To enhance the export competitiveness of companies facing pressure to achieve RE100, there is an urgent need to promote policies that expand renewable energy procurement. However, the current investment tax credit scheme remains ineffective due to its low credit rate and structural constraints. This issue paper recommends increasing the investment tax credit rate, allowing the transfer of tax benefits to companies that sign direct PPAs as assignees, and introducing additional credits for the use of domestically manufactured products and local community participation.
Current Status and Challenges
Korea faces difficulties in renewable energy procurement due to high prices and limited supply, making it one of the more challenging markets for corporate renewable energy sourcing. The current investment tax credit for renewable power facilities applies the same low rate as general facility investments, and due to the unique characteristics of renewable energy projects, companies are unable to fully benefit from the incentive. As a result, corporate motivation to invest in renewable energy remains very limited.
Quantitative Analysis
For both solar and wind power projects, analysis shows that under the current system— even with the application of tax credits and carryforwards— around 40% of potential benefits are lost, reducing the levelized cost of electricity (LCOE) by less than 3%. In contrast, introducing a higher tax credit rate and a transfer mechanism could lower generation costs by up to 23–25% and shorten the investment payback period by approximately 2–3 years.
Policy Recommendations
1. Increase Tax Credit Rate: Apply a tax credit rate equivalent to that for national strategic technologies to renewable energy generation projects.
2. Introduce Transfer Mechanism: Allow the transfer of tax benefits to companies entering into direct PPAs as assignees.
3. Establish Additional Credits: Provide incremental tax incentives for projects that use domestically produced equipment or adopt community participation models.