© Archyde.com. KEPCO has to buy more RECs at high prices… fueling electricity price hikes
It was found on the 29th that the money spent by KEPCO to meet the mandatory allocation of new and renewable energy has doubled from 1.612 trillion won in 2017, the first year of the Moon Jae-in administration, to 3.264.9 trillion won last year. It is pointed out that the cost of purchasing a Renewable Supply Certificate (REC) has soared for the first time in four years, exacerbating KEPCO’s financial difficulties. In addition, the REC price last month jumped by 55% from a year ago, adding to the burden on KEPCO, as well as increasing the pressure to raise electricity rates.
According to KEPCO, the company’s REC purchase cost exceeded 3 trillion won last year, from 1.612 trillion won in 2017 to 2.163 trillion won in 2018, 2.47 trillion won in 2019, and 2.247 trillion won in 2020. In the first quarter of this year alone, 679.9 billion won was spent on REC purchases.
REC is a certificate that proves that the power generation company produced electricity with renewable energy such as solar power. KEPCO and power generation companies are obliged to fill a certain percentage of their electricity with renewable energy in accordance with the government’s Renewable Energy Supply Mandatory (RPS) system.
The Moon Jae-in government amended the enforcement ordinance at the end of last year to increase the RPS ratio from 9% last year to 25% by 2026. As a result, REC prices are rising as demand from power generation companies surges. According to the Korea Energy Agency, the average monthly REC spot price last month was 52,852 won, up 56.2% from a year ago (33,842 won).
KEPCO’s REC purchase cost is reflected in the climate environment rate, which constitutes the electricity rate with a time lag. This will lead to an increase in electricity rates. An official from the electric power industry said, “The REC cost will have a negative impact on KEPCO’s financial structure in the future. said
The Moon government raises the mandatory ratio of renewable energy… REC price jumped by 56% in one year
KEPCO purchases private solar power… At the end of last year, the Moon Jae-in government revised the Enforcement Decree of the ‘Energy and Renewable Energy Development, Use, and Dissemination Promotion Act’ at the end of last year to significantly increase the proportion of new and renewable energy among the electricity produced by power plants. Specifically, it was decided to raise the RPS ratio from 9% last year to 12.5% in 2022, 14.5% in 2023, 17.0% in 2024, 20.5% in 2025, and 25.0% in 2026. In order to achieve the carbon-neutral scenario in 2050 and the national goal of reducing greenhouse gas by 40% in 2030 (compared to the emission in 2018), he unreasonably brought out a plan to expand new and renewable energy at the end of his term.
This immediately led to a surge in the price of renewable supply certificate (REC). Initially, the REC price was stabilizing downward. This is because the ‘oversupply’ structure was formed as the number of solar power companies increased rapidly during the Moon Jae-in administration’s tenure. The spot price of RECs, which was an average of 123,000 won in 2017, fell to 42,309 won in 2020 and pushed back to 29,000 won (July and August, 2021) on a monthly average basis last year. However, as the Moon Jae-in administration raised the RPS ratio at the end of his term, the REC price began to rise sharply. The average monthly REC spot price last month was 52,852 won, up 56% from 33,842 won a year ago.
Industry observers point out that the Moon Jae-in government raised the RPS ratio as complaints from renewable energy companies such as solar power grew due to the sharp drop in REC prices. In addition, the Moon Jae-in government increased the number of fixed transactions that set the REC price higher than the spot price formed in the market. In the case of a fixed-price contract with a 20-year long-term contract, the RPS cost is the sum of the wholesale electricity price per MWh (the price at which KEPCO purchases electricity from the power generation company) and 1REC, and so on. For example, if a fixed price contract is signed at 150,000 won per MW, if the wholesale electricity price is 100,000 won, 1REC will be purchased at 50,000 won. This is advantageous for solar power companies, but it is a structure that is not very good for KEPCO. This is because KEPCO’s financial burden will inevitably continue as the REC cost burden increases even if the wholesale electricity price falls in the future. Experts point out that the REC pricing mechanism has been damaged by the Moon Jae-in government’s ‘overspeed solar power supply’ policy.
As the RPS cost that KEPCO pays to meet its mandatory quota for new and renewable energy increases, the pressure to raise electricity rates will inevitably increase. This is because the government reflects the cost of purchasing RECs in electricity rates under the pretext of ‘climate environment rates’. The people’s strength has also pointed out that RPS costs lead to KEPCO’s deficit and the burden of higher electricity rates.
Experts point out that the Yoon Seok-yeol administration needs to readjust the RPS ratio that the Moon Jae-in administration raised at the end of his term. The Moon Jae-in administration has decided to increase the share of renewable energy in the total power generation to 30% by 2030, but it is said that an alternative would be to lower this proportion and increase the proportion of nuclear power generation. An energy industry official said, “The system for determining the price of renewable energy also needs to be revamped.”
Reporter Lee Ji-hoon lizi@hankyung.com
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