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Ambitious offshore wind plan needs FIT to tempt developers

Tue 30 Apr 2019 by David Foxwell

Ambitious offshore wind plan needs FIT to tempt developers
Robert Liew: “more ambitious targets would need new policy to make the market more attractive to investors and stimulate the involvement of new players”

A feed-in tariff offering developers a guaranteed price for electricity may be required if South Korea’s ambitious targets for offshore wind energy are to be achieved

South Korea has ambitious goals for renewable energy and for offshore wind. Although already ambitious, existing targets for offshore wind could well be raised to help the country meet long-term targets for renewables, but that would almost certainly need new policies to be instigated, over and above those enshrined in the country’s Renewable Energy Portfolio Standard (RPS).

The RPS scheme requires any power producer with more than 500 MW of capacity to gradually increase the share of renewables in their generation portfolio. Power producers receive a Renewable Energy Certificate (REC) for every 1 MWh generated, though different sources have a different weighting or multipliers. Failure to comply with the requirements of RPS results in a penalty charge of 150% of the average REC price, although these can be deferred up to three years.

Offshore wind has been identified as having significant potential in South Korea, with bottom-fixed windfarms already in development. In the longer term, floating offshore wind has significant potential. South Korea also has a well-developed marine industry including under-utilised shipyards that could play an important role fabricating structures such as jackets for offshore wind. High-level R&D centres and companies in the country such as cable manufacturers already play a role in the industry outside the country.

South Korea also has its own turbine manufacturers. Doosan has the longest track record in offshore wind with 33 MW installed and around 60 MW in the pipeline, although its 3-MW platform is small when compared with European models in the 8-10 MW class. Hyosung – a major Korean conglomerate with interests in construction, heavy industry and construction – developed a 5-MW offshore turbine with Aerodyn but has limited track record in offshore wind. Unison is active in onshore wind, but has no track record in offshore wind.

There are other potential barriers to developing offshore wind in South Korea, but none are so significant that they cannot be overcome, as they have been in other countries. These include a dearth of installation vessels. For the time being, there are no plans to import vessels from Europe and companies are actively looking for a local solution. As in other markets, environmental issues can also slow down projects and permitting takes too long. Negotiations with fishermen can be protracted and levels of compensation may be high.

Despite these issues, optimism about offshore wind in South Korean is growing. Analysts such as Robert Liew at Wood Mackenzie highlight ambitious targets for offshore wind, including one of 13 GW of capacity by 2030, but caution that there is currently only around 7 GW in the pipeline currently.

The key project in that pipeline is the Southwest project, which is being built in three phases. If all three phases of the project are realised, this bottom-fixed offshore windfarm would eventually have a capacity of 2.5 GW. The first demonstration phase of around 60 MW is due to be completed later this year; the second phase could see another 400 MW of capacity added, with the third phase adding another 2 GW.

“The government might well increase the targets for offshore wind,” Mr Liew told OWJ, “but if it does so it would really need to introduce new policy to make the market more attractive to investors and stimulate the involvement of new players in the market.” Targeting 17 GW of capacity by 2030 would require in excess of 1 GW of new wind power to be installed in South Korea every year, most of it being offshore wind.

The RPS has worked reasonably well, he said, “but is not a strong enough draw” if the government is serious about meeting existing targets and setting new ones. “We project that by 2028, South Korea might have 4.0-4.5 GW of offshore wind. If a lot more capacity is to be brought online – which will need to happen if coal is phased out and nuclear generating capacity is capped – then the utilities also need to know that there will be significant investment in the grid.”

Mr Liew said it is unlikely that developers will feel sufficiently incentivised to build commercial-scale offshore wind projects in South Korea unless the government introduces a feed-in tariff that would kick-start development as it has in Taiwan. It is unlikely that more South Korean utilities will seek a role in offshore wind without certainty about the grid.

Early offshore wind projects in South Korea is likely to be expensive he said, but costs will fall quickly as they have in other markets as commercial-scale projects are built out and as the South Korean supply chain becomes established. Given that early projects are likely to be expensive, developers need a fixed, guaranteed price rather than relying on fluctuations in REC prices.  

Wood Mackenzie said recently that it believes that South Korea is unlikely to meet its 2030 renewables target, but a new target for 2040 will stimulate further development. Shortly after Moon Jae-in took over the reins as President, the South Korean Government unveiled a power supply plan aiming for 20% of total electricity consumption to come from renewable energy by 2030. Wood Mackenzie expects that South Korea might reach a level of 17% by 2030.

"South Korea's renewables target is ambitious, and we are beginning to see the effects of the government's commitment to greener energy sources,” said Zi Sheng Neoh, a managing consultant at Wood Mackenzie. He expects the country's renewables capacity to triple to 60.5 GW before the end of the next decade and said solar and wind capacity will make up the majority of this growth.

“Like solar, offshore wind capacity in South Korea will undoubtedly also grow significantly, but the key to scaling up offshore wind capacity is large-scale commercial projects that can leverage South Korea’s expertise in shipbuilding to establish a mature offshore wind power supply chain, potentially including floating wind technology,” Mr Liew said.

Leading players outside the country have already recognised the potential for offshore wind in the country. Norway's Equinor has expressed interest in floating offshore wind, and the world's largest offshore wind power developer Ørsted is actively looking for opportunities in South Korea. Most recently, the local government of Ulsan City signed a memorandum of understanding with a development consortium that includes major foreign companies such as Shell, Denmark’s Copenhagen Infrastructure Partners, Swedish technology company Hexicon, and California’s Principle Power to explore large-scale floating offshore wind development.  

Equinor signed a memorandum of understanding to jointly explore opportunities to develop commercial-scale floating offshore wind in South Korea and plans to work with Korea National Oil Corporation (KNOC). KNOC is 100% owned by the South Korean state and has a mandate to ensure South Korea’s energy security.

A report by Linklaters published in January 2019 concluded “Large-scale solar projects are a possible solution but are constrained by land, environmental and permit issues. An increasing focus has therefore been put on offshore wind power.

“A key challenge for developing offshore wind projects in Korea is the lack of track record of large-scale commercial offshore wind projects, in particular, those with international participation, as most of the offshore wind projects developed to date have been led by the South Korean Government in a ‘top-down’ format. But despite the challenges, the Korean offshore wind market remains attractive given the favourable topography, well-developed infrastructure and the strong support by the South Korean Government.”

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