[Column] Premature Fear of 'Tongsang' Undermines Offshore Wind Power Competitiveness

Last year, the government removed the localization ratio (LCR) regulation that granted Renewable Energy Certificates (REC) weighting when more than 50% of domestic components were used in offshore wind power generation. The wind power industry criticized this move as being overly sensitive to trade disputes. They argued that the government was excessively cautious even before any World Trade Organization (WTO) complaints were filed.

It has been a year since the regulation was deleted. The industry continues to express dissatisfaction, saying that the government is going against the trends of major countries. This is in stark contrast to many countries abroad that implement domestic industry protection policies to mass-produce renewable energy.

Meanwhile, Chinese companies are rapidly expanding their presence in the domestic offshore wind market by leveraging low prices under their country’s industrial protection. Although the comprehensive market entry of Chinese firms may bring short-term cost reductions, it could lead to a decline in industrial competitiveness as domestic companies fail to accumulate technology and know-how, ultimately increasing dependence on China.

The competitiveness of the offshore wind industry is not merely an issue of the related industrial ecosystem. The expansion of renewable energy is directly linked to the export competitiveness of domestic companies. This is because climate change response efforts such as RE100 and the Carbon Border Adjustment Mechanism (CBAM) are being led by governments and companies in advanced countries. Given the absolute dominance of manufacturing in the domestic industry, failure to use electricity generated from green energy could result in penalties such as 'carbon border taxes.' Major domestic companies like Samsung Electronics, SK Hynix, and Hyundai Motor have already declared RE100 commitments to switch entirely to renewable energy-generated power by 2040?2050, and they face the challenge of achieving 100% renewable energy by their target years.

However, the reality of domestic renewable energy supply is not promising. The share of renewable energy generation in South Korea increased slightly from 8.2% in 2022 to about 9% in 2023, which is far below the global average of 30.3%. Even if the government expands renewable energy generation capacity to 138.4 terawatt-hours (TWh) by 2030 starting this year, it is highly likely that the capacity needed by domestic companies will not be met. From a corporate perspective, this may force them to source renewable energy from overseas.

Taiwan, which started offshore wind power later than South Korea, has rapidly grown with government support and strengthened its domestic companies. Semiconductor company TSMC signed a power purchase agreement for 1-gigawatt (GW) offshore wind farms located domestically to reduce carbon emissions from Scope 1 (carbon generated during product manufacturing and fuel use).

Offshore wind projects require high initial development costs and long-term investments, making them challenging from a business perspective. Ultimately, to foster eco-friendly industries and respond to climate change, the government’s role is more urgent than ever. It is time to implement climate crisis response policies like the 'Korean version of the Inflation Reduction Act (IRA),' simplify renewable energy permitting procedures (so-called one-stop shops), and reform the electricity market?measures that have protectionist characteristics. If the government only worries about trade disputes, the entire industry could fall into crisis.

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