[Working paper] Determining Optimal Configuration of Distributed Renewable Energy Sources for Virtual Power Plants Participating in Wholesale Markets

DOI: 10.22982/NEXTWP.2022.2.10Abstract Most distributed renewable energy sources, such as solar and wind turbine generators, exhibit significant uncertainty and variability in their outputs. This poses a challenge to aggregators participating in the market as virtual power plants (VPPs). Therefore, several independent system operators impose a penalty for deviations between the predicted and metered outputs. This penalty may have a negative effect on the profit of VPPs. Two approaches have been proposed for solving this problem. One is reducing the forecasting errors during the operation stage, and the other is minimizing the output variance while configuring the VPP’s portfolio during the planning stage. In this work, we propose a method for determining the optimal portfolio for VPPs and evaluate it based on the uncertainty parameters and imbalance settlement rules for different markets. A mixed integer nonlinear programming approach combined with Monte-Carlo simulations is used to evaluate the proposed scheme. Numerical tests are performed using the model, and the results for two different portfolio configurations under certain market rules are compared. 

[Reports] Costs of Climate Inaction of Emission-intensive Companies in Korea Series 1: Steel, Semiconductor, Refining, Petrochemicals and Automotive Industries

SummaryThe report analyzed the magnitude of estimated climate-related risks of five most emission-intensive companies in Korea from major industries including the steel, semiconductor, refining, petrochemicals and automotive manufacturing. “Climate-related risks” refer to the potential financial risks posed by climate change to companies, investors, and the financial system. The study found climate-related risks are quickly penetrating into the financial realms of companies, and are expected to cause insolvency in financial structures by damaging operating profits by up to 24%p. In sum, the report gives policy guidance on how the industry sector and the government can effectively handle the increasing climate-related risks. ContentsExecutive SummaryI. Introduction: Carbon neutral, nothing but a mere declaration by companiesII. Climate-related risks faced by Korean industries1. Definition of climate-related risks and the channels through which they affect the financial statements of companies2. Climate-related risk ① : Revenue loss caused by policy changes3. Climate-related risk ② : Cost increases caused by climate-related regulationsIII. Financial impact of climate-related risks on five emission-intensive companies in Korea1. Methodology2. Results of analysis by company1) Steel industry – POSCO2) Semiconductor industry– Samsung Electronics3) Oil refining industry – S-Oil4) Petrochemical industry – LG Chem5) Automotive manufacturing industry – Hyundai Motor CompanyⅣ. Conclusion: What is the best strategy for companies and the government to handle increasing climate-related risks?Appendix-1. Policy goals and regulations related to climate change in Korea and overseasAppendix-2. Strengthened K-ETS ScenarioReferences  

[] Decarbonization and inaction - which one will cost more?

[Working paper] Optimal Sourcing Strategy for Enterprises to Achieve 100% Renewable Energy: The Case of South Korea

DOI: 10.22982/NEXTWP.2022.1.1Abstract RE100 is a voluntary campaign for global companies to use 100% renewable energy in their business and production processes. Many global companies participating in RE100 have adopted various approaches for renewable energy sourcing. There is increasing awareness that global companies cannot indefinitely avoid participating in the RE100 campaign, however, there has been limited research on economically achieving RE100. This paper provides an optimal strategy for companies to source renewable energy from the electricity market of the Republic of Korea to economically achieve RE100 in the future. The approaches for meeting energy demands with renewable electricity are analyzed, and a feasible sourcing strategy is presented. Additionally, using the mixed-integer linear programming optimization technique for quantitative analysis, an annual strategy is derived for cost minimization while achieving RE100 during the analysis period. The analysis shows that as the renewable energy generation cost decreases over time, the cost-effective strategy is to deviate from the utility environment at a specific time and select corporate power purchase agreements for implementing RE100, and demonstrates the need for policymakers to create an environment in which companies can freely choose from a combination of power purchase options and various certification methods to maximize their enterprise competitive power.

[] Electricity price normalization, a measure to achieve carbon-neutrality

[Issue Briefs] The U.S. Federal Government's Strategy to Accelerate Carbon Neutrality: The Plan for Utilizing Public Purchasing Power

HIGHLIGHTS 1. U.S. President Joe Biden, who aims to reduce 50–52% of the 2005 emissions by 2030 and achieve net-zero by 2050, signed an executive order (the "Executive Order on Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability") on December 8, 2021 that outlined the federal government's plan to achieve carbon neutrality by 2050. 2. This executive order focuses on the Federal Sustainability Plan2 aimed at reducing emissions by 65% by 2030 and carbon neutrality in 2050 and presents implementation strategies for reducing and improving sustainability in key sectors such as electricity, buildings, logistics, and procurement. Hence, through the federal government's public purchasing power leverage, this executive order is expected to induce the domestic market economy to internalize greenhouse gas costs and convert to climate-friendly practices. 3. The U.S. federal government’s leadership in promoting carbon neutrality through strong public purchasing power sets an example for how government resources and powers can be used effectively. In Korea, annual public procurement accounts for a high proportion (6.5%) compared to GDP. Strengthening the requirement to reflect greenhouse gas emissions in public procurement will make it possible to send price signals to carbon-intensive industries, including manufacturing, and accelerate the transition to a carbon-neutral economy. 

[Working paper] Hydrogen Economy in South Korea: Promising Future or Unreachable IDEA?

DOI: 10.22982/NEXTWP.2021.12.17 ABSTRACTSouth Korea announced the hydrogen economy roadmap and the hydrogen regulation aligned with its decarbonization plan. However, the environmental, economic, and social sustainability of the hydrogen economy has never been studied thoroughly in South Korea. We evaluated the positive and negative impacts of hydrogen by comparing five core criteria, including i) the energy return on investment, ii) the greenhouse-gas emissions, iii) the levelized cost of electricity, iv) the import dependency, v) and the long-term energy storage as well as other applications of hydrogen with other electricity sources. We argued that green hydrogen reduces greenhouse gas emissions and improves energy security despite its relatively high supply cost based on the objective comparison. To maximize the benefits of hydrogen while minimizing its negative economic impacts, we provided multiple policy suggestions, including introducing hydrogen portfolio standards for promoting green hydrogen and importing green hydrogen for promoting hydrogen economy and industry.  Recommended Citation Hong, S.H. et al. (2021). Hydrogen Economy in South Korea: Promising Future or Unreachable IDEA? NEXT Group Working Paper Series, 2021-03.

[Issue Briefs] [NEXT Database] NEXT Database User Guide: Green H2 Supply Costs

HIGHLIGHTS By unveiling the Green Hydrogen Supply Costs Database, NEXT Database – Green H2 Supply Costs (http://nextgroup.or.kr/?ThBZOE36), which contains data related to the production, shipping, and distribution costs of green hydrogen, NEXT Group seeks to predict the domestic supply costs of green hydrogen, both produced and imported from abroad, and to analyze areas requiring policy support. The domestic supply costs of green hydrogen produced and imported from overseas is currently 8,135 won per kg (based on the median value). It is expected to fall sharply to 4,954 won/kg by 2030 and 3,773 won/kg by 2050. If technical and policy support is provided, it may reach 3,879 won/kg in 2030. In order to reduce the international green hydrogen shipping costs, investment in hydrogen liquefaction, storage facilities, a system producing hydrogen through ammonia decomposition, and measures for expanding shipping capacity are needed. In addition, it is expected that the hydrogen pipe’s maximum pressure and tube trailer capacity expansion will be required to reduce the distribution unit costs.  

[Issue Briefs]  The Biden Government's Strategy of Reflecting Climate Risk in the Financial System

HIGHLIGHTS 1. In releasing "A Roadmap to Build a Climate-Resilient Economy" in October 2021, the White House acknowledged that the climate crisis could pose a significant financial risk and announced key principles and core implementation strategies for an effective risk response. 2. The Roadmap establishes standards to reflect climate risks in a number of areas of finance, including federal budgeting and expenditures, pension fund management, mortgage loans, insurance, and securities transactions. With the upcoming introduction of the obligations to disclose climate risk, the US government is actively intervening in the reorganization of the financial system to lead decarbonization. 3. The South Korean government has taken steps, such as increasing green bond issuance, announcing ESG investment principles for the National Pension Service, and assessing the impact of greenhouse gas reductions in government spending, but the country's basic preparations - including climate risk assessment methodologies and standards, as well as climate risk disclosure obligations of financial market participants - are still lacking. In order for Korea's financial system to closely respond to climate risk factors and operate on common guidelines and transparent information, the government needs to become involved. 

[Issue Briefs] Blue hydrogen: Carbon-neutral or Carbon-centric?

HIGHLIGHTS The majority of roadmaps for revitalizing the domestic hydrogen economy assume the use of extracted hydrogen, including gray and blue hydrogen. The use of extracted hydrogen, however, goes against the global trend of carbon neutrality, as well as having a minimal impact on the stability of energy supply. Using the recently published roadmap from the Korea Gas Corporation's hydrogen energy business, this brief seeks to analyze the problems with the hydrogen supply and usage plan centered on extracted hydrogen and to propose solutions.