A proposed energy U-turn by South Korea's new government would put the environment at the centre of energy policy, shifting one of the world's staunchest supporters of coal and nuclear power towards natural gas and renewables. If implemented, the ambitious plans by the world's fourth biggest coal importer and No.2 liquefied natural gas (LNG) buyer will have a big impact on producers. South Korea's LNG imports could jump by more than 50 percent by 2030, while coal shipments could peak as early as next year.
But experts warn that any move to halt construction of a raft of new coal and nuclear plants, many of which are already being built, could threaten energy security, spark claims for massive compensation and push up electricity prices. The plan by the new administration of left-leaning President Moon Jae-in which took power in early May would move a notable laggard in renewables towards green energy, responding to public concerns over air pollution and nuclear safety.
"The government can't neglect people's demands and in the long term it's right to pursue clean and safe energy. But there will be many challenges," said Sonn Yang-Hoon, Economics Professor at Incheon National University.
South Korea, Asia's fourth-largest economy, gets 70 percent of its electricity from thermal coal and nuclear reactors, and offers tax benefits to both sectors to ensure abundant electricity at affordable prices. While Moon's energy roadmap is still being hashed out, his staff say that care for the environment will play a central role in forming policy. "Currently taxes are imposed on gas for power generation, and we plan to correct the skewed tax system by seeking to levy environmental taxes on coal and nuclear," said Paik Ungyu, an energy engineering professor at Hanyang University who advises Moon on energy policy.
The government hopes to boost gas-fired generation from about 18 percent now to 27 percent by 2030 and boost the use of renewables, now mainly hydro, from roughly 5 percent to 20 percent, said Paik. At the same time, coal's contribution would fall from about 40 percent to 21.8 percent and nuclear from 30 percent to 21.6 percent, based on power demand growth of 2.2 percent.
A key short-term option is to boost the operating rates of gas-fired power stations from 40 percent to 60 percent through the reduction or removal of tariffs on gas imports. Coal and nuclear power are exempt from import tariffs. The price of gas-fired electricity in March was 129.51 won ($0.1160) per kilowatt-hour (kWh), 40 percent more than coal and nearly double the cost of nuclear power, according to data from Korea Electric Power Corp (KEPCO).
Long-term energy economics favour policy change, with renewable costs falling sharply due to improved technology and LNG prices sliding over 70 percent from their 2014 peak on a huge supply increase, especially from Australia and the United States. "If there are no new nuclear and coal plants, the potential LNG imports could be 46-49 million tonnes per annum depending on the success of the renewable targets," said Chong Zhi Xin, principal Asia LNG analyst at energy consultancy Wood Mackenzie.
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