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South Korea proposes world’s largest offshore wind farm

08 February 2021 Kevin Adler

South Korean government leaders announced a plan on 5 February for what would be, by far, the world's largest offshore wind power project.

The 48.5 trillion won ($43.2 billion) offshore wind farm would have the capacity to generate up to 8.2 gigawatts (GW) of power, compared with the largest plant now operating, the 1.12 GW Hornsea 1 located off Britain's shore.

Offshore wind capacity is only about 125 MW, and total offshore and onshore capacity is 2 GW, or about 0.5% of the nation's current power capacity, according to an IHS Markit analyst. As such, the project, which is to be built in the Sinan region in South Jeolla province, would represent a leap forward in utilizing the nation's potential. Sinan is considered to have 12.4 GW, or 37%, of the country's total offshore wind resource potential (33.2 GW), said Vince Heo, associate director for IHS Markit in Seoul. "If the project proceeds as planned, it's likely to help achieve about two-thirds of the country's 2030 offshore wind target of 12 GW," Heo added.

The project comprises three phases, with phase one slated for 2021 to 2025 (4.1 GW), phase two at 2.1 GW from 2022 to 2027, and phase three at 2 GW from 2024 to 2030 - with all deadlines subject to the commencement of construction. The investment for the first phase is approximately 21 trillion won, according to IHS Markit's estimates.

Signaling the importance of this project, South Korea President Moon Jae-in attended the signing ceremony with corporate partners and local officials. "With this project, we are accelerating the eco-friendly energy transition and moving more vigorously toward carbon neutrality," Moon said, according to a translation provided after the event.

According to IHS Markit's latest outlook on offshore wind, if the full project is completed South Korea will be ranked sixth globally in offshore wind capacity in 2030 after China, UK, US, Germany, and Netherlands.

Roles of participating companies

South Korea is relying heavily on private power generation companies to turn the plan into a reality. Representatives of Korea Electric Power Corp. (KEPCO), SK E&S, and Hanwha Engineering & Construction Corp., as well as offshore wind power manufacturers Doosan Heavy Industries & Construction Co., CS Wind Corp., and Samkang M&T Co. that have a stake in the project were present for the signing.

These companies have pledged 47.6 trillion won toward the project, with the government expected to provide the balance of 0.9 trillion, according to a statement from the Ministry of Trade, Industry and Energy.

KEPCO, SK E&S, and Hanwha are project developers, while Hanwha also is providing engineering, procurement, and construction support. CS Wind would provide wind towers, and Samkang M&T manufactures offshore wind turbine substructures.

Hanwha, in particular, has made a series of investments in onshore wind power. In 2020, it completed a 76 MW wind farm and a 25 MW wind farm. Construction of an 88 MW wind farm will be started this year.

State-owned monopoly utility company KEPCO is likely to purchase a contract for more than one-third of the 4.1 GW of power from phase one of the project, according to Heo. Based on information provided by the government, Heo said that at the moment other participants are: South Jeolla Development Agency, 0.4 GW; SM E&C, 0.6 GW; Neulsam, 0.6 GW; SK E&S, 0.5 GW; Hanwha, 0.4GW; and others for the remaining 0.1 GW.

Next step: Final investment decision

But uncertainty remains as to whether the project will get built, as none of the project developers have reached final investment decision (FID), Heo said.

"Only the 2.1 GW project has obtained [an] electricity generation license so far, so we believe that some of the projects in first phase will get delayed or even cancelled, depending on the policy and market condition," he said.

KEPCO's role in the future of offshore wind market will be critical, given that a bill for it to provide renewable power generation is likely to pass this year, Heo said. The bill would amend the existing Electricity Business Act, which currently prevents one entity from assuming both power generation and retail sales roles.

"As a monopoly utility company, many wind players are concerned that KEPCO is likely to yield its monopoly power in grid connection, license permitting process, etc.," Heo said.

Green New Deal

The huge commitment to offshore wind is part of South Korea's Green New Deal announced in July 2020 that seeks to move the country on a path to net-zero by 2050 and to jumpstart the economy after the impact of COVID-19. The Green New Deal came with a commitment by the government to invest 9.2 trillion won ($7.7 billion) by 2025 in wind, solar, and hydrogen.

That package sets goals of 12 GW of wind capacity and 32 GW of solar capacity by 2030.

While 8.2 GW of offshore wind power could displace approximately 10 million tons of carbon dioxide emissions per year from coal-fired power, Heo said the country still faces significant challenges in meeting its carbon neutrality goal, given that fossil fuels (coal, oil, and natural gas) made up 83% of South Korea's total primary energy supply in 2019. Moreover, that share has been flat over the past 30 years (see IHS Markit coverage: Asia's recent net-zero carbon pledges not a green wave: analysts | IHS Markit).

The Green New Deal includes commitments to reduce reliance on coal-fired power, which accounts for 40% of the country's annual power output, followed by natural gas and nuclear. As evidence of the challenge that lies ahead, IHS Markit says coal contributed an estimated 36% of power generation in 2020 - despite the government restricting its use during the winter heating season (December-March) to limit domestic air pollution.

"The 2050 carbon neutrality pledge builds upon the existing interim 2030 goal within the Nationally Determined Contributions (NDC) to limit GHG emissions below 24.4% from 2017 levels. For the power sector alone, the government plans to limit emissions below 193 MMtCO2-eq by 2030, down [by] 23.6% from 2017 levels in accordance with the 9th Basic Plan for Electricity Demand and Supply," Heo explained. (The 9th Basic Plan can be found here.)

So far, the country's record on using renewable power is significantly below its peers, said Solutions for Our Climate, a Seoul-based environmental advocacy organization. Renewable energy, including hydropower, accounts for only 5% of the nation's power generation, the group said, compared to 27% on average for other G20 nations.

Ironically, according to Solutions for Our Climate, South Korea's Green New Deal and other economic stimulus packages are among the highest per-capita economic recovery plans in the G20, but they are among the weakest on an environmental scale because of continued investment in new coal-fired power.

IHS Markit agrees that the nation's carbon footprint from the power sector (an estimated 32% of GHG emissions last year) is not changing quickly.

"Our view is that the country's GHG emissions for the power sector is likely to reach 243 MMtCO2-eq in 2030, just 4% below the 2017 level, which is far behind the government goal. We believe that generation from both coal and natural gas will be higher than the government's target in 2030, as both fuels still need to serve as baseload power since the country plans to phase out nuclear power and the pace of renewable uptake is not enough," Heo said.

The Ministry of Trade, Industry and Energy said that the country's coal-fired generation capacity is on a path to peak at 40.6 GW in 2024 before declining to 29 GW in 2034.

Under the Green New Deal, South Korea has stated that any coal-fired power plant reaching the end of its 30-year lifetime during 2024-2034 will be converted to gas. IHS Markit estimates that this will result in the retirement of 24 gas-fired power units with a combined capacity of 12.7 GW.

Energy transition

As part of its support of the transition to renewable power, the government plans to enact a law, tentatively named, "Special Act for Promotion of Wind Power Distribution," Heo said.

"This Act is targeted at streamlining the complicated permit process and accelerating project development by creating a 'one-stop shop' which will coordinate all the relevant ministries/departments. The government targets to pass this Act this year," Heo said.

Another issue to resolve is where the nation will purchase equipment for the wind farm. European and mainland Chinese original equipment manufacturers (OEMs) can provide the largest turbines (over 10 MW) that could improve the economics of this mammoth project. This could be very beneficial for a sector that has, to date, showed a low capacity factor, for onshore wind power, said Indrayuth Mukherjee, senior analyst, global clean energy technology and renewables at IHS Markit in Gurgaon, India.

IHS Markit has reported that the capacity factor in South Korea is roughly 30% at an average wind speed of 6-8 meters/second, much lower than some European countries where the capacity factor can reach above 50%.

But using outside OEMs clashes with South Korea's preference for less-experienced, but local suppliers, Mukherjee said. "As a result, homegrown OEMs, including Doosan, may need to ramp up investments in technology and supply chain to support this build. Foreign turbine suppliers partnering with local industrial players to grab a share of this pie is also a possibility," he said.

More will become clear when the government unveils its revised its Renewable Energy Certificate (REC) multiplier scheme for offshore wind in the first half of this year, Heo said. RECs will provide a key revenue stream for wind projects, and will incorporate a range of factors in determining winning bids for equipment and services, such as water depth, distance from the shore, and domestic job creation. "For international turbine manufacturers, this means they need more localization strategy - partnering with local players, and perhaps setting up JV to foster domestic jobs," he said.

Co-authored by Soo Cheng Patricia Lee.

Posted 08 February 2021 by Kevin Adler, Editor, Climate & Sustainability Group, IHS Markit

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