South Korea Opens Door for Direct PPAs for Renewable Projects

The amendments to the Electric Utility Act, which for the first time allow renewable energy generators in South Korea to sell electricity directly to end-users without having to go through the Korean Power Exchange (KPX), are now in force. 

Under the pre-existing electricity market structure, direct Power Purchase Agreements (PPAs) between generators and end-users are prohibited under the Electric Utility Act. Instead, generators are required to sell into the KPX's hourly auction pool, with Korean Electric Power Corporation (KEPCO) as the sole off-taker (given that KEPCO is the only ‘electric sale business’ licenced under the Electric Utility Act).

These amendments to the Electric Utility Act are therefore a potential game changer for the renewables sector, effectively removing KEPCO's monopoly on the sale of renewable energy to end-users. Power sold under this direct PPA scheme will however not be eligible for the issuance of renewable energy certificates (RECs), which had previously been the main source of revenue for renewable generators (in addition to revenues generated from selling electricity on the KPX). 

RECs aside, we expect the direct PPA scheme to be a welcomed alternative for both renewable generators and end-users, particularly given the ability to lock-in prices in advance and minimise exposure to the sometimes volatile spot market. 

The direct PPA scheme, coupled with the recent increases to the mandatory quotas imposed on large generators under the Renewable Portfolio Standard scheme (which require generators with generation facilities exceeding 500MW to generate at least 25 percent of power from renewable energy sources by 2026) are clear signs of the Moon administration's determination to accelerate growth in the renewable energy sector. 

Whilst the country still remains in the early stages of that journey (with coal-fired generation accounting for 40 percent of the country's total power output), the growing number of development stage renewable projects led by both domestic and foreign investors is testament to the opportunities that lie ahead, and we expect to see significant client interest in the months and years to come.