Projects

General government authorisation

What government authorisations must investors or owners obtain prior to constructing or directly or indirectly transferring or acquiring a renewable energy project?

For construction of a renewable energy power plant, the following regulatory requirements need to be satisfied:

  • obtaining a generation business licence;
  • obtaining land development authorisation and an environment impact assessment;
  • reporting of an electric equipment installation plan; and
  • obtaining approval for the electric equipment construction plan.

In the meantime, approval by the Minister of MOTIE is required in the case of:

  • acquisition of whole or part of a generation business;
  • split of or merger with an entity engaged in a generation business; and
  • acquisition of shares intended to take over control of a generation business entity with a capacity of 20,000kW or more.

Therefore, transferring or acquiring a renewable energy project with a capacity of 20,000kW or more would require approval from the Minister of MOTIE.

Offtake arrangements

What type of offtake arrangements are available and typically used for utility-scale renewables projects?

In principle, electricity is required to be traded through KPX in cases of utility-scale renewables projects with installed capacity of more than 1,000kW. The offtakers in such projects are virtually limited to operators of retail electricity business sanctioned by the government and bulk consumers authorised by KPX since (under the Electric Utility Act) those eligible to purchase electricity from KPX are limited to operators of electric sales businesses and electricity consumers with power-receiving equipment of 30,000kW or more. An operator of an electricity sales business has to obtain the relevant licence in order to purchase electricity from KPX. While there is no explicit restriction on the credit rating of such an applicant, a review of its financial status is included in the criteria for examination.

Currently, the only entity sanctioned to be an operator of electric sales business is KEPCO, a public corporation whose credit rating is AAA. In order for a bulk consumer to purchase electricity directly through KPX, it has to provide a financial guarantee for the price of electricity transaction. The financial guarantee may be provided through a cash deposit or guarantee issued by a bank or a financial institution, etc. The required guarantee amount is 40 times the daily average price of electricity purchased by the consumer. KPX will take necessary measures to effect direct settlement of the outstanding electricity purchase price from the financial guarantee provided by the bulk consumer if the bulk consumer fails to pay the price by the applicable due date, fails to provide the financial guarantee or the financial guarantor falls into credit risk.

Procurement of offtaker agreements

How are long-term power purchase agreements procured by the offtakers in your jurisdiction? Are they the subject of feed-in tariffs, the subject of multi-project competitive tenders, or are they typically developed through the submission of unsolicited tenders?

Since most operators of electricity generation business sell electricity through KPX, they can stably sell electricity virtually without any restriction on duration as long as they continue to produce electricity.The electricity is required to be sold through KPX for renewable energy generation projects with installed capacity of more than 1,000kW. While it is possible for a power plant with a capacity of less than 1,000kW to supply electricity through direct execution of a power purchase agreement with KEPCO, among others, it is not usually done because far more time is required for the settlement of prices. Therefore, the contract term with the offtakers is usually not an issue in renewable energy projects.Ultimately, the issue is fluctuation in the price of electricity sold through KPX. The sale of electricity through KPX is made at the system marginal price, which is determined according to the demand and supplyof electricity by the time zone, with the unit price of variable costs of the base generator as the ceiling. The specific terms and conditions of transaction are governed by the Rules on the Operation of the ElectricityMarket established by KPX pursuant to the Electric Utility Act. Recently, a system was introduced to reduce this risk of price fluctuation where the unit price for sale of electricity and REC unit price are combined tobe traded at a fixed price for 20 years (see question 6 for details).

Operational authorisation

What government authorisations are required to operate a renewable energy project and sell electricity from renewable energy projects?

For commercial operation of a renewable energy project, in addition to obtaining a generation business licence, a renewable energy producer will need to pass inspection by the Korea Safety Electric Corporation (KESCO), report business commencement and undertake registration with KPX for trading electricity. Other than those, no authorisations are required. And, apart from the sale of electricity within KPX, pursuant to the REC Issuance and Trade Market Operation Rules (a public notice of the New and Renewable Energy Center), if a renewable energy producer wants to sell RECs, the producer is required to obtain certification from the KEA’s New and Renewable Energy Center for the generation equipment (after passing KESCO inspection), and then apply to the New and Renewable Energy Center for issuance of the RECs within 90 days of producing electricity that was sold to KEPCO or through KPX.

The New and Renewable Energy Center will not accept any REC application that pertains to any electricity produced that has passed the foregoing 90-day period. It will issue the REC within 30 days of its receipt of the relevant application after ascertaining the amount of generated electricity. The RECs issued can then be traded within the REC market operated by KPX, although the renewable energy producer will need to register with KPX for the sale of RECs at least one month before commencing the sale.

Decommissioning

Are there legal requirements for the decommissioning of renewable energy projects? Must these requirements be funded by a sinking fund or through other credit enhancements during the operational phase of a renewable energy project?

There are no provisions under renewable energy-related laws in Korea that pertain to decommissioning of a renewable energy project. If, however, a renewable energy project is implemented using mountain areas, generally an EPC contractor is required to make a deposit intended for restoration purposes. This deposit can be submitted in the form of an insurance bond, but it will be returned to the contractor upon completion of the construction.