Falling REC Prices, "Requires Government Policy Decisions"
The RPS, which has been in effect for eight years, is the core of forming a renewable energy market. Although supply of renewable energy has increased recently, there are many voices calling for an urgent need to improve the system as prices of Renewable Energy Certificate (REC) have plummeted since 2017.
While the government has recently held a meeting and is looking for a solution at the request of the industry, it has been argued that a policy decision is needed to enable shared growth of power generation public companies and small and medium-sized power generation companies, including the readjustment of RPSs.
According to the Korea Power Exchange on the 12th, the average price of the REC spot market was 35,181 won as of the 10th, which is about 35.18 won per kwh. The figure rose 16.8 percent from the previous five days, but the REC, which had maintained an average of 40,000 won until February, fell to the 30,000 won level this month.
Looking at the average price change in the REC spot market over the past three months, it was: (1) 43,634 won (1kwh 43.63 won) in January, (2) 41,245 won (1kwh 41.24 won) in February, (3) 32,167 won (1kwh 32.16 won) in March. Earlier this month, it recorded 29,956 won and 29.95 won per kwh, which once fell to the 20,000 won level.
RPS is a system that penalizes power generation companies that have coal, nuclear, and liquefied natural gas (LNG) power plants with 500MW or more if the state allocates mandatory supply of new and renewable energy and fails to achieve its goal.
After the implementation of the Power Generation Difference Support (FIT), a fixed-price purchase system, between 2002 and 2011, the RPS system was introduced for power generation public companies from 2012.
Currently, 21 large power generation companies, including six power generation companies and SK E&S and other private power generation operators, are required to supply 7 percent of their total power generation to new and renewable energy sources. The ratio of RPS has been raised by 1 percent this year from 6 percent last year.
To fill the quota, RPS supply officers must either create their own renewable energy facilities or purchase RECs from other operators such as solar energy to meet their obligations.
REC transactions take place in RPS markets. The RPS market is largely divided into the spot market and contract market, and the double contract market consists of private contract and in-house bidding, long-term fixed contract, and Korean type FIT.
The revenue structure of most medium and small power generation businesses is 'System Limit Price (SMP) + REC'. It makes this profit by selling electricity in RPS markets.
The problem is that REC prices have plunged more than 70 percent in the last three years. In particular, it is pointed out that in the past, changes in REC and SMP were complementary, but this balance was broken.
During last year's parliamentary audit, Rep. Kim Sung-hwan of the main opposition Minjoo Party of Korea pointed out that REC prices began to fall as the supply of renewable energy was reversed from 2017. The REC, which was originally priced at 120,000 won, was halved to 60,000 won, but has recently fallen to 30,000 won.
According to Rep. Kim, the supply obligation is 23.7 million REC in 2018, but the supply volume is 27 million. This is why oversupply is cited as one of the reasons for the plunge.
An industry official, who asked not to be identified, explained, "In the first place, the institute guaranteed an 8% profit rate when designing RPS. In the past, this structure has recently collapsed if it had maintained an appropriate profit rate by balancing REC and SMP."
"The capacity of solar energy installation jumped from 1GW in 2017 to 3GW last year," he said. "Under these circumstances, fundamental improvement of the RPS system is needed." "We believe that the balance of payments is only fair if the price of SMP+REC is at least 143 won."
Another problem is that the ratio of bio-collusion among the total amount of REC issued is high. Bio-collusion is a method that uses a mixture of bioenergy such as wood pallet to develop coal-fired power.
This is because RPS obligatory implementers often mix biofuels at their own plants to secure RECs at low cost.
As of the end of 2018, bio-facilities ranked second with 23.1 percent, but REC issuance accounted for 33 percent, ranking first. On the other hand, solar energy accounted for 51.3 percent of facilities and 29.9 percent of RECs.
"What we thought would play a leading role in designing the RPS system was wind power generation, but bio is replacing it," said Cho Ki-sun, a researcher at the Korea Electric Research Institute, at the forum titled 'Status and Improvement Direction of the RPS System' held at the end of last year. "The portfolio by energy source is more important than anything else when deciding the supply of RPS." "The government needs to reduce the proportion of biomass after considering its rationality," he stressed.
Meanwhile, some point out that although quantitative supply has increased through the 3020 renewable energy policy, heavy and small power generation businesses are seeing the damage caused by the REC crash.
If the REC trade is not carried out properly, the renewable energy market will shrink and the energy conversion policy will be affected, and long-term measures to stabilize REC prices are urgently needed, but the ministries in charge are taking a back seat.
Since a few years ago, solar power operators have continuously raised their opinions that the system needs to be improved. They argue that it is impossible to maintain business with a market structure that does not presuppose predictability.
On the afternoon of the 10th, the Ministry of Trade, Industry and Energy, the Korea Energy Corporation, and the National Solar Photovoltaic Power Association held a two-hour meeting at the Seoul branch of the Korea Energy Corporation to discuss countermeasures.
It was also reported that there were direct questions such as "Isn't the government only concerned with large-scale power generation businesses such as public corporations?" or "How many years do small and medium-sized power generation businesses expect to recover their investment through REC?"
On the same day, Jeon Tae-hyeop proposed seven suggestions, including (1) stabilizing REC prices and resolving supply-demand imbalance (2) reducing or gradually removing bio-collusion rates out of REC issuance volume, (3) allowing Korean-style FIT general operators to be less than 500kw, and (4) setting a lower REC limit.
An official of Jeon Tae-hyeop said, "On this day, the Ministry of Industry and Energy expressed sympathy with the association's proposal and responded that it would refer to it in reflecting the policy," adding, "We will hold regular meetings involving associations and related agencies in the future to listen to the voices of the field."
"Although there was no immediate result at the meeting, the Ministry of Industry and Energy and the industrial complex were in a good position to listen to industry opinions as much as possible," said Jeon Tae-hyeop, chairman of the association, "But as the current situation is urgent, we will hold a rally in front of Cheong Wa Dae on Saturday to demand prompt improvement of the system."
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