[Green Paradox] Green New Deal to boost Kepco’s role in renewable energy market

Even the best of intentions can fall flat without full attention to vital details. The Korea Herald looks into flaws and shortcomings of Korea’s green policies. – Ed.  

The ruling Democratic Party of Korea has recently prepared a bill to allow Korea Power Corp. to directly generate electricity with renewable energy sources as part of ways to foster President Moon Jae-in’s Green New Deal initiative. The move is expected to boost the role of Kepco in the country‘s renewable energy market currently led by smaller and private-level players.

The change is aimed to foster the country’s renewable energy capacity and technology with the sturdy backing of the giant firm, but is also raising concerns of the market being monoplized.

Under the current Electric Utility Act, no entity can operate more than two types of electric utility businesses simultaneously in South Korea.

For this reason, since 2001 Kepco has been prohibited from running an electricity generation business and an electricity sales business at the same time.

While Kepco is in charge of electricity sales, transmission and distribution, Kepco’s six subsidiaries conduct electricity generation business instead. Kepco has also been dipping into renewable energy sources through the method of establishing special purpose companies and investing in them.

But with the Democratic Party’s bill proposed last month, this would change as the ban will be lifted to allow Kepco to generate electricity directly, albeit restricted to renewable energy sources.

Rep. Song Gab-seok who spearheaded the bill emphasized the necessity of Kepco’s involvement citing the benefits of economies of scale. He explains that only a public company the size of Kepco can afford huge initial investments and grid infrastructure that large-scale renewable energy projects such as offshore wind farms require.

Such a scale, according to Song, would help Moon realize the initiative that aims to triple the renewable energy capacity to 42.7 gigawatts by 2025 from 15.7 gigawatts as of last year.

Kepco is welcoming the change, explaining that operating the electricity generation business through special purpose companies had faced limits.

“Large-scale renewable energy projects are completely different from conventional projects in terms of how they are financed and developed, as well as how they should respond to complaints from local residents,” a Kepco official said.

Participating indirectly has restricted Kepco from establishing proper manuals for such projects or raising workforce with expertise and accumulating relevant technology, the official said.

According to Kepco’s analysis, if the company directly conducted a 1.5-gigawatt offshore wind farm project in Shinan, South Jeolla Province, not via a special purpose company, it could have saved 1.1 trillion won ($926 million) in financial costs, as Kepco could take loans at lower interest rates than special purpose companies thanks to its higher credit rating as a public company. As it takes years for renewable energy projects to retrieve investments, interest rates play a critical role in their success.

“With Kepco’s massive capital and advanced technology, we can pull off large-scale projects better and make electricity generate with renewable energy sources cheaper,” another Kepco official said.

Experts agree that Kepco‘s direct renewable energy projects can propel a technological advancement and establish a solid supply chain in the domestic renewable energy industry.

“Korea falls behind in wind power technology. When a company like Kepco launches a renewable energy project, it can use its significant bargaining power and negotiate (a technology transfer) with foreign players (who want to sell their products). This will speed up localization of products,” said Yoo Seung-hoon, an energy policy professor at Seoul National University of Science and Technology.

Korea Wind Energy Association Chairman Yoo Ki-wan cited the deal Korea Western Power made with Doosan Heavy Industries to buy their gas turbines last December as one such example.

“When Kepco buys wind turbines from domestic companies, it will create not only jobs but also a solid supply chain.”

But there are also voices of concern that the change could result in unfair competition and even a monopoly.

“As the sole operator of the country’s electricity transmission and distribution business, Kepco has exclusive business rights over the grid system. In short, Kepco decides whether to give approvals to companies that wish to join the grid system,” a Korea Wind Energy Industry Association official said.

Son Yang-hoon, a professor of economics at Incheon National University, compared Kepco’s situation to having an airline also be in charge of the nation’s air traffic control.

Without a change in the way the grid system is managed, Kepco would have immense control over how much energy to produce, how much to charge them and which companies to work with, the experts say.

“If Kepco has to spend its own money to build new grids, it has no reason to build them next to its competitors’ projects,” said Kang Seung-jin, chairman of the Electricity Regulatory Commission under the Industry Ministry and an energy professor at Korea Polytechnic University.

Kang also noted Kepco’s unique situation of being a public company dealing with what is widely viewed as a public asset -- electricity -- while also having to make profit as a listed firm.

It could pose a dilemma for Kepco to cut costs in generating its own electricity which could in turn affect its competitors and the market price of electricity, Kang said.

By Kim Byung-wook (kbw@heraldcorp.com)