Believing in one government and then going bankrupt … Solar policy turned into a nightmare

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The spot transaction price of electricity produced by solar power generation is plummeting. Earlier this year, the price of around 128 won per kW fell 43.5% to 72.27 won at the end of last month. Compared to the annual average of 186.07 won in 2017, it fell 57.3%. Consequently, even if the solar power plant works for 20 years, which is the lifetime of the solar power plant, it has become difficult to recoup the cost of installation. There is a voice that says, “Only commercial operators have been victims of the government’s accumulated solar energy yield.”

Prices collapse due to oversupply of solar energy

The selling price of solar energy is calculated by adding the system limit price (SMP) and the transaction price of a new renewable energy supply certificate (REC). The SMP is linked to the transaction price of liquefied natural gas (LNG). This is because the government has decided to rely on the most expensive LNG among power sources, such as nuclear power and coal power, to pay more for the price of solar power, which has no separate cost other than the installations. LNG prices fell due to the aftermath of the new coronavirus infection (Corona 19), and last month the SMP plunged to 49.65 won per kW, the lowest level since 2003. It is 45% of the 110 , 78 won last year.

Additionally, REC prices continue to decline. REC is a kind of subsidy system, and PV operators who have received government-issued RECs earn additional profits by selling them to power generation companies such as Korea Hydro & Nuclear Power and Southeast Power. Power generators fill a certain percentage of the electricity generated (7% as of 2020) by purchasing RECs. The prices of REC transactions, which depend on supply and demand, continue to fall as the number of solar power generation companies increases.

According to the Korea Electric Power Exchange, the number of solar power generation operators from 21,205 in 2017 increased more than three times to 6,6938 on March 3. As a result, the REC transaction price of 104.68 won per kW in 2017 plummeted, falling to around 70 won last year, and recently fell to 29.62 won.

An energy industry official said: “If the SMP falls and the supply decreases, the price of REC increases to make up for the loss, but recently, the rate of increase in supply was too fast and this structure collapsed.” said.

Companies in bankruptcy crisis

Solar power generation companies say it is difficult to recoup the cost at the price of the recent spot transaction. Excluding the cost of the land, it takes 1.5 million won per kW to build a solar power plant. Even if the spot price for solar power is set at 80 won, it is estimated that the installation cost can be recouped after 17 years. Considering the interest cost of financing loans for the purchase of land and the installation of facilities, as well as the costs of maintenance and repair, it is difficult to make a profit even after meeting the period of operation of the solar power installation of 20 years.

Ki-woong Hong, president of the Solar Power Generation Association, said: “With the development of solar power facility technology, the installation cost is decreasing by about 10% every year, but the transaction price of solar energy like REC has decreased more than that. ” “Photovoltaic power generation companies are on the brink of bankruptcy.”

The Ministry of Commerce, Industry and Energy has adopted several measures to avoid a sharp drop in the prices of solar energy transactions. It was decided to increase the demand for REC by increasing the REC purchase ratio of power generating companies, which was expected to be 8% next year, to 9%. It artificially increases the REC price by granting incentives, while inducing an increase in long-term fixed transactions for 20 years with better contractual terms than spot prices.

However, the balance between supply and demand in the market is already broken and several side effects are expected. First, the burden of the government artificially increasing the demand for REC and the purchase price returns to the public. This is because the government offsets the cost of power generation companies that purchase REC from solar power generation companies. According to the National Assembly Budget Office, related expenditures of 1,612 trillion won in 2017 are expected to skyrocket to 2.2 trillion won this year and 4,281.1 trillion won in 2024. An increase in fees is projected electrical will be unavoidable. An increase in long-term transaction contracts can lead to a decrease in demand in the spot market, further reducing the price of the REC transaction. The recent long-term transaction price of 150 won per kW is more than double the spot price, making it difficult to increase related contracts.

In the midst of this, the government prides itself on its success in expanding the supply of solar power generation facilities. Last September, the Industry Ministry announced: “Despite Corona 19, the annual target for new and renewable energy installations in July was achieved early, surpassing the facility supply target for 3 consecutive years.”

Reporter Noh Gyeong-mok [email protected]