Comparative study with foreign cases RPS (Renewable Portfolio Standard)

References Designing a better Korean RPS : Comparative study with foreign cases RPS (Renewable Portfolio Standard) • Defined as an obligation on electricity supply companies to produce a specified fraction of their electricity from renewable energy sources. • End of 2013, out of 144 countries with national renewable policy targets, 79 countries adopted RPS, whereas 98 countries did FIT(Feed In Tariff). [1] • In U.S., RPS quota ranges from minimum 10% to maximum 40% (CA:33%) In EU, average RPS quota is around 20% • Korea RPS quota is 3% in 2014 and 10% by 2022, (RPS was started from 2012 in Korea) REC (Renewable Energy Certificate) • REC is tradable, non-tangible energy commodities that represent proof that 1MWh of electricity was generated from an eligible renewable energy source. • Major countries both implementing RPS and REC are UK, USA, Italy, Japan, and South Korea. • REC weight in Korea [1] Renewables 2014 global status report, renewable energy policy network for the 21st century Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022~ (%) 2.0 2.5 3.0 3.5 4.0 5.0 6.0 7.0 8.0 9.0 10.0 [Source : 신에너지 및 재생에너지 개발 이용 보급촉진법 시행령 별표3] Hyeran Park, Yonjun Jeong, Changha Kim College of Business, Korea Advanced Institute of Science of Technology E-mail : hyeran77@business.kaist.ac.kr, syoba@business.kaist.ac.kr, kch31411@business.kaist.ac.kr Source Solar Wind Fuel-cell Geo thermal ESS Weight 0.7~1.5 1.5~2.0 2.0 2.0 4.5~5.5 Obligator in Korea KEPCO Subsidiary(6) KEPCO subsidiary Independent Power Producer(6) KEPCO subsidiary Public(2) KEPCO s Problems that Korean Obligators are facing ❶ More than half of Obligators failed to meet the designated target since 2012. ❷ Solar industry is watching carefully REC price trend in the spot market. 158,400 158,900 185,800 207,600 – 117,300 98,200 13.1Q 13.2Q 13.3Q 13.4Q 14.1Q 14.2Q 14.3Q Solar Spot Market REC Price Solar Spot Market REC Price 2,436 6,222 12,086 15,214 – 19,712 10,147 13.1Q 13.2Q 13.3Q 13.4Q 14.1Q 14.2Q 14.3Q Solar Spot Market REC Quantity Solar Spot Market REC Quantity [Solar REC Spot Market Price & Quantity ] ❸ Too much “Government REC” quantity in the market • Government gave to Government REC to obligator to help them to meet the RPS target. • Government accounts for around 30% in total RPS portion 2013 ❹ Local Approval : So many renewable projects were delayed by local approval ❺ Low Penalty Condition • It is designed that if obligators fail to meet the initial target, they are required to pay penalties by 150% of REC standard price. However, sometimes REC spot market price happens to be higher than 150% of REC standard price, which means paying penalties would be cheaper than buying REC in the spot market. • This distorted market system has been discouraging market players from actively buying REC. • There is no rule or regulation to correct this reverse price situation at the moment. Summary Tables RPS Legislation Penalty (Unit : Won) Fulfilment rate quota (%, Year) Note Germany – – – – U.S. 1983~ 55,000 ~ 77,000won (50~70 USD) 91% (‘07) 10~30 (‘20) Can replace RPS quota by energy efficiency program Japan 2003 – 100% (‘06) – Differentiated quota for each producer U.K. 2002 52,206won (30 pounds) 63% (‘07) 15.4 (‘15) – Italy 1999 207,700won (1.5 times of REC price (€150) – 17 (‘20) Apply FIT on solar energy Korea 2010 1.5 times (45000 won) 60~70% 8 (‘20) Benchmark Foreign cases #1 Benchmark Japanese Case – Korea REC price is too volatile  Setting a Price Band in order that investors (or firms) can hedge REC price volatility risk. – In Japan, Renewable Energy Utilization Act on Special Measures Article 8 Defines the upper limit (11 yen/kWh) #2 Benchmark Italy Case – Korea has unfavorable nature for renewable energy production  CDM or Import REC to make duty #3 Benchmark German & Denmark Case – Time-consuming process to get license to set a power plant which incorporates renewable energy source such as wind farm.  Letting local stakeholders have a right of share of power plant business. – Middelgrunden wind farm (Denmark) : Investor union (8500 people) holds 50% of total share of Middelgrunden wind farm. – Germany (2010) : Community residents have 54% of total wind power 52% of total renewable energy Our Final Suggestion to Korean Government For a better policy making and implementation, Price Spot Market Approval Penalty and Incentive  Define a realistic REC price band so that renewable energy providers ensure stable profit  Based on appropriated rate of return (eg. IRR 10%)  Holds meeting to discuss a reasonable REC periodically  Gradually reduce “Gov REC”, in order to activate spot market  Support for the market expansion (financial derivatives s.t. future, options..) • In the case of renewable energy business, temporarily give licensing right to Central government (not local government) • Considering global expansion • Increase community power (residents participatory plant) • Increase penalty from 150% to 300% to give strong motivation to obligator • Introduce new incentive policy orea government has changed its renewable energy policy from FIT to RPS since 2012. Based on case study of foreign countries and comparison Kbetween Korean and foreign cases, we tried to find a meaningful implications so that korea government can benchmark in the future for a better policy making. Rationale behind comparative case study are as such : It is hard to generalize the result from the data collected and regression model in that policy is differentiated according to the country Methodology – case study

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