“Using solar energy (photovoltaic), we are trying to meet the Renewable Portfolio Standard (RPS), but the real power output cannot even be compared with the coal-fired power generation. So, we are worried. In order to achieve the mid-to-long term goal suggested by the government, we need more money than the vested capital.”
An executive from an electricity power generation company, who I recently met, vexed the difficulty in confronting RPS. It is all in good to follow the green growth policy; however, he explained that most of the power generation companies are in “grin and bear” situation because in reality the conditions are not properly equipped.
Before executing the PRS, the energy industry has voiced out concerns, and some have strongly demanded modification or revocation. Experts’ claims have continued by pointing the need of a transition period with the Feed-in Tariff (FIT) instead of the all out enforcement.
Even with such concerns, the RPS, without and any modification, has been enforced for a month. Can the power generation companies, who are the required supplier of new and renewable energy, meet this year’s target? If it is difficult to meet the goal, what should be improved so that 2012 can be recorded as the “first successful implementation year?”
◇Prospect of meeting this year’s goal; “cloudy” = In this year, 13 power generation companies including Korea Hydro & Nuclear Power Co., Korea South East Power Co., Korea Midland Power Co., Korea Western Power Co., Korea Southern Power Co., Korea East-West Power Co., Korea District Heating Corp., Korea Water Resources Corp., POSCO Energy, SK E&S, GS Power, and MPC Yulchon have to produce 2% of their total generation volume with new and renewable energy. It amounts to massive generation volume of 7000~7300GWh, and for every year the portion has to be augmented by 0.5~1%. Thus, they have to supply 10% by 2022.
Speaking of the conclusion first, it looks difficult to meet the mandatory output for this year. Korea Hydro & Nuclear Power and five other subsidiaries of Korea Electric Power Corporation have to secure new and renewable equipment yielding about 1800MW capacity; but, according to a survey, the actual operable equipment capacity is only 300~400MW. The situation is not much different for the rest of 7 power generation companies.
Some say achieving the conformance rate may not be too difficult because the government is going to support the implementation cost of RPS by raising the price of electricity and will allow the mandatory output of a power generating company to defer the output to next year up to 20% (allowing up to 30% within 3 years of enforcement). However, the problem is still left to the power generating companies to be resolved in the future. It cannot be assessed positively because of the fact that people’s burden are increased if the price of electricity goes up.
The shortage can be filled by purchasing the Renewable Energy Certificate (REC); but the problem is that there is not enough REC. According to the electric power statistic system at Korea Power Exchange, the new and renewable energy equipment capacity is 1921MW as of the December last year; only 66MW increase compared to that of 2010. Considering that most of the projects to meet RPS started last year, many of the new and renewable energy equipment in operation are already applied with the Feed-in Tariff (FIT).
◇Deployment of solar PV generation; “maybe” = Since the government was focused to grow the solar PV (photovoltaic) industry, it has allotted separately for the mandatory output of solar PV for the first 5 years of RPS implementation. To revitalize solar PV industry which has recently dipped into downturn, the government increased this year’s mandatory output to 220MW from 200MW; furthermore, it has confirmed to raise the output to 230MW from 220MW for 2013. It has simply moved up the allocation of mandatory output from 2015 and 2016 to 2012 and 2013, respectively.
Because there is a mandatory output and solar PV is recently receiving spotlights around the world, the installation is relatively active compared to other energy source. Quite often, there are talks, “Energy source that can get REC, in reality, is only solar PV.”
However, due to the over competition by companies and the lack of support from financial institution, solar PV business is not easy at all.
Many of the companies, which have been selected as the sellers of REC for solar PV RPS, are hesitant to start the business with full-scale. To win the bidding, the price of REC went down to the average of KRW 220 per 1kW; thus, the profitability has gone down.
The structure is such that by applying REC weight of 0.7~1, the loss accumulates as the business increases. To receive the weight of 1.5, existing buildings must be used. Unless a company already owns a large factory or warehouse, the reality is that finding land is very difficult.
By converting the entire 14,087kW power plant that entered bidding into REC based on categorical weights, it is getting lowered to 9,5808kW. Considering such point, those who have successfully won the bidding are actually receiving the weight that is less than 1 in average.
For small and medium size companies, the business itself is difficult to launch due to lack of support from financial institutions. Even with a warranty from a credit guarantee fund which was obtained using the REC sales contract with a power generating company, in many incidents, financial institutions are not aware of RPS business itself, or are asking significant down payment in equipment installation. Thus, they are suffering from the shortage of funds.
◇Reintroducing FIT; “possible?” = The government has judged that there is a need to prevent the shortage of the REC; thus, announced a plan that it will circulated the REC for FIT equipment in the exchange market.
FIT equipment is managed by using some portion of government aid, and originally, it is not recognized as the REC. However, in a measure to stabilize the market, it will be set as the national REC by the ratio of the governmental support fund. The government is planning to assign it to the Ministry of Knowledge Economy and the local governments, so that it can be traded.
In a specified situation like there is not enough REC volume in the market or the price fluctuates suddenly, the REC will be sold by the government. The entire profit will be redeemed into the national treasury, and any REC that is not sold in 3 years will be disposed.
The industry is doubtful of the effect. But foremost, the industry is arguing that this policy is “trying to deceive by a transparent guile” because this is far from the originally intent of RPS that is supposed to increase the distribution of new and renewable energy.
The most ideal alternative which many experts believe is the reintroduction of FIT. Especially, the argument to simultaneously execute RPS and FIT is being raised frequently. This is to reduce the burden following the full-scale implementation and to take advantages of each policy.
Lee Hee-Sun (Senior Researcher, Korea Environment Institute) analyzed that there is growing attention and the need about combining the policies in Europe and the United States. And, the argument that simultaneously executing RPS and FIT is more effective has been gaining the support in Korea.
Lee stated, “Unilateral abolishment of FIT and promoting the introduction RPS has difficulties in many ways. The reason is easily seen by how developed countries, which have been running different policies, are focused on combining the advantages of two policies instead of pushing the switch to a new policy in creating policy to deliver renewable energy.”