Insert Report Title Here Korea : 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%. exp ort.gov The U.S. Commercial Service – Your Global Business Partner. 800 -USA -TRADE Insert Report Title Here Page 2 of 9 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. exp ort.gov The U.S. Commercial Service – Your Global Business Partner. 800 -USA -TRADE Insert Report Title Here Page 3 of 9 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. exp ort.gov The U.S. Commercial Service – Your Global Business Partner. 800 -USA -TRADE Insert Report Title Here Page 4 of 9 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 South Korea. 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 Seoul 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 .