Korea's RE100 policy and sustainability

By Kim Sung-woo

Countries around the world are creating increasingly favorable conditions for renewable energy supply. Take the examples of the U.S.' Inflation Reduction Act (IRA) and the European Union's plan to expand the supply of renewable energy, RePower EU.

At the same time, demand for renewable energy is also expected to take off. Many major companies are striving to reduce greenhouse gas emissions even further. Samsung Electronics' Declaration of New Environmental Management Strategy is one such example.

This is why the term RE100 is becoming increasingly popular. RE100, which has recently emerged as a major initiative of carbon neutrality, is a worldwide campaign that was launched in 2014 as a voluntary effort to convert 100 percent of electricity use into renewable energy by 2050. Various stakeholders, including clients taking the lead, are calling for companies to increase their use of renewable energy. As of January 2023, 397 companies around the world joined the RE100 campaign, including 27 Korean companies.

According to Korea Electric Power Corporation (KEPCO), the total industrial power consumption of Korea's 30 biggest consuming companies was over 100TWh each year for the past five years. In 2021 the biggest consumers were Samsung Electronics with 18 TWh, SK Hynix with 9 TWh, and Hyundai Steel with 7 TWh. Considering that the amount of renewable energy generated in Korea in 2021 was only about 50 TWh, the supply side must step up its game.

First and foremost, however, we need more policy support to ensure that the renewable energy produced is efficiently delivered to those in need. To this end, on Sept. 3, 2020, the Ministry of Trade, Infrastructure and Energy ("MOTIE") announced the following five means to implement the Korean way of RE100: green premiums; Renewable Energy Certificate system (REC); power transactions via third parties or third-party Power Purchase Agreement (PPA); purchasing ownership shares in renewable energy generation businesses and construction of renewable energy facilities for its own demand. The MOTIE has been taking various steps to introduce the RE100 system into Korea since 2021.

The green premium was introduced in January 2021, making it possible to purchase renewable electricity. Third-party PPAs were also introduced, and a market for RECs opened in June and August of the same year.

Notably, according to the RE100 market survey released by Korea Power Exchange last December, the most preferred means for companies to implement RE100 was by direct PPA at 27.4 percent, rather than REC purchases which were 22.0 percent or green premiums at 16.5 percent. This is because companies seek to avoid volatility in energy prices and to secure a reliable supply of renewable energy in the long term.

In line with these demands, the government implemented the direct PPA system in September last year. It allows consumers to directly purchase electricity produced using renewable energy. Direct PPA refers to a contract between a power generation business and an electricity consumer, which seeks to directly trade electricity produced using renewable energy without going through the power market.

This was made possible as the Notification on Direct Power Transactions by Renewable Energy Electricity Suppliers, also known as the Direct PPA Notification. It was published through an amendment to the Electric Utility Act, setting forth specifics on the supply of electricity generated by renewable energy via a power supply contract between a power generation business and electricity consumers. Prior to the direct PPA system, we only had a third-party PPA system, in which KEPCO acted as an intermediary between a supplier and a purchaser of renewable electricity.

The direct PPA system is intended to promote the production and the use of electricity generated using renewable energy. It will contribute to reducing greenhouse gases and address the various stakeholders' demands surrounding electricity consumption the consequent greenhouse gas emissions.

A direct PPA is beneficial to both generators of power and consumers. The generators of power can diversify their sales outlets of electricity generated. Electricity consumers can obtain credits for reducing indirect greenhouse gas emissions as well as carry out their pledge concerning RE100. In addition, transaction fees levied by the Korea Power Exchange are waived for three years, while small and medium-sized companies can receive a subsidy for network usage fees for one year.

With the advent of new power trading systems, companies are now positioned to select the most appropriate means for them to carry out the RE100 campaign.

The government should strive to ensure a supply-demand balance. It should bridge the gap in terms of the "right prices" perceived by trading parties, and build infrastructure for the power market. But in the long run, the government should also enhance sustainability in carrying out RE100 by building a sound power market operating on free-market principles and fair competition.

Hopefully, the Korean government's sound policy initiatives can foster sustainability in Korean companies whose business is dependent on global supply chains, as well as in foreign companies' local subsidiaries in Korea that are directed by their headquarters' climate strategy.

Responding to demands from clients and global headquarters to carry out the RE100 campaign in a way that is faster and more transparent than competitors will be the key to success for companies looking to sustain their business ― at least through 2050.

Kim Sung-woo is head of Environment & Energy Research Institute at Kim & Chang.