HIGHLIGHTS

• The 3020 and 3040 renewable energy goals are both fully feasible assuming the potential renewable energy capacity. 

• While the price of renewable energy in Korea is currently high, it is expected to fall as the cumulative installation volume increases.

• When the 3040 goal is achieved, the amount of energy increase compared to the present will be as follows: solar PV △ 31.3 won/kWh, onshore wind power △ 36.2 won/kWh, offshore wind power △ 64.4 won/kWh.

• The government should lead a virtuous cycle by raising the renewable energy supply target to 3040 by 2030.

5% → 20% in 10 years

• The most controversial topic surrounding carbon neutrality and energy conversion is definitely the proportion of renewable energy generation. The goal of generating 20% of renewable energy by 2030 has already been established three years ago ('renewable energy 3020 implementation plan'), but people are still discussing whether it can be accomplished. In fact, it seems a difficult task to quadruple renewable energy generation in the remaining 10 years of the plan, considering that the percentage of contributions to total power generation purely from renewable energy barely exceeds 5% (as of 2019). The two issues that are most frequently discussed in relation to raising the proportion of power generation are as follows: the first concerns whether it can be installed as much as the goal suggests, that is, the issue of renewable energy potential; the second concerns the high cost of renewable energy production, which will demand enormous amounts of resources.

Goals for renewable energy 3020: High, but not too high

• It is first necessary to check how much solar and wind power facilities are needed to meet the 3020 renewable energy target in order to determine whether the renewable energy potential is sufficient. The Renewable Energy 3020 Implementation Plan specifies that the cumulative installation of solar power and wind power capacities must be combined to reach 36.5 GW and 17.7 GW, respectively. According to the Korea Institute of Energy Research,potential renewable energy capacity is estimated to be 129 GW of solar power and 42 GW of wind power, which is sufficient to reach the goal of renewable energy by 3020. In order to reach 40% renewable energy generation by 3040, that is, 2030, the simple calculation shows that 73 GW of solar power and 35.4 GW of wind power will be required. Since this installation capacity target falls within the range of the potential capacity, doubling the target value is not an impossible or too far-fetched idea.

• It is also important to consider that energy potential is not fixed, but may increase due to technological advancement and falling costs. In the case of petroleum, huge quantities of petroleum have been mined and used every year for decades, however due to technological advancements and reduced production costs, the amount of proved reserves is increasing every year. In particular, through the development of hydraulic fracturing, previously unusable resources have now been made available for use. Likewise, technological innovation can also enhance the potential of renewable energy sources such as solar power and wind power.

The higher the goals, the lower the production costs

• The unit price of renewable energy generation in Korea is very high compared to other countries (Appendix A). Except for Japan, both solar and wind power are the most expensive among major countries. because of this, there is a widespread concern that it will be expensive to generate electricity using renewable energy sources.Ironically, however, the unit cost of renewable energy generation can be lowered only if many renewable energy facilities are installed, despite the current high cost of renewable energy. The common perception is that with the development of technology, production costs will decrease over time, but it is difficult to see a drop in production costs if we simply wait for that "time."

• The decline in production costs is, first of all, limited by the learning effect of the global market alone. For solar PV modules, it is true that the benefits of learning effects from worldwide cumulative solar installations can be enjoyed regardless of the amount of solar PV installations in Korea. Apart from that, balance of systems (BOS) and installation costs can only be reduced through local and national learning (Schaeffer et al., 2004). Historical data indicates that the proportion of module prices in the total Capex of solar power generation costs has decreased by nearly 30 percent from 55.7% in 2011 to 26.4% in 2020 (Figure 1). Therefore, even if solar cumulative installation increases globally, solar power generation costs will not drastically decrease if all other costs remain static. In the case of wind power, since turbines or blades are not yet a commodity traded in the global market, the importance of such local and national learning is even higher.

• Moreover, the learning effect, which is the most important mechanism in lowering the unit cost of renewable energy generation, arises from accumulating technical knowledge through the process of producing and installing products, that is, renewable energy facilities. Technology that is not actually installed cannot go down the learning curve and lower prices, and technology cannot become competitive in terms of price only with research and development carried out in labs (IEA, 2000; Sagar & van de Zwaan, 2006). Thus, in order for Korea's renewable energy generation costs to decrease, its cumulative installation volume must increase.

When reaching 3040, the Unit price of renewable energy generation when 3040 is achieved

• A type of empirical law dealing with the cost reduction of technology through learning effects is known as the Learning Curve Method, and the rate at which unit production costs decrease as cumulative installed capacity doubles is called the learning rate (Tsiropoulos, et al., 2018). Using this model, the learning rate can be calculated using two time series of cumulative installed capacity and unit production costs, and assuming that the learning rate is constant, it is possible to project the decline in unit production costs resulting from growth in cumulative installation in the future. 

• Lee Keun-dae& Kim Ki-hwan (2020) has a 100kW class solar power generation LCOE of worth 169.8 won/kWh (discount rate of 5.5%), while in IEA (2020), a 100kW class solar power generation LCOE is worth 108.0 won/kWh (discount rate of 7%). In both data sets, plant-level costs that are typically included in LCOE analysis ranges were calculated. As studies done in Korea usually rely on data published by the Korea Energy Economics Institute, this report examined the LCOE decline as a result of an increase in cumulative installation for 1MW solar power and 20MW onshore wind power LCOE in Lee Keun-dae& Kim Ki-hwan (2020). This report did not separately calculate the LCOE for offshore wind power, but instead applied the IEA's (2020) ratio of onshore wind to offshore wind for each of LCOE and capex in order to examine the LCOE decline for the same scale of offshore wind power. Following are the results of estimating the LCOE of solar and wind power in Korea using the most commonly used one-factor learning curve model (Appendix C) (Figures 2 and 3).

2020 → 2030: Solar△31.3 won/kWh, onshore wind △36.2 won/kWh, offshore wind △64.4 won/kWh

• Under the RE3020 scenario, as the cumulative installation volume increases, the LCOE for solar power in 2030 falls by KRW 18.9/kWh, for onshore wind power by KRW 29.3/kWh, and for offshore wind power by KRW 52.1/kWh, respectively, compared to 2020 (Figure 2). Solar, onshore, and offshore wind power LCOE drop even further in the RE3040 scenario, becoming 31.3 won/kWh, 36.2 won/kWh and 64.4 won/kWh, respectively. This amount of reduction is 1.2 to 1.7 times that of the RE3020 scenario. Specifically, in the 3040 scenario, the LCOE of onshore wind power will be less than 100 won per unit kWh, and the LCOE for offshore wind power will be 66% in 10 years, all of which will secure considerable price competitiveness. The decline in LCOE means that even if the same amount of renewable energy facilities is installed each year, it will cost less (excluding system costs). Renewable energy facilities can be installed for about 30% less than in 2020 if the RE3040 target is achieved. As for coal-fired power or LNG power generation, the learning potential is low because decades have already passed since the technology was commercialized, and unit prices of power generation will increase compared to the present due to the environmental costs caused by various regulations. Accordingly, if the 3040 target is achieved, renewable energy will be competitive in price against traditional power sources, and as in other developed countries, the subsequent energy conversion based solely on price will inevitably lead to the fossil fuel sources being displaced from the energy market.

Virtuous cycle must be sought by raising the goal of renewable energy capacity

• The cost of solar PV installation has declined to 38% of what it was 10 years ago (Figure 1). It is true that efficiency improvements due to technological innovation played a role in the decline in costs, but ultimately, it is the deployment in practice that provides the economic capacity for companies to innovate, as well as clues to technological innovation such as process improvement. In recognition of this importance, IEA also stated that technologies learn through the market, and emphasized that purchasing and installing low-cost energy sources should be viewed as a learning investment (IEA, 2000).

• In the next 10 years, there will be a lot at stake. In light of the limited carbon budget, this period is even more important. With faster decarbonization in the conversion sector, not only will carbon budgets be saved, but international competitiveness in the industrial sector will also be strengthened, and essentially, renewable energy will have its own price competitiveness. Most importantly, 3040 is a very realistic goal that is within the range of potential capacity already identified. Consequently, the government should raise its 2030 renewable energy capacity goal to 3040 and create a virtuous cycle where price declines are accompanied by more renewable energy installations.

Appendix

• A. LCOE by country (Discount rate 3%) (IEA, 2020)

Reference

• Ministry of Trade, Industry and Energy. Renewable Energy 3020 Plan (2017.12)

• Ministry of Trade, Industry and Energy. The 3rd Basic Energy Plan (2019.6)

•  Ministry of Trade, Industry and Energy. The 5th Basic Plan for New and Renewable Energy (2020.12)

• Korea Power Exchange (2018). A Study on the Calculation of Levelized Cost of Electricity by Power Generation Source.

• Lee Keun-dae & Kim Ki-hwan. (2020).Establishment and operation of a mid- to long-term Levelized Cost of Energy (LCOE) Forecast System to Expand the Supply of Renewable Energy(1/5). 2020-21 Basic Research Report of Korea Energy Economics Institute.

• International Energy Agency (2000). Experience Curves for Energy Technology Policy, IEA, Paris.

• International Energy Agency (2020). Projected Costs of Generating Electricity 2020, IEA, Paris.

• Sagar, A. D., & Van der Zwaan, B. (2006). Technological innovation in the energy sector: R&D, deployment, and learning-by-doing. Energy policy, 34(17), 2601-2608.

• Schaeffer, G.J., Alsema, E., Seebregts, A., Beurskens, L., de Moor, H., van Sark, W., Durstewitz, M., Perrin, M., Boulanger, P., Laukamp, H., Zuccaro, C., 2004. Learning from the Sun – Analysis of the Use of Experience Curves for Energy Policy Purposes: The Case of Photovoltaic Power. Final Report of the Photexp Project. ECN, Petten.

• Tsiropoulos, I, Tarvydas, D, Zucker, A, Cost development of low carbon energy technologies - Scenario-based cost trajectories to 2050, 2017 Edition, EUR 29034 EN, Publications Office of the European Union, Luxembourg, 2018, ISBN 978-92-79-77479-9, doi:10.2760/490059, JRC109894.

• U.S. Energy Information Administration. Assumptions To AEO2021 – Electricity Market Module. (Released at Feb 3, 2021. Available online: https://www.eia.gov/outlooks/aeo/assumptions/