Korean wind power industry opposes gov’t decision to change subsidy structure

[Photo by MK DB]

South Korean wind turbine manufacturers are opposing the government’s decision to no longer offer cash subsidies to those that use more domestic parts when participating in the state-led bids to build offshore wind power plants as they fear the move will bring in cheap parts from China that may lead to a collapse in the industry ecosystem.

According to multiple sources from the power industry on Monday, the Korea Energy Agency recently held a regulatory committee meeting and decided to abolish the incentives to weigh renewable energy certificates (RECs) given to an offshore wind power project when its local content ratio (LCR) is 50 percent or higher. The move comes more than one year after the incentive was introduced in December 2021. The decision is pending final approval by the Ministry of Trade, Industry, and Energy.

“Competitive bidding is practically a measure to lower prices,” said an unnamed official from the Korea Wind Energy Industry Association. “Companies making tenders at a lower price by using more cheap products from China are more likely to win the bid than companies having bonus points by having a higher LCR.”

The official raised concerns that a rapid surge in the number of products made in China may cause some serious issues in the industry.

The government, however, asserts that the competitive bidding system gives offshore wind power projects extra points if they have a higher ratio of domestic components.

“The existing REC weighting is being abolished to remove the double benefit,” one unnamed government official said.

Offshore wind power projects receive weighted RECs based on the distance between the shoreline and the closest generator to the shoreline. The projects have been able to receive more RECs if they have a LCR higher than 50 percent which in turn, makes the project more profitable. RECs are tradable like cash in the market.

According to the Korea Wind Energy Industry Association, there are 71 offshore wind farms licensed by local governments nationwide. Among them are 58 offshore wind farms that generate a combined 15.3 gigawatts (GW) of power all along the western and southern coast of the peninsula and they could be affected by the removal of the incentives.

The Korean offshore wind power market is worth about 100 trillion won ($75.6 billion) based on the estimated construction cost of about 6.5 trillion won per 1 gigawatt, according to the industry.