the fund as much as possible to avoid principal losses, but it is not reasonable to place all responsibility for the bad investment solely on the GP.

Industry insiders revealed that the process of analyzing the cause of this incident exposed how poorly the solar power investment was conducted. During the Moon Jae-in administration, small-scale operators sprang up rapidly to receive renewable energy policy funds, but they proceeded with solar power projects with little business experience. Operators who burned only a few billion won in capital raised high-interest loans to secure land and carried out solar power projects worth hundreds of billions of won by receiving institutional investment funds or government subsidies.

Crucially, the mandatory supervision required during construction and civil engineering works was completely absent. Since there was no supervision obligation in solar power projects, neither the operators, the GP, nor the investors (LPs) had any reason to incur costs for supervision. This indicates that the minimum management and oversight functions against bad investments were not in operation. It is tantamount to the government providing an environment for the spread of bad investments through indiscriminate solar power support and lax management and supervision.

This fund investment case reportedly could have avoided major losses simply by regularly checking whether construction was progressing, without even formal supervision. It was a ridiculous incident where payments were made to the operator for construction, but upon visiting the site just before the completion date, no progress had been made. This is a stark example showing that there were gaping holes in the management and supervision by the government and investors. Construction payments were made, but since no construction proceeded, it is unknown where the investment funds leaked. Some suggest the possibility of entrenched corruption between public officials and local operators exploiting the solar power boom.

If most existing solar power projects were structured like this, it is unlikely that business failures are limited to this solar power project alone. The supervisory authorities reportedly imposed supervision obligations on LPs participating in solar power projects belatedly to prevent recurrence of similar incidents. However, solar power investments supported or invested through the government, policy banks, and private financial companies during the five years of the Moon administration reached tens of trillions of won. It seems urgent to conduct a full survey of renewable energy projects and investment status now to manage potential bad investments. Reducing coal power generation and increasing the share of renewable energy must be premised on making the relevant projects and investment processes sound.

Lim Jeong-su, Head of Capital Markets Department

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