Market framework

Definition of ‘renewable energy’

Is there any legal definition of what constitutes ‘renewable energy’ or ‘clean power’ (or their equivalents) in your jurisdiction?

The legal definition of ‘renewable energy’ can be found under the Renewable Energy Act. Under the Act, the term ‘renewable energy’ refers to energy converted from renewable energy sources including sunlight, water, geothermal, precipitation, bio-organisms, etc, and such energy as solar, wind power, water power, marine, geothermal, bioenergy converted from biological resources, and energy from waste materials are specifically listed under the Act as renewable energy. It is notable that in Korea, the term ‘renewable energy’ is normally embedded in the term ‘new and renewable energy’. As such, the Renewable Energy Act retains a separate definition for the term ‘new energy’, which is defined as energy that is either converted from existing fossil fuels or uses electricity or heat generated through the chemical reaction of hydrogen, oxygen, etc, and the Act specifically lists hydrogen energy, fuel cells, energy from liquefied or gasified coal, and energy from gasified heavy residual oil as new energy. Any other energy source could be added as new and renewable energy via presidental decrees, although there has not been any such energy added up to this date.

Framework

What is the legal and regulatory framework applicable to developing, financing, operating and selling power and ‘environmental attributes’ from renewable energy projects?

The Electric Utility Act is the basic general law that regulates all aspects of electric utility business in Korea, so new and renewable energy projects that generate electricity would be subject to this Act. In particular, the Electricity Utility Act has provisions that prescribe matters relating to granting business licences for electricity generation business, the electricity market and trading of electricity (including matters of KPX). The Renewable Energy Act would be important for new and renewable energy projects, as the Renewable Energy Act has been enacted for development of new and renewable energy technology and promotion of new and renewable energy business and prescribe such key matters of renewable energy business as mandatory supply of new and renewable energy by generation business entities, issuance of renewable energy certificates, and specifications and quality of new and renewable energy equipment, etc.

Under the Act on the Allocation and Trading of Greenhouse Gas Emission Permits, certain business entities that produce greenhouse gas are designated to become eligible for allocation of emission permits and those permits may be sold, bought or otherwise traded. This Act also prescribes matters for certification of greenhouse gas reduction business and conditions for certification of emission reduction records, so renewable energy projects can be used by those businesses eligible for emission permits to utilise those certified emission reductions for conversion into emission permits. The National Land Planning and Utilization Act of Korea regulates all aspects of land development and land use. Especially, this Act is relevant to renewable energy projects as it prescribes matters of land development authorisations and environmental impact assessment.

Government incentives

Does the government offer incentives to promote the development of renewable energy projects? In addition, has the government established policies that also promote renewable energy?

Pursuant to the Restrictions of Special Taxation Act of Korea, in cases where a business entity or a person invests in an energy-saving facility (including new and renewable energy facility), then a certain percentage of the invested amount (6 per cent in case of a small company or 3 per cent in case of a medium-size company) may be deducted from corporate income or individual income tax amount payable by the relevant entity or individual. However, these tax benefits would be limited to investments made until 31 December 2018. In addition, under the Renewable Energy Act, the new and renewable energy generation projects that were completed before the end of 2011 are subject to the feed-in tariff system, meaning that those renewable energy generators would be guaranteed certain remuneration above actual trading price of electricity generated from the new and renewable energy, which provides long-term security to those producers.

However, from January 2012, Korea has adopted a policy mechanism based on the RPS, and currently six generation subsidiary companies of KEPCO, Korea District Heating Corp, Korea Water Resources Corp, and 10 private generation companies are obliged to supply a specific percentage (10 per cent or more until 2023) of electricity from new and renewable energy resources, Under the RPS system, new and renewable energy generators can no longer receive a long-term guarantee of a certain fixed price but instead can sell electricity generated through KPX (or to KEPCO via PPA) and also apply for and receive RECs, which then can be traded in the REC market established within KPX or sold to entities with RPS obligation. From May 2017, pursuant to the New and Renewable Energy RPS and Fuel Mix Management and Operation Guidelines, a publicly notified rule of MOTIE, the Korean government has also implemented a fixed price contract system whereby new and renewable energy generators can make bidding on the basis of one price combining the electricity price and the REC price and, if selected, enter into a long-term contract (up to 20 years) with entities required to carry out RPS obligation. This newly implemented system is expected to lower the risks of volatility of the REC price and electricity price (system marginal price), thereby promoting investment in new and renewable energy projects.

Are renewable energy policies and incentives generally established at the national level, or are they established by states or other political subdivisions?

Renewable energy policies are generally established at the national level. Firstly, pursuant to the Electric Utility Act, MOTIE is responsible for overseeing comprehensive policies for demand and supply of electricity including renewable energy policies, and the minister of MOTIE formulates a master plan every two years for electricity supply and demand after consulting with the heads of relevant central administrative agencies, collecting opinions through a public hearing, and thereafter finalising it following deliberation by the Electric Policy Council. Currently, the supply and demand of electricity in Korea is implemented on the basis of 8th Master Plan, which was issued in December 2017, and under this latest Plan, the reduction of coal-power generation and the expansion of renewable energy power generation has been emphasised, as was expected from the current Moon Jae-in administration. In addition, pursuant to the Renewable Energy Act, MOTIE formulates a basic plan for the promotion of new and renewable energy every five years, setting forth objectives of the technological development, use and distribution by new and renewable energy sources, the target ratio of the amount of new and renewable energy power generated to the total amount of power generated and the target of reducing greenhouse gas emissions, among other things. The minister of MOTIE would then establish a detailed implementation plan every year to accomplish the objectives set out in the basic plan that pertain to the supply of electricity generated by new and renewable energy.

Legislative proposals

Describe any notable pending or anticipated legislative proposals regarding renewable energy in your jurisdiction.

The key campaign pledges of Moon Jae-in, the president elected in May 2017, included, inter alia, reduced dependence on nuclear power generation and aggressive countermeasures against fine dust. Immediately after his inauguration, he ordered the temporary suspension of decrepit coal-fired electric power plants, which remained closed from June 2017 until the peak season in summer 2017.

The above measure was expected to be followed generally by policies and legislation to increase the target of new and renewable energy supply and to strengthen relevant incentives. Indeed, the Korean government issued the 3020 Implementation Plan for New & Renewable Energy in December 2017, which aggressively elevates the target for power generation and supply of new and renewable energy from the 2017 level of 7 per cent (of total power generation) to 20 per cent by 2030. This implementation plan puts an emphasis on achieving the foregoing target on the basis of a renewable power generation mix that is primarily geared towards solar and wind power generation, and also contains policies intended to induce local communities’ participation in renewable energy projects.

Also notable is a new location planning procedure introduced within the implementation plan, aimed at assessing the environmental impact of a renewable project and seeking the local community’s opinion on the project at the initial stages. If implemented, the new location planning procedure requires every renewable project to go through a two-stage process of planning permission and development permission, moving away from the current procedure of requiring only one stage of obtaining development permission. At the same time, the REC weighted value applicable to each renewable source of power generation has been adjusted in order to expand renewable energy generation projects. For instance, the REC value applicable to offshore wind power generation has been upwardly adjusted to a range of 2.0 to 3.5.

Disputes framework

Describe the legal framework applicable to disputes between renewable power market participants, related to pricing or otherwise.

The Rules on the Operation of the Electricity Market (established by KPX) have detailed provisions for resolution of disputes between electricity market participants, including renewable power market participants. The dispute resolution provisions under the aforesaid rules are similar to rules of arbitration in that, upon request by a party of a dispute resolution, the administrative office would form a dispute resolution panel consisting of three qualified persons (consented by the dispute parties) not related to the operation of the electricity market, and such panel would render a decision within 10 days of conclusion of the dispute resolution hearing. If a party to the dispute does not accept the decision rendered by the dispute resolution committee, the party can appeal the decision to the Electric Regulatory Commission pursuant to article 57 of the Electricity Utility Act.