(Summary) Domestic companies' declaration of participation in RE100 is being reported in the media every day. As of 2021, there are 302 companies participating in the RE100 as opposed to 87 in 2017, and LG Energy Solution, SK, SK Hynix, and Amorepacific have joined in South Korea. Yet, it is still important to put into practice what has been declared. 53 companies around the world, including Apple, Bank of America, Google, and Microsoft, achieved 100% renewable energy usage rates in 2019.[1] However, due to strict legal regulations and limited renewable energy installation capacity, Korea has been considered a difficult country to achieve RE100. Accordingly, on March 24, the 21st National Assembly passed a partial amendment of the Electric Utility Act to promote the voluntary use of renewable energy by electricity users, thereby laying the legal basis for the corporate PPA system.

1. Partial amendment of the Electric Utility Act 

The key is to allow direct transactions of renewable energy electricity 

The key features of the partial amendment of the Electric Utility Act are(1) adding renewable energy supply businesses to new electric utility businesses, which can be operated concurrently [Article 2-12-2 of the Electric Utility Act], and (2) allowing renewable energy electricity suppliers to provide consumers with electricity generated without going through the electricity businesses [Article 16-5 of the Electric Utility Act].It became possible to directly trade electricity between renewable energy electricity suppliers and electricity consumers upon consulting separately on electric rates and other conditions of supply.

2. Concept and significance of the corporate PPA system  

If this system is operated efficiently, it can be WIN-WIN, but there is still a lot to prepare. 

There are four main ways for domestic companies to implement RE100: ①independent power consumption, ②purchase of supply certification, ③green rate systems, and ④corporate PPA. Among them, corporate PPA, covered in this paper, is a system that purchases renewable energy power through direct purchase agreements between renewable energy electricity suppliers (hereinafter referred to as renewable energy suppliers) and consumers (company).

Since it is common for corporate PPA to choose power sources and electric power stationsto enter into long-term transactions (about 10-15 years) at fixed prices, final consumers (company) can hedge the risk of electricity rate hikes and obtain greenhouse gas offset emission rights or respond to environmental regulations. Businesses engaged in renewable energy can move away from SMP+REC price structures, which have high policy risks, secure additional stable demand sources, and diversify their business structure by concurrently engaging in the same industry. 

However, specific details on the electricity supply by renewable energy business entities were delegated to the Enforcement Decree of the Electric Utility Act. Therefore, in order for the corporate PPA system to be actually adopted and operated by consumers, it is necessary to discuss various practical parts as follows, and it appears that the enforcement decree and enforcement rule should be amended based on what has been discussed and agreed. 

3. Issues 

1) Determination on the subject and method of supplementary supply 

Given the characteristics of renewable energy output, supplementary power is necessary at times when there is no power generation,and the method, means, and subject responsible for supplementary power should be determined. Renewable energy business entities, which are parties to contracts with Korea Electric Power Corporation (hereinafter referred to as KEPCO), can be considered as the subject of supplementary supply. 

①    In the case where KEPCO is in charge: 

Stable electricity supply through existing infrastructure 

Consumers can receive electricity from KEPCO at a time when supplementary supply needs to be made. Since KEPCO, as an exclusive seller in the electric power market as of today, has abundant existing network/measurement infrastructure, it will be able to smoothly supply electric power without building a separate complex system and claim payment.

Necessity to establish a method for calculating electricity rates of supplementary supply 

Nevertheless, if KEPCO intervenes in bilateral contracts as supplementary supplier, it faces the same problem as third-party PPA, which raises a concern about introducing conflict of interest. Assuming that consumers have signed a PPA with solar energy business entities, consumers receive the electric power from solar energy generation businesses during the daytime when the electric power demand is high, and KEPCO supplies electric power at somewhat discounted rates during a relatively low-demand time zone. Therefore, since KEPCO does not have a significant incentive to actively engage in supplementary supply contracts, it is necessary to establish a new method of calculation for supplementary supply rather than the existing rate system in order to motivate KEPCO to be a supplementary supplier. In addition, companies can choose to pay green premiums for the supplementary supply electric power to achieve the RE100 target, and the cost of considering PPA contract unit price, supplementary supply electric power unit price, and green premium should not exceed current or future electricity rates.

②  In the case where operators of renewable energy business are in charge: 

It is possible to consider purchasing directly from the Korea Power Exchange 

A method may be considered in which renewable energy entities, the contract parties, purchase electricity directly from Korea Power Exchange (KPX) at a buyer price and supply it directly to consumers.In such case, the company will also demand a REC for supplementary supply electric power to meet the RE100 achievement goal. Therefore, in this case, it is necessary to determine the supplementary supply electric powerand a method of calculating REC purchase price through consultation between the two contracting parties without the intervention of others. 

However, amendment to the enforcement decree is required, and market prices that change every day may be perceived as risks to consumers. 

The current law (Enforcement Decree of the Electric Utility Act) allows direct purchase of electricity only for electricity consumer whose passive equipment has a capacity at least 30,000 kilovolt-amperes, so amendments to the relevant laws and enforcement ordinances may be required to allow direct purchase of renewable energy operators. Furthermore, although payment for electricity must follow the established method when purchased from KEPCO, electricity directly procured from the Korea Power Exchange is subject to varying market price, so consumers recognize it as a cost risk, reducing incentives to select the PPA system. 

2) Entity subject to the final electricity supply obligation 

New electric utility businesses have limited ability in fulfilling the obligation of final electricity supply when an emergency arises. 

The contract should also specify how electricity will be supplied in case of an emergency, such as an accident or disaster, and who will be held responsible in this case. In particular, this is an important issue linked to the stability of electricity supply. It is, however, important to note that, in the current industrial structure, there are realistic limitations to the ability of renewable energy business entities to fulfill their final electricity supply obligations in an emergency.  A clear cause of an accident will also lead to a clear responsibility, which would make the process of claiming compensation easier; however, in the case of a large-scale power outage, it is difficult to determine exactly what caused the outage. Therefore, the subject and method of claiming damage compensation in this situation should also be discussed. 

It is necessary to have regulations on sales in the Korean Power Exchange and uplift price of surplus electricity production volume. 

In addition to the supplementary supply, conditions in case of Surplus electricity production volume should also be specified in the agreement. Considering the characteristics of renewable energy, which is sensitive to weather conditions, renewable energy operators and companies that are contracting parties need to periodically share the amount of electricity available and the amount of electricity demanded by time. In spite of this, surplus electricity production may occur in a specific time zone caused by unexpected changes in weather conditions and disruptions in operating activities. 

It is common for in-house trading to offset back feed amount, but it is difficult to do so for over-the-counter trading targets who are not KEPCO's customers. It is therefore necessary to prepare a regulation (Rules on Operating Electricity Market) that allows renewable energy businesses to sell to wholesale markets and obtain payment. Power generating entities are currently participating in the electricity market by bidding for suppliable capacity the day before trading takes place, but it is difficult to accurately predict the amount of surplus electricity production the previous day, so it is necessary to implement real-time market operations.

Besides settling the sales prices of surplus electricity production, the rules for settling the uplift charges for the burden of system operation caused by imbalances in supply and demand should also be set. Since the electricity market is centered on in-house trading, various uplift prices have not been classified according to constraint costs, but instead have been passed on to consumers. However, in over-the-counter trading where electricity is supplied through bilateral transactions, various uplift prices should be classified by constraint causes and charged to the ones responsible for them. Hence, rulesand regulations on the method of settling constraint costs due to excess electricity production should precede. 

4) Cost-bearing handling methods, such as Network usage fee, Uplift price, and Policy cost 

Payment for the electricity trading in the electricity market consists of settlement payment ,capacity payment, uplift price, and so on. At this time, the total settlement payment for electricity generation business entities is distributed to direct consumers, sales business entities, and specific district electric business entities according to the rules, and most of the current market structure is distributed to KEPCO, an exclusive sales business entity. In consideration of these settlement payments, network usage fees, and RPS contributions, KEPCO charges the final consumer for the use of electricity. 

In the existing KEPCO-centered electricity market structure, this cost allocation method was not a big problem. However, if over-the-counter trading is made due to the adoption of the corporate PPA system, companies will no longer have to settle additional settlement payment, network usage fee, and various policy cost. Therefore, a new method of claiming these costs should be discussed. 

①  Electric transmission and distribution infrastructure, and network usage fees 

Currently, the actual network usage fee’s generation-load sharing ratio is 0:100, and a sharing method in the CBP market must be prepared. 

Electric transmission and distribution infrastructure between electric power stations and consumers should be considered when electricity is supplied under the Corporate PPA arrangement. 

KEPCO's exclusive structure for domestic electric transmission and distribution business is designed under the assumption of the in-house trading, and due to the CBP (Cost-Based Pool) market structure, the imposition of electric transmission fees to electricity generation business entities is delayed for a long time. Considering that the same cost system should be applied to the same service provision, consumers may feel somewhat unreasonable because renewable energy suppliers cannot be charged with electric transmission usage fees and related costs must be passed on to consumers. Therefore, prior to the introduction of the Corporate PPA system, it is necessary to closely discuss the method of calculating network usage fees in the in-house trading and over-the-counter trading. To internalize the cost system that may be impacted by the expansion of renewable energy sources, it is also necessary to consider whether to differentiate network usage fees according to the distance between electric power stations and the place of consumption.

②  Uplift price 

It is necessary to clearly settle costs for each cause of constraints and supply and demand imbalance. 

The current in-house trading-oriented market structure distributes uplift price to consumers regardless of who caused constraints. However, in the over-the-counter trading, it is difficult to claim the same uplift price centered on existing constraint electricity generation/ non- constraint electricity generation because electricity generation and sales activities are performed differently from existing electricity markets. However, the current electricity market rules stipulate that the unit price of the uplift price (KRW/kWh) shall be set according to the uplift price of the previous year, and that the price shall be applied to the amount of active electricity purchased on an annual basis. Given the characteristics of direct purchases, it can be expected that the same method will be applied to the contracting parties of the PPA. By contrast with the previous direct purchase system, since the corporate PPA can generate transactions as high volatility renewable energy sources are added to the system, it should be able to estimate the marginal costs of system stabilization and should be able to claim those costs from renewable energy suppliers and (or) consumers. Therefore, it is difficult to determine the unit price of over-the-counter trading with the method currently applied in-house, so additional research is necessary to establish a fair uplift price. 

③  Policy costs such as RPS contributions, ETS settlement payment, and Electricity bill support expenses for special purposes Purpose of the system vs. Increase the burden of customers for in-house trading. 

Since RPS contributions, ETS settlement payment, and Electricity bill support expenses for special purposes are irrelevant to systematic services, it is necessary to discuss whether and how corporate PPA customers share the costs. There may be conflicting claims that it may not be in the best interest of the system to require RE100 companies to pay RPS contributions and ETS settlement[4] to expand renewable energy use, as well as that the burden will be passed onto the public and small companies. 

5) Consideration on alternative means or procedure to issue a certification of renewable energy use 

According to Article 16-5 (3) of the Amendment to the Electric Utility Act, electricity traded without going through the electricity market under a contract between renewable energy business entities and consumers is not subject to issuance of Renewable Energy Certificates under Article 12-7 (1) of New Energy and Renewable Energy Development · Use · Supply Promotion Act. To put it another way, electricity based on renewable energy sources produced and supplied using the corporate PPA system does not issue Renewable Energy Certifications (RECs), so a secondary authentication process is required to certify that RE100 companies procured and used renewable energy.

4. Conclusion 

The partial recommendation of the Electric Utility Act, which passed the plenary session's deliberation on March 24, 2021, was promulgated on April 20, and will take effect six months after the date of promulgation in accordance with the supplementary provisions. In other words, by October 2021, related enforcement decrees and enforcement rules should be established to support companies' RE100 implementation activities. 

The amended bill has been promulgated, but many of the core contents have not been materialized. Companies that will become contracting parties to Corporate PPA and Renewable energy electricity suppliers (operators of renewable energy generation, etc.) will not have strong incentives to change their existing electricity procurement or sales methods unless these uncertainties are resolved. Particularly, issues such as supplementary supply, mandatory subjects, and charges for electricity use discussed in this paper are directly related to the stability and economic feasibility of electricity supply. Therefore, to facilitate the expansion of domestic renewable energy use through the Corporate PPA system without invalidating it, all stakeholders including companies, electricity generation businesses, Korea Power Exchange, and KEPCO will need to meet to discuss the above issues closely and establish a reasonable institutional structure based on the conclusions drawn from such discussions.