By Simon Nicholas, Research Analyst IEEFA & Tim Buckley, Director of Energy Finance Studies IEEFA

The South Korean Ministry of Trade, Industry and Energy has proposed to increase the country’s renewable energy ambition. The country is likely to now target 30-35 per cent renewable energy by 2040, up from 8 per cent now. The Ministry also stated it will “drastically” reduce coal-fired power generation by banning new coal plants and retiring old ones.

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South Korea’s move away from coal has implications for Australia

The government has also raised the coal import tax a further 28 per cent and cut LNG import tax 75 per cent in an effort to reduce reliance on coal. The coal tax will now be US$40/t. These moves come on top of those already taken in 2017-18 to shift South Korea away from coal.

These new government moves further undermine the rationale for the Bylong thermal coal project in New South Wales (NSW), Australia. The Bylong project proponent is KEPCO, a South Korean government-owned entity.

South Korea is one of NSW’s four major thermal coal export destinations. The South Korean government’s announcement further clouds the future of the NSW thermal coal sector.

During a public hearing for South Korea’s new energy master plan on 19 April 2019, the Ministry of Trade, Industry and Energy announced that it would seek to significantly cut reliance on coal-fired power generation whilst shifting even more towards renewable energy.

South Korea’s energy master plan sets long-term energy policy and is renewed every five years.

Under the new draft plan, the government intends to increase the share of power output from renewable energy sources by up to 35 per cent by 2040, up from around 8 per cent currently. The previous renewable energy target, set in 2017, was to reach 20 per cent by 2030.

Park Jae-young, Director of the Ministry of Trade, Industry and Energy, stated that the role of coalfired power is to be cut further.

Driven by air pollution concerns as well as carbon emissions, the government will “drastically” cut power generation from coal by banning new coal-fired power plants and closing old ones.

In addition, the government will favour the use of Liquefied Natural Gas (LNG) and stop the construction of nuclear power reactors.

In 2018, coal accounted for 41.9 per cent of South Korea’s power generation, followed by LNG with 26.8 per cent and nuclear energy with 23.4 per cent.

The announcement of the new draft energy master plan comes on top of previous announcements that saw South Korea already making its move away from coal-fired and nuclear power and towards renewable energy and LNG. There has been a significant change in the long-term thermal coal demand outlook in South Korea since President Moon Jae-in was elected in 2017.

The outlook now, signalled in the new draft, is even more negative for South Korean coal imports. April 2019 has seen South Korea’s coal tax increased by another 28 per cent to KRW46/kg (US$40/t). At the same time the tax on LNG imports has been cut by 75 per cent. This follows a 20 per cent increase in the coal tax in April 2018. The South Korean government is clearly attempting to prompt a shift away from coal use in power generation.

The coal tax is in addition to South Korea’s carbon price, which was introduced in 2015 via a cap-and-trade system that currently prices carbon at around US$20/t.

Bloomberg New Energy Finance (BNEF) sees the South Korean electricity generation mix moving from 72 per cent coal and nuclear in 2017 to 71 per cent gas and renewables by 2050.6 As the nation’s coal and nuclear plants retire, BNEF foresees the electricity system becoming increasingly based on renewables, supported by South Korea’s battery storage manufacturing capacity as well as gas peaking plants.

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NSW thermal coal exports 2018. Source: DFAT STARS Database, based on ABS Cat No 5368.0, December 2018 data ©IEEFA

South Korea’s build-out of renewable energy capacity is under way. The year 2017 saw annual solar PV capacity additions in South Korea cross 1 GW.9 With its long coastline, offshore wind will also play an important role in South Korea’s energy future. As offshore wind costs continue to drop, South Korea has inaugurated its first offshore wind farm off the coast of Jeju Island.10 In June 2018, the Energy Ministry announced plans to build 12 GW of offshore wind by 2030.11 South Korea already has 4 GW of offshore wind in the pipeline.

The long-term collapse of South Korea’s thermal coal imports will have significant implications for the state NSW – Australia’s primary thermal coal export state.

South Korea is one of NSW four main thermal coal export markets along with Japan, China and Taiwan. All other export destinations are far behind the big four in terms of significance to the industry – the sum of all other export destinations is smaller than any of the big four.

NSW thermal coal exports to South Korea were 18 million tonnes (Mt) in 2018, down 11.6 per cent from the prior year and 35 per cent down from peak exports to South Korea in 2015.

*Article published in the July-September 2019 issue of The Asia Miner

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