South Korea moves offshore again

We love emerging markets as much as the next analyst, and so the news that South Korea is opening up its wind market has piqued our interest. The Asian country has a fraught relationship with renewables.

At present, renewables account for just 4% of the country’s energy mix, with wind at 0.1%, compared to 85% for fossil fuels. It also relies on imports, which make up 84% of all energy used. It has a long way to go on decarbonisation.

But South Korea's journey has started.

In late 2020, President Moon Jae-in committed to carbon neutrality by 2050. Under the 9th Basic Plan for Electricity Supply and Demand, the country is aiming for 77.8GW of installed renewable energy capacity by 2034, up from 20.2GW in 2020. This includes a target for wind power to reach 12GW by 2030, with heavy focus on floating projects off its south coast.

The plan has gathered more momentum this month.

Last week, the government set out a bill to open the electricity market to renewable power purchase agreements (PPAs) through government auctions. Its plan would allow electricity consumers – both industrial and domestic – to buy green electricity by paying a premium to the state-utility Korea Electric Power Corp (KEPCO), which will administer the tenders and manage the price of electricity.

Under this law, utilities and independent power producers with capacity of more than 1MW would be able to sell electricity via PPAs using KEPCO as its intermediary. This should help to support higher demand for wind power and unlock new renewables projects.

The government said it is looking to “strengthen domestic companies’ global competitiveness” by allowing firms to “secure stable profits through long-term agreements”, according to the Korea Times.

For one South Korean giant it is a case of better late than never.

Samsung quits Scotland

Let's rewind to 2014. Samsung Heavy Industries was working on one of the world’s then-largest offshore turbines: a 7MW machine that it was looking to roll out in UK waters.

That would now be dwarfed by GE’s 14MW Haliade-X or the 15MW platform that is coming soon from Siemens Gamesa but, at the time, Samsung’s turbine was huge. The company had even installed a pilot turbine in Scottish waters.

But it wasn’t to last. SHI said it wasn’t able to secure regulatory support to use the machine in the UK quickly enough, which put it out of the running to pick up major contracts. This contributed to its decision to leave the UK in 2014, and exit offshore wind in 2016. That work is a distant memory.

However, the company is now making a return.

South Korea’s net zero plans have injected fresh impetus into SHI’s offshore plans, and the company re-emerged in October by joining forces with DNV GL to develop floating turbines. It will face huge competition of course: six years is a long time in offshore turbines. But it’d be a big story if its return is a success.

There’s certainly a growing project pipeline in South Korea. National and local governments have been doing deals that should unlock projects and investment by some of the offshore wind sector’s largest players.

Copenhagen Infrastructure Partners, CS Wind and Stiesdal Offshore have signed an agreement with the city of Ulsan to develop offshore wind projects; Ørsted has set out plans to develop 1.6GW off the coast of Incheon City; and Doosan Heavy Industries has a 2GW project in its pipeline.

There are barriers for overseas investors though.

The International Energy Agency has highlighted that South Korea runs its electricity sector as a ‘mandatory pool’ where power prices are set by the government. This highly regulated approach may have previously worked in electronics – including for Samsung – but the IEA has warned that any failure to introduce true competition would harm the energy transition.

Yet the fact that the country is showing ambition is good for investors, and this desire is backed up by favourable weather conditions. This makes South Korea an offshore market to watch in the next 12 months.