Release of medium-to-long term outlook on respective agenda based
on the analysis of pending macroeconomic issues

International Economics

Policy Study

A Study on Efficient Renewable Energy Policy

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  • Author Suil Lee
  • Date 2015/12/31
  • Series No. Policy Study 2015-17
  • Language Korean
SUMMARY This Research analyses the current situation and problems of South Korea's Renewable Energy Dissemination Policy and draws measures to improve the system from the perspective of investment revitalization and efficient dissemination of renewable energy.

First, in Chapter2, we explain in detail the reason for introducing the RPS (Renewable Portfolio Standard) in Korea and the components of RPS. Also we further explain that each year, the obligation performance of the supply duties is much lower than the government’s target and a significant portion of the supply obligation is fulfilled by wood pellets dual fuel which has no benefit on energy security and may potentially disturb electricity market.

In Chapter 3, we analyze the problems of RPS system, which impose negative impact on the dissemination of renewable energy. 1) Uncertainty and potential changes in supply obligation, multiplier setting based on political judgment, the possibility of frequent changes of multiplier and the scale of uncertain fines all increase the uncertainty of investment in renewable energy. 2) The current system lacks the consideration for the small-scale distributed power and has insufficient means for small businesses to manage risk. 3) The current approach to pursue various policy goals through a single mean called the multiplier damages RPS’ original purpose, the cost-effective dissemination of renewable energy, and potentially disturbs the expansion of dissemination of renewable energy.

In addition to the above issues, the current system, which appoints power producers as RPS supply duties, can have negative influence on the stability and efficiency of the electricity market by distorting power suppliers' incentive through the linkage of electricity market and certificate market.

In chapter 4, we propose measures aimed to resolve or mitigate the problems analyzed in Chapter 3 from the perspective of investment revitalization of renewable energy, revitalization of small-scale investment, efficient achievement of various policy goals, and the harmony of the electric power market.

First, in order to revitalize investment of renewable energy, it is desirable to alternatively consider the imposition of supply obligation proportional to the installed capacity, and to stably manage the supply obligation and the multiplier and to fix fines. In addition, systematic measures are needed to address the electricity market risk faced by business operators. This study analyses the strengths and the weaknesses of three alternatives which include the following methods: ① the method to enter into the CfD (Contract- for-Difference) between the KEPCO and renewable energy business operators, ② the method to switch the supply duty to sales company and to enter into a long-term contract for both electricity and supply certificate, and ③ the method to enter into a long-term contract of electricity and supply certificate by establishing a separate independent body.

To revitalize investment for small renewable energy projects, it is reasonable to reintroduce FIT. In regards to efficient achievement of various policy goals, it is reasonable to limit the RPS target to large-scale renewable energy sources and to utilize other policy instruments such as FIT, set aside or subsidy for renewable energy sources necessary for the policy objectives such as technology development industrial development and so on.
Finally, for the harmony between the RPS and the electricity market, it is desirable to switch the supply duty to sales company or to establish a separate independent agency.
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