As global concern and crisis awareness regarding climate change continue to rise, pressure for greenhouse gas reduction and the use of renewable energy is increasing from global investors and supply chains. Reporting of non-financial information, such as corporate greenhouse gas emissions and energy usage, is gradually becoming mandatory, making renewable energy use an important issue not only at the national level but also at the corporate level. Due to structural issues in the power market, domestic companies in South Korea were unable to separately purchase renewable energy. However, with growing demand for corporate renewable energy purchases, the K-RE100 policy for corporate renewable energy purchases was introduced in 2021. The K-RE100 policy provides various compliance methods, including Green Premium, K-RE100 REC purchase, direct Power Purchase Agreements(PPA), and third-party PPA. The Green Premium allows companies to pay an additional premium on their existing electricity bills to purchase renewable energy from the Korea Electric Power Corporation (KEPCO). However, unlike other procurement methods, renewable energy purchases through the Green Premium do not allow companies to specify the type of renewable energy source, and the reduction achievements are not recognized in emission trading systems. Direct PPA involves a bilateral agreement where companies can purchase electricity and renewable energy certificates(RECs) from renewable energy generators. Additionally, through the K-RE100 REC market, companies can buy electricity from KEPCO and purchase RECs separately from renewable energy generators. With the introduction of the K-RE100 policy, voluntary markets for corporate renewable energy transactions are emerging. In South Korea, on the other hand, the Renewable Portfolio Standard(RPS) system has been adopted since 2012 to expand the use of renewable energy. The RPS system mandates large power generators to supply a certain percentage of their total electricity production from renewable sources. To fulfill this obligation, large power generators can purchase RECs from renewable energy generators. Consequently, the RPS has led to the formation of a market for renewable energy transactions between large power generators and renewable energy generators. As a result, the domestic renewable energy transaction market includes the K-RE100, formed by voluntary demand from companies, and the RPS, formed by regulatory measures. Buyers and sellers of renewable energy face the decision of choosing between these two markets. Buyers, such as companies, can purchase renewable energy through various methods in the K-RE100 market, such as Green Premium, K-RE100 REC, and direct PPA. On the other hand, large power generators participate in the RPS market by purchasing RECs. Despite the increasing number of companies in South Korea declaring RE100 participation, actual adoption of PPA and K-RE100 REC purchases has not been activated. According to surveys, companies prefer direct PPA, REC purchases, and Green Premium in that order, but actual compliance is concentrated on the Green Premium. Currently, the renewable energy transaction market does not seem to adequately reflect the demand for corporate renewable energy purchases. In this context, the price of the Green Premium is forming close to the floor set in auctions. This study constructs a theoretical model for decision-making by renewable energy buyers and sellers in both markets and examines the relationships between compliance methods within the K-RE100 system. Furthermore, the study analyzes the relationships with adjacent systems such as the RPS, emission trading system(ETS), and electricity pricing in the power market. Analyzing the results of the model, the regulatory characteristics of the RPS have a significant impact on the K-RE100 market. Renewable energy generators receiving high REC weights in the RPS show low incentives to sell in the K-RE100 market. Therefore, companies in the K-RE100 market face difficulties in diversifying renewable energy sources through direct PPA. Additionally, if compensation for renewable energy supply under the RPS increases, transaction volume decreases, and prices rise in the K-RE100 REC market. In situations where the Green Premium or ETS prices are excessively low compared to renewable energy generation costs, PPA and K-RE100 REC markets expreience difficulties, resulting in a bias towards corporate renewable energy purchases through the Green Premium. When electricity prices are lower than wholesale prices, in addition, PPA transactions are challenging to be active. To adequately reflect the demand for corporate renewable energy purchases in the market, it is necessary to improve the K-RE100 policy by considering the interconnectivity between procurement methods and the additionality of renewable energy. The appropriateness of the Green Premium's price floor and sales volume selection should be reviewed, and continuous improvement and enhancement of direct PPA are required. South Korea's renewable energy policy has progressed based on the RPS, emphasizing obligations and compensation for renewable energy supply. Renewable energy policies should be redesigned by considering both the voluntary demand for corporate renewable energy and the RPS. Simplifying the REC weight distribution is necessary not only to address distortions in supply but also to rectify imbalances between procurement methods within the K-RE100. Furthermore, improvements to the RPS are needed to stimulate demand-side competition in the REC market. Finally, it is essential to recognize that distortions in adjacent systems, such as ETS and the power market, have a significant impact not only on those systems but also on the K-RE100 market.

By providing externality estimates, and analyzing the determinants of the time period for renewable project preparation, this study aims to contribute to rationalizing measures for improving the local acceptance of renewable-energy power plants. To that end, the analysis is divided into three main parts. Chapter 2 reviews contemporary literature to identify the elements that form local acceptance and summarizes Korea’s key policies in relation to local acceptance before presenting two major empirical analyses. Chapter 3 quantitatively estimates the externality of renewable energy capacities―a source of many community-level complaints―in order to provide empirical findings for the rationalization of regulations and incentives. Chapter 4 empirically analyzes the causes of delays during a project preparation period, and verifies the impact of factors that form local acceptance, including the externalities. Based on the above analyses, Chapter 5 summarizes the results and draws on the policy implications. Chapter 2 examines preceding studies and finds the main determinants of local acceptance of renewable energy capacities to be 1) the costs of negative externalities borne by individuals and; 2) fairness issues with respect to spatial proximity and fair procedures. This is followed by a review of major policies designed to improve local acceptance which are divided into three main types: i) site standards such as separation distance regulations implemented by local governments; ii) compensation strategies for local residents who are directly affected including support programs under the Act on Assistance to Electric Power Plants-neighboring Areas and the benefit-sharing schemes at individual power plant projects; and iii) project procedures such as locating planning systems that aim to guarantee fairness. Reviewing these policies, this chapter confirms that, in order to enhance the effectiveness of relevant measures designed to improve local acceptance, it needs to understand the factors that cause delays in project planning as well as on the negative externalities on areas near plants. Chapter 3 attempts to estimate the scale of the externalities through the difference-in-differences method under the hedonic model after identifying negative externalities from solar and wind plants, respectively. In this analysis, the treatment effect on housing prices is defined as the effect of the ‘aggregate capacities within a 2km of each house at the time of its transaction.’ The unique housing transaction dataset, covering the period 2006-2019, is used, as well as the size and location of renewable plants in operation during the period. To minimize possible interference from other energy sources, the regional scope for the estimation was narrowed to area where each type of plants is concentrated: Jeollabuk-do, Jeollanam-do, and Gwangju-si for solar farms, and Gangwon-do, Gyeongsangbuk-do, and Ulsan-si for wind farms. Key analysis findings confirmed that both solar and wind capacities produced negative externalities in the vicinity. In addition, the effective radius and size of the externalities were found to vary from each other. Chapter 4 outlines the typical process of large-scale renewable energy projects, including licensing/permits. As a new attempt, a survival analysis was carried out based on the information on the duration of the project preparation―the time period taken to start operations after being permitted. In doing so, explanatory variables reflecting the determinants of local acceptance are set where, in particular, based on the analysis results of Chapter 3, explanatory variables for the environmental impacts are included. The analysis utilized the data on project details and related regional characteristics of 390 solar and wind projects of which installed capacities are over 3MW and for which business permits are obtained during 2004-March 2020. According to the analysis higher capacities entail more delays, and this pattern can be observed in both solar and wind projects. In the case of large-scale solar energy projects (e.g., capacities exceeding 50MW), it was confirmed that the preparation period takes significantly longer when there are more housing within the 2-5km radius which has little relevance to direct externality. The policy implications are summarized in Chapter 5. Factors that have a major impact on the local acceptance of renewable energy projects can be largely divided into i) ‘negative externalities that occur disproportionately according to proximity’ and ii) ‘fairness in procedures related to community participation,’ where the latter is associated with broader geographic proximity. To substantially improve local acceptance, a dual strategy can be useful. It entails government supports that compensate environmental effects for local residents who are directly exposed to the externalities, in collaboration with benefit-sharing schemes that induce participations of local residents with a wider geographical area. More specific policy suggestions are two-fold: i) support programs for neighboring areas under the Act on Assistance to Electric Power Plants-neighboring Areas need to provide concentrated assistance to a narrower scope of targets than the current 5km. In the case of the benefit-sharing approaches, participation should be facilitated by sharing necessary information on the revenue generation mechanism and by broadening the spatial scope eligible for participation.

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.

○ Date: August 5, 2015 ○ Topic: Korean Economic Development and KDI's Policy Contribution, Public Private Partnership (PPP) in Korea ○ Visitors: Ghulam Nabi Nil Rahmanzai (Director for Eastern Region, Afghanistan Investment Support Agency) Amr Ismail Mahdi (Undersecretary of State for Development, Ministry of Electricity and Renewable Energy of Egypt) Jose Roberto Valenzuela Pinto (Academic Extension Director, Ministry of Foreign Affairs of Honduras) Anel Rosado (Director for Operational Coordination, Ministry of the Interior of Mexico) Kyaw Sunn (Director, Ministry of National Planning and Economic Development of Myanmar) and 19 Others ○ KDI Participants: Jongyearn Lee (Director of Division of Analysis and Evaluation, Center for Regulatory Studies) Youngdae Yoo (Senior Program Officer at Capacity Building Center, KDI School of Publlic Policy and Management) Haewon Jeon (Research Associate at Communications Team)

KDI/FES International Conference Toward Ecological Industrial Policy: Transition and Challenges ㅁ Theme: KDI/FES International Conference on Ecological Industrial Policy ㅁ Date: November 9-10, 2011 ㅁ Venue: Main Conference Room, Korea Development Institute(KDI) ㅁ Organizer: Korea Development Institute(KDI), Friedrich-Ebert-Stiftung(FES) Word of Invitation Ongoing climate change and global economic slowdown are now calling for formulating a sustainable growth pattern. Industrial greening encompasses resource-saving/low-carbon production in the manufacturing sector which serves as an axis of sustainable growth, along with behavioral changes in consumers toward favoring eco-friendly products. Friedrich-Ebert-Stiftung (FES) from Germany and Korea Development Institute (KDI) are holding a joint international conference under the theme of understanding the industrial structure which upholds a complementary relationship between economic growth and ecological protection and formulating industrial policy that supports the structure. A number of leading scholars, experts from environment groups and policy makers are invited to discuss and present their insights through five sessions: “Ecological Industrial Transformation: Greening Manufacturing and Energy Sectors,’ “Ecological Industrial Policy and Its Challenges,” “International Cooperation on Ecological Industrial Transformation” and “Way Forward to Ecological Industrial Policy.” We cordially invite you to this timely conference and believe that your valuable expertise and experience would further deepen the discussion. We look for your contribution to this event. 　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　October 2011 　　　　Oh-Seok Hyun, President 　　　　　　　　　　　Mr. Christoph Pohlmann, Resident Representative 　　　　Korea Development Institute (KDI) 　　　　　　　 Korea Office, Friedrich-Ebert-Stiftung (FES) Program Day I (Nov. 9, 2011) 9:30 – 9:45 a.m.  Welcoming remarks by 　　　　　　　　Dr. Joohoon Kim, Senior Vice President, KDI 　　　　　　　　Mr. Christoph Pohlmann, Resident Representative, 　　　　　　　　Friedrich-Ebert-Stiftung, Korea Office 9:45 – 10:15 a.m. Keynote Speech by Mr. Matthias Machnig, Minister for Economy, Labor and Technology of the 　　　　　　　　Free State of Thuringia, Germany 　　　　　　　　The Industry Policy of the 21st Century 10:15 – 10:30 a.m. Coffee Break 10:30 – 12:15 p.m. Session I: Ecological Industrial Transformation: Greening Manufacturing and Energy 　　　　　　　　　　　　　Sectors 　　　　　　　　Chair : Dr. Wonhyuk Lim, Fellow, Korea Development Institute 　　　　　　　　Presenters : Prof. Neha Khanna, Associate Professor, State University of New York at Binghamton, 　　　　　　　　　　　　　USA 　　　　　　　　　　　　　　Voluntary Pollution Abatement and Regulation 　　　　　　　　　　　　　　Dr. Philipp Schepelmann, Senior Research Fellow, Wuppertal Institute, Germany 　　　　　　　　　　　　　　The Green New Deal and Ecological Industry Policy: Greening of manufacturing 　　　　　　　　　　　　　 and energy generation 　　　　　　　　Lead Discussants : Prof. Jongho Hong, Associate professor, Seoul National University, Korea 　　　　　　　　　　　　　　　　　Dr. Satoshi Kojima, Economy and Environment Director, Institute for Global 　　　　　　　　　　　　　　　　Environmental Strategies, Japan 12:15 –1:30 p.m. Lunch 1:30 – 3:15 p.m. Session II: Ecological Transformation and Just Transition Strategies 　　　　　　　 Chair : Dr. Philipp Fink, Senior Research Fellow, Friedrich-Ebert-Stiftung, Germany 　　　　　　　 Presenters : Dr. Bela Galgoczi, Senior Researcher, European Trade Union Institute (ETUI) 　　　　　　　　　　　　　Green transformation: an unprecedented challenge for policymakers and trade 　　　　　　　　　　　　 unions 　　　　　　　　　　　　　Prof. Junjie Zhang, Assistant Professor, University of California at San Diego, USA 　　　　　　　　　　　　　Carbon Market and Renewable Energy Development in China 　　　　　　　 Lead Discussants : Prof. Sungjin Kang, Korea University, Korea 　　　　　　　　　　　　　　　　 Dr. KeeJu Han, Korea Institute for Industrial Economics and Trade, Korea 3:15 –3:30 p.m. Coffee break 3:30 – 5:15 p.m. Session III: International Cooperation on Ecological Industrial Transformation 　　　　　　　 Chair (TBA) : Prof. Sang-Hee Yoo, Senior Managing Director , POSCO Research Institute 　　　　　　　 Presenters : Prof. James Bushnell, Associate Professor at University of California at Davis and co- 　　　　　　　　　　　　 director of the Energy Institute at University of California at Berkeley, USA 　　　　　　　　　　　　　Local Solutions to Global Problems: Climate Policy and Jurisdictional Limits 　　　　　　　　　　　　　Dr. Hyungna Oh, Fellow, Korea Development Institute, Korea 　　　　　　　　　　　　　Emission Taxing Game 　　　　　　　  Lead Discussants : Prof. Yong-Sung Cho, Korea University, Korea 　　　　　　　　　　　　　　　　  Dr. Wangjin Seo, Director, Institute for Environmental Justice, Korea 　　　　　　　　　　　　　　　　  Prof. Dae-Wook Kim, Soongsil University 5:15 –5:30 p.m. Coffee break 5:30 – 6:15 a.m. Wrap-up session 　　　　　　　 Chair : Dr. Wonhyuk Lim, Fellow, Korea Development Institute 　　　　　　　 Lead Discussants : Session chairs and other experts Day II (Nov. 10, 2011) 9:30 – 11:00 a.m. Panel Discussion: Way Forward to Ecological Industrial Policy 　　　　　　　 Chair (TBA) : Mr. Christoph Pohlmann, Resident Representative, FES Korea Office 　　　　　　　 Lead Discussants : Mr. Matthias Machnig, Minister for Economy, Labor and Technology of the Free 　　　　　　　　　　　　　　　 State of Thuringia, Germany 　　　　　　　　　　　　　　　　 Conference Participants Pre-Registration at http://mailzine.kdi.re.kr/survey/go/s20110413.jsp Please be kindly informed that only the participants who complete the registration will be invited to the luncheon. For any further assistance, please reach our secretariat at the contact info below. ※ Kim, Jeeyeong +82-2-958-4166 jeeyoung@kdi.re.kr