Building an offshore wind industry ecosystem in South Korea – reflections from the 2024 Minister-biz Offshore Wind delegation

As the local industry came together in March 2024 to showcase its project pipeline during the Minister-biz Offshore Wind delegation to Seoul and Jeonnam, Ramboll’s Country Manager for Wind Energy in South Korea Inho Cho was part of a panel session where he had the opportunity to facilitate dialogue between Danish investors and local industry stakeholders^[1].

The event, organised by Danish Energy Export, the Confederation of Danish Industry, and the Danish Trade Council in Seoul, gave participants, including the Danish Minister for Climate, Energy and Utilities Lars Aagaard, a comprehensive insight into the South Korean offshore wind market.

Inho discussed with attendees the key elements of building an offshore wind industry ecosystem, as well as the cooperation strategies required.

In this article, he shares his key takeaways that could help power offshore wind development in South Korea, helping the country to increase the share of renewable electricity to 30-35% by 2040^[2].

Creating a stable regulatory environment

What was clear during the three day event was that the South Korean offshore wind industry is a very interesting and exciting market for international investors, developers and suppliers, including those from Denmark.

However, like every emerging industry, there is an ongoing dialogue between all participants to help streamline processes and increase participation. This was certainly the case during Minister-biz where there was a large focus on the evolution of the local development regime and the regulation and approvals that support the offshore wind industry in South Korea.

The sector really started to develop in South Korea in early 2010s with the country adopting an “open door” approach to development like many other countries. What this means is that the developer is responsible for the end-to-end development of the project, including site selection, feasibility studies, applications and permits, and public consultation.

However, as time has gone by and the industry has matured, we have seen countries such as Germany, Denmark, the UK, France, and the Netherlands move from this “open door” system to procurement auctions, where the auctioneer offers a fixed volume in terms of budget or capacity, and the renewable energy project developers act as bidders. These government-led auctions for offshore wind energy provide more certainty for both developers and policy-makers with more equitable risk share.

Developers, particularly from Europe are therefore starting to question whether South Korea should move from its “open door” system where developers are dealing with 10 different ministries to get the up to 30 different permits for the development, to an auction system. For international developers, the “open door” system can be both complicated and time consuming, particularly for those who are used to dealing with a more streamlined process.

In the meantime, the South Korean offshore wind industry has been working closely with international developers to make the process more efficient. As the sector is a global market with limited resources and a tight supply chain, South Korea must see itself as competing with the more established industry participants in Europe.

In this regard, South Korea is willing to take the lead from Europe’s more advanced offshore wind industry and to give developers confidence that it is beginning to tackle some of these regulatory issues. In 2023, the Special Act for Promotion of Wind Power Distribution was introduced in the Korean National Assembly, which calls for government-led maritime zoning and permit centralisation. It takes its lead from similar legislation in countries like Denmark, which has a “one-stop-shop” policy where licensing is centralised to a single public agency, which consults and coordinates with relevant stakeholders.

As South Korea looks ahead to a general election in April 2024, the offshore wind industry is optimistic that this Special Act will pass parliament and give greater certainty to developers. Certainly, for the Danish industry and for those delegates attending Minister-biz, an auction style system with more centralised approvals would be welcomed.

Increasing grid capacity

To deliver the electricity that offshore wind turbines will generate, grid integration must be managed in parallel with South Korea’s planned offshore wind projects. Despite Korea Electric Power Corp (KEPCO), the sole grid operator in South Korea, aiming to expand its network along the western coast of South Korea to keep up with demand, there is concern that the country’s grid will not have sufficient capacity to accommodate the coming offshore wind opportunities.

Developers are required to enter into grid connection agreements with KEPCO and there is no requirement for offshore wind projects to be prioritised. While the Korean Government has a target of about 14GW by 2030, developers are looking for more certainty that this will be available in time.

What developers are starting to ask for and what we may start to see in coming years is South Korea allowing private sector investment in the grid. This should help to speed up its capacity and will provide opportunities to increase offshore wind project development.

The gap between rising development costs and lower selling prices

In 2022, the New Renewable Energy Center (NREC) of the Korea Energy Agency introduced a fixed price contract auction system for wind power projects in South Korea with the first of its planned annual auctions for wind power held where projects bid for 20 year Power Purchase Agreements (PPAs) covering both electricity generation and accompanying renewable energy certificates. The 100MW Jeonnam 1, which we visited during the Minister-biz event, was awarded to the consortium of Copenhagen Infrastructure Partners and the in-country conglomerate SK E&S.

This initiative aims to bolster the country’s commitment to renewable energy and foster sustainable practices. However, inflation, supply chain disruption and high interest rates are now competing against the NREC’s wind energy selling price. We have the competing interests of government understandably wanting to regulate wind energy prices, and we have developers who are impacted by higher costs and concerned about the long-term viability of their projects.

Of course, the selling price takes into consideration ongoing technological developments in wind energy production and the ability to create more power from the same development cost so there is a balance that developers and government need to come to in this process.

Developing a collaborative win-win mindset between local capabilities and international experience

While Korea’s move towards more stable and seamless regulation, and the appropriate demarcation on specialities between international offshore wind developers, advisors and manufacturers, and the South Korean energy industry are essential, it is equally important to establish a win-win mindset through transparent collaboration. In that sense, Ramboll as a company headquartered in Denmark and with a local office in Seoul, is partnering with local industry to contribute to the success of the South Korean offshore wind sector.

We expect to see more regulatory certainty, international collaboration and project updates throughout 2024. Maturing the offshore wind sector, developing large-scale impactful projects and creating an ecosystem are complex. Ramboll has decades of experience in the offshore wind sector in countries that are early movers in the industry. We look forward to conversations with both the private and public sectors to share our thoughts and navigate the development together.

^[1] South Korea planning big boost of renewables and offshore wind - Global Wind Energy Council

^[2] Korea 2020 – Analysis - IEA