Insert Report Title Here : New and Renewable Energy Industry Page 1 of 9

Young Park January 09

Summary Korea is the world’s 10 th largest energy consumer, and has virtually no domestic energy sources of its own . It imports 97% of its energy sources, and is the 6 th largest oil importer in the world. To reduce its heavy energy dependency on foreign fossil -fuels , the Republic of Korea Government (ROKG) has launched a series of plans to promote the development and use of new and renewable energ ies (NRE) . The Korean industry has positively responded to the government initiatives by investing in and building more and more power plants using such alternative fuels . Though the Korean Government is making focused investments to address the lack of core tech nologies and experience in NRE, the Korean power plant industry is constantly seeking imports of advanced technologies, providing ample business oppor tunities for U.S. NRE companies with innovative technologies.

Market Demand The highlight of ROKG’s pol icy initiatives towards NRE is Korea’s new National Energy Plan announced in August 2008 . D ubbed the “ Low Carbon, Green Growth Plan ,” i t is Korea’s first long -term energy plan proposed to serve as the governing policy for energy generation and use for com ing 20 years. According to th e P lan , ROKG will increase the ratio of NRE generation out of the entire energy generation from current 2.4% to 11% by 2030. By NRE subsector, specifically; 1) t he generation capacity of photovoltaic power will grow from cur rent 80 MW to 3,504 MW (44 times) ; 2) wind energy will grow from 1 99 MW to 7,301 MW (37 times) ; 3) bio energy from 1,874 KG cal to 36,487 KGcal (19 times) ; 4) and geothermal energy from 1 10 KGcal to 5,606 KGcal ( 51 times).

Since renewable energy technologi es remain commercial ly disadvantageous against the conventional power generation technolog ies , NRE heavily relies on government policies to become economically viable. ROKG’s principal policy driver s for NRE are basically two -fold : 1) providing financial incentives such as subsidiaries, low interest loans, tax reduction/exemption , and feed -in -tariff s to power generation companies using NRE , and 2 ) mandating that government owned entities must use NRE to supply a growing portion of their needs .

Market Dat a Korea’s energy consumption has gradually increased over the last decade . In 2007, the total energy consumption was estimated at 240 million tons of oil equivalent (TOE, equivalent to 11.630 MW/h) . Every year, Korea imports energy sources worth $95 bil lion to cover 97% of its energy needs .

Korea heavily relies on fossil fuels. Out of the entire energy source, o il , coal and liquefied natural gas (LNG) accounts for 43% , 25%, 15%, respectively . N uclear account s for 15% , and NRE covers remaining less t han 3%.

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Korea ’s Energy Source Portfolio

Source: Korea Energy Management Corporation

Korea is a fully industrialized country, and its manufacturing base includes a large number of energy -inte nsive, heavy industries includ ing shipbuild ing, petrochemical, automotive manufacture , etc. Compared to other energy application sectors in Korea , th es e heavy industries are some of the biggest users consuming 57% of the total energy . By comparison, t he transportation , the residential/commercial , and the public sector account for 21% , 20% , and 2%, respectively.

Korea ’s Energy Application Sectors

Source: Korea Energy Management Corporation

As mentioned above, Korea ’s current NRE mix has several sub -sectors . W aste -to -energy is the big gest, representing 77% of total NRE generation in Korea . S mall hydro covers 13.9% , bio (6.6%) , wind (1.4%), solar thermal (0.5%) , photovoltaic (0.3%) , and geothermal covers 0.2% . The big portion of waste -to -energy is mainly attributable to Korea’s very st rong regulation s promot ing waste recycling and deriving energy from wastes. Most solid wastes generated from industry and households are reused , recycled or incinerated for energy use and volume reduction . O nly a small amount of wastes end up being dumpe d in landfill s.

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Korea ’s New and Renewable Energy Portfolio in 2007

Source: Korea Energy Management Corporation

The r emaining minor NRE sub -sectors include fuel cells, tidal power, hydrogen power, etc. which takes up only minimal part of the NRE gen eration . However , these sub -sectors pose a strong potential to grow as ROKG is strongly support ing R&D into related technolog ies .

One of the most critical part s of ROKG’s incentives for market development is the feed -in -tariff (FIT) , incentive structure to encourage the adoption of NRE. Under FIT , Korea’s electricity utilities are mandated to buy electricity generated using NRE over conventional energy at a ROKG -fixed price. Depending on NRE subsectors, the fixed price can be as high as 10 times that of the market price of traditional electricity cost , a.k.a., System Marginal Price (SMP).

ROKG compensates for the cost difference between SMP and the fixed price . F or instance, if a n electricity utility buys photovoltaic energy at 500 Won per KWh, and the SMP is just 50 Won per KWh, ROKG feeds in 450 Won to the utility to offset the cost difference.

Fixed price of electricity generated using NRE (as of Sep. 2008) Waste -to - NRE sources Photovoltaic Wind Small Hydro Bio Marine energy

Fixed price * 428 -646 10 7.29 66.18 -94.64 SMP+5 68.07 -74.99 75.59 -90.50

Unit: Korean Won per KWh Source: Ministry of Knowledge Economy *Note: The fixed price within one NRE source may vary depending on the generation capacity and the duration of FIT application, etc.

It is beli eved that ROKG’s FIT system has been the key market driver behind the rapid adaptation of NRE in Korea . But ROKG recently noted that FIT makes it difficult for ROKG to forecast electricity generation in the future , and also does not bring in the concept o f competition within the industry . To address this issue, ROKG has set a policy to adopt Renewable Portfolio Standard (RPS) that will mandate power companies generate certain amount of electricity using NRE. ROKG plans to adopt RPS to replace existing FI T starting in 2012.

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Best Prospects Buoyed by ROKG ’s strong NRE initiatives , most NRE sub -sectors have experienced rapid growth for the last several years, and are forecast to continue the growth . Several laws and plans either have been established or soon to be established, which will accelerate the development and growth of NRE i ndustries.

Among others, ROKG has identified the following subsectors as their key NRE sectors.

Photovoltaic power Korea has seen a drastic growth in solar power generatio n for the last several years. Its very first solar power plant was bui lt in 2004, which had a generation capacity of 200 KW. Today, Korea has more than 800 solar power plants across the nation , of which total capacity exceeds 292 MW, and there are severa l hundreds of new solar power plants to be built in a few years.

Some of the r ecently built ones have much greater generation capacity, which include a 24 MW one in Sinan -gun, southwest coastal part of . Th e Sinan plant is one of world’s lar gest solar power plant s of all , and the largest one equipped with a sun -tracking system , as of today . With ROKG’s goal to increase solar power capacity to 3,504 MW by 2030 , there will be much more solar power plants to be built , and some of them will have eve n greater capacity than that of the Sinan plant .

Crystalline solar cells have been the domin ant form of solar power technology in Korea , but thin -film solar cells is gradually taking up the market and is experiencing significant demand growth in the p ast year .

Wind power Korea’s total wind power generation capacity is 199 MW as of today. The largest wind power plant is located in Pyungchang -gu, in the north eastern part of South Korea and generates 98 MW electricity from 49 wind turbines. The electri city generated is supplied into 5 0,000 households in the region. Korea ’s unique topography is very mountainous terrain provid ing ample amount s of wind re sources . Thus , wind power is one of the most economically viable renewable energ ies without ROKG ince ntives . Jeju Island on the southwest is also a popular place for wind power plants as it has sustained wind s, and its position as the premier Korean vacation destination means it is not well -suited for build ing polluting, conventional power plants. T here are several feasibility studies going on for new wind power plants by several Korea n ventures .

Fuel cells Korea is home to the world’s largest hydrogen & fuel cell power plant s. Three cities (Pohang, Gunsan, Jeonju) have a hydrogen & fuel cell plant, ea ch of them having a capacity 2.4 MW that can cover electricity needs of about 2,000 households. The local government of Met ro politan City just announced that it would have two hydrogen fuel cell power plants in two residential areas, Mokdong and Now on, of which combined capacity will be 5.2 MW .

While photovoltaic and wind energies require vast amount of land , and their efficiency is highly subject to uncontrollable weather conditions , fuel cells is much less limited in this regard . With ROKG’s st rong policy support and Korean industry’s active participation, the fuel cells industry is forecast to grow to be one of most rapidly growing NRE sector s in the future.

Marine energy As a peninsular w ith 3 coast lines , Korea has an easy access to marine en ergy. Though still in the developmental stage, Korea is very close to fully commercializ ing such technolog ies .

There are several construction projects going on along side the coastal line, which include a tidal current power plant , in Uldo lkmok in south west of Korea. Tidal current power (a.k.a. tidal stream power) derives energy of moving water like wind power that use moving air . The ongoing , first -phase, test -bed project at Ul dockmok plant is going to generate 1 MW electricity , world’s largest in its kind . When the last -phase project is completed as planned , it will have a combined capacity of 50 MW.

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Tidal power is derived from potential energy between low and high tides. The world’s largest tidal power plant is under construction in Sihwa, in the west coast of Korea . The construction is forecast to be completed by 2009 when it will generate 254 MW of electricity. ROKG is very ambitious for the development of tidal power industry, and has plans to build several very large -sized tidal power plants including Saemangum (400 MW), Garorim (520 MW), Chonsuman (720 MW), Gwanghwa (810 MW), Incheonman (1,140MW), all along the west coastline.

The cost of electricity generation from t idal power is identified as the lowest among the competing NRE, so the RO KG is actively pu shing the further develop ment of the industry.

IGCC While being applied to coal -fired plants that are already existing , the integrated gasification and combine d cycle (IGCC) technology is widely considered as a new, low carbon technology. For the high efficie ncy and environmental ly friendly feature of th is techno logy, Korea has plans to adopt it for new coal -fired plants including one with a capacity of 300 MW which is planned to be completed by 2012 by Korea Western Power Company.

Key Suppliers Photovoltaic power Korean companies supply most parts and equipment used for solar power plants. Over the last several years, they ha ve significantly expanded their offerings; however they still he avily rely on foreign products and technologies for core parts and equipment. A recent report released by the Korean Ministry of Knowledge Economy (MKE) estimated that Korea ’s technological prowess for producing crystalline -Si type solar cells stands at 88% that of Japanese and German comp etitors . Fo r thin -film solar cells, Korea production capabilities are just at 61% that of most advanced technologies available.

List of Korean suppliers of solar power products

Product Poly Silicon Ingot, wafer Solar cell Supplier DC Chemical Co.,Ltd WoongJin Corporation KyungDong Photovoltaics KCC Cor poration Siltron Inc Energy Co.,Ltd LG Chem., Ltd SK Chemistry(SKC) WoongJinPolySilicon Kolon Industries Inc LG Electronics Co.,Ltd HANWHA Chem ical Samsung Petrochemical Corporation Co.,Ltd STX Solar Co.,Ltd Samsung Electronics

Product Module System Supplier Symphony Energy Co.,Ltd Hyundai Heavy S-Energy Co.,Ltd Industries Hyundai Heavy Industries LS Industrial Systems LG Electronics Co.,Ltd Samsung SDI Co.,Ltd LG Solar Energy HYOSUNG Corporation Samsung Everland Inc

Source: Solar Today

Many international companies have become active in the market either through direct exporting to Korea, establishing representative offices which serve as “ solution provid ers ”, or by establishing manufacturing bases .

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The list of recognized providers include s several U.S. companies a s well as SolarWorld, Sharp, Sanyo, etc. In November of this year, SolarWorld AG commissioned its first manufacturing facility for solar power modules in Asia together with its Korean joint venture partner SolarPark Engineering Co. , Ltd. The module factory in the South Korean city of Jeonju has a capacity of 150 Megawa tt and integrate s everything from the production line to the complete solar po wer station under one roof .

Wind power Unison is the most active Korean company in the wind power industry. It develop s wind power plant projects , supplies parts, and also operate s wind power plants. P OSCO E&C , a subsidiary of POSCO, is also active buil ding a 40 MW wind power plant in Gangwon Province , which was jointly done with Eurus Energy Japan . While most construction works including civil works are done by Korean construction companies , the c ore parts like wind turbines are supplied by non -Korean companies . Vestas in Spain has domin eering position in this industry by suppl ying its wind turbines for power plants in Youngdukck and Pyungchang in G angwon province, which are operated by Unison.

Fuel cells POSCO is the most active Korean company in fue l cell industry. It has the world’s largest manufacturing plant for fuel cell balance of plant (BOP) where it manufactures fuel pumps, blowers, water pumps, etc. GS FuelCell is another prominent Korean company in the sector. Like other NRE s, the core te chnologies and products are largely imported . The U.S. is known to have the most advanced technologies for fuel cells for commercial electricity generation. Japanese companies including Honda, Toyota, and Sanyo are well known in the market with their adv anced technologies for fuel cells for transportation and households applications . ROKG estimates Korea’s prowess for fuel cell technology for commercial electricity generation at 62% that of the most advanced ones.

Prospective Buyers Korea Electric Power Corporation (KEPCO) , state -run pow er company, is the biggest end -user in NRE industry. It supplies more than 90% of Korea’s entire electricity needs from its six generati ng subsidi aries (Gencos) that include 5 coal -fired companies and one nuclear co mpany. With ROKG’s policy initiatives towards NRE, t he Gencos have diversified their energy sources, and are now generating a certain amount of electricity from low - carbon methods.

• Korea Hydro and Nuclear Company (KHNP), www.khnp.co.kr • Korea South -East Power Company, Ltd. (KOSEP), www.kosep.co.kr • Korea Midland Power Company, Ltd. (KOMIPO), www.komipo.co.kr • Korea Western Power Company, Ltd. (KOWEPO), www.westernpower.co.kr • Korea Southern Power Company, Ltd. (KOSPO), www.kospo.co.kr • Korea East -West Power Company, Ltd. (KEWESPO), www.kewp.com

As end -users, the Gencos , and other independent power producers (IPPs) have very strong influence in choosing what NRE core parts to use. The engineering & construction companies (E&C) who provide turn -key construction service usually are the buyer of most NRE technologies and parts . There are several large -sized EPC companies who are mostly subsidiaries of Korea’s business conglomerates like Samsung, Hyundai, SK, GS, etc. N owada ys, with the popular concept of project financing for power plant industry , many of NRE power plant construction projects are led by business consorti a that consist of end -users, EPC companies, financi al service entities, equity investors, etc. that now ha ve big influence together in procurement decision of major products.

Market Entry

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NRE parts and equipment require comparably high er levels of precision, reliability, and maintenance. Therefore, technical features, pre -sales consultations, training an d after -sales service, as well as price, are the prime factors associated with purchasing decisions for NRE equipment. In addition, U.S. service engineers should make periodic visits to Korea to discuss operational problems as well as improvements or modi fications required in the equipment. If the decision is made to enter the market using an agent, it is important to choose a reliable and competent firm that possesses the requisite technical capabilities and has excellent government and industry contacts .

Partnerships with Korean firms can take many forms including: distributor or agent agreement s, technology transfer or licens ing agreement s, and a joint venture company. Compan ies with experience in the Korean market will often move to establish ing thei r own representative or branch office, or a wholly owned subsidiary. It is also possible to establish a local presence b y acquiring an existing Korean NRE company.

Although it is al ways important to prepare a clear -cut agreement, many Korean corporate decision -makers still greatly value personal trust and relationships more than contractual terms and conditions. Such a trusting relationship are nurtured by maintaining frequent and effective communications, both formal and informal, and through patience. In this context, it is also imperative to thoroughly evaluate the prospective partner(s) through reliable and objective sources in order to avoid or minimize any unexpected future conflicts and risks.

Market Issues & Obstacles Import duty rates for mos t products to Korea are 8 percent on a cost -including -freight (CIF) basis. ROKG grants exemptions or reductions on products in certain categories like pollution control equipment, raw materials for re -export, etc. Free Trade Agreement between the U.S. an d Korea (KOR -US FTA) was concluded in 2007. If the FTA is ratified and takes effect, duty on the vast majority of goods will be either eliminated immediately or phased out.

While it continues its effort to improve the market access , Korea ’s regulatory system s still po se serious barrier s for U.S. companies. Its regulatory requirements are known to change frequently, and some times, new regulation s are put into effect when no enforcement or effective measurement scheme is fully in place . U.S. companies need to thoroughly check the regulatory environment, and assess its impact on their business in Korea prio r to making important decisions .

Trade Events CS Korea regularly supports US exporters to visit and/or exhibit in the many trade events around Korea . Most shows of note are concentrated in Seoul. Our office is offering special Group Gold Key Programs for companies interested in participating in these events. Please contact Young Wan Park at young.park@ma il.doc.gov should you be interested in benefitting from our customized services during any of these events.

SOLARCON Korea 2009 Date: Jan uary 20 -22, 2009 Venue: Convention & Exhibition Center (COEX), Seoul, Rep. of Korea Website: http://www.solarconkorea.org/SOLARKOREA.var Organizer: SEMI PV Group (Semiconductor Equipment and Materials International)

International Solar Energy Expo & Conference (Expo Solar 2009) Date: Feb ruary 25 -27, 2009 Venue : Convention & Exhibition Center (COEX), Seoul, Rep. of Korea Website: http://www.exposolar.org/eng/main.asp Organize r: Monthly Solar Today

Solar, Wind & Earth Energy Trade Fair 2009 (SWEET 2009) Date: March 18(Wed) - 20(Fri), 2009 / 3 days

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Venue: Kimdaejung Convention Center, Gwangju, Korea Website: http://www.sweet.or.kr/ Organize r: Gwangju Metropolitan City, Jeollanam -do Province

International GREEN ENERGY EXP O Korea 2009 Date: April 8 -10, 2009 Venue: EXCO, Daegu Korea Website: http://www.energyexpo.co.kr/eng/ Organize r: EXCO and Korea Energy Daily

Korea Energy Show 2009 Dates: Oct ober 2009 ( dates TBD) Venue: Convention & Exhibition Center (COEX), Seoul, Rep. of Korea Website: http://www.ko reaenergyshow.or.kr/en Organize r: Korea Energy Management Corporation (KEMCO)

6th Power Generation Industry Conference 2 009 Dates: Nov ember 2009 (dates TBD) Venue: Convention & Exhibition Center (COEX), Seoul, Rep. of Korea Website: http://www.pgic.kr/ Organize r: KEPCO

Resources & Contacts American Chamber of Commerce (AMCHAM Korea) #4501 Trade Tower 159 -1 Samsung -dong, Kangnam -gu Seoul 135 -729, Korea Tel: 82 -2-564 -2040 Fax: 82 -2-564 -2050 E-mail: [email protected] Website: http://www.amchamkorea.o rg Note: AmCham Korea presents networking opportunities for U.S. companies to do business in Korea.

Mr. Chang Hyun Jeong Director of the Renewable Energy Division Ministry of Knowledge Economy (MKE) 88 Gwanmoon -ro Gwacheon -si Gyeonggi -do 427 -723 Korea Tel: 82 -2-2110 -5411 Fax: 82 -2-503 -9498 Website: http://www.mke.go.kr/

Korea Energy Management Corporation (KEMCO) 1157 Pungdeokcheon -2 dong, Yongin Gyeonggi -do 449 -994 Korea Tel: 82 -31 -260 -4453 Fax: 82 -31 -260 -4459 Web site: http://www.kemco.or.kr/

Korea Electric Power Corporation (KEPCO) #411 Youngdong -daero Samsung -dong Gangnam -gu Seoul 135 -791 Korea Tel: 82 -2-3456 -3114 Website: www. kepco.co .kr

For More Information

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The U.S. Commercial Service in Seoul Korea can be contacted via e -mail at: [email protected] ; Phone: 82 -2-397 -4164 ; Fax: 82 -2-739 -1628 ; or visit our website: www.buyusa.go v/korea

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