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The spot transaction price of electricity produced by solar power generation continues to plummet. Earlier this year, the price of around 128 won per kilowatt (kW) plunged 43.5% to 72.27 won at the end of last month. As a result, it has become difficult to recoup the cost of the equipment even if the solar power plant works for 20 years, which is the lifetime of the solar power plant. There is a voice that says: “Only commercial operators have been the victims of the government’s increased solar energy performance.”
○ How was the price of solar energy determined?
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 in the wake of a new coronavirus infection (Corona 19), and the SMP plummeted to 49.65 won per kW, the lowest level since 2003 last month. It’s 45% of last year’s 110.78 won.
Additionally, REC prices continue to decline. REC is a kind of subsidy, and the solar companies that the government has issued REC to make additional profits by selling it 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. REC transactions, which are dependent on supply and demand, continue to decline 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 Day 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 skimmed milk powder falls and supply decreases, REC prices go up to make up for the loss, but recently, the rate of increase in supply was too fast and this structure collapsed. “. .
○ Companies facing bankruptcy crisis
Solar power generation companies say it is difficult to recoup the cost at the price of the recent spot transaction. It costs 1.5 million won per kW to build solar power generation facilities, excluding land costs. Even if the spot price for solar power is set at 80 won, the analysis shows that the cost of the equipment can be recovered 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 the 20-year operating period of the solar energy installations.
Ki-woong Hong, chairman of the Solar Power Generation Association, said: “As the technology of solar power installation develops, the installation cost drops 10% every year, but the transaction price of the solar energy as REC falls between 30% and 35% “. “Solar power generation companies are on the brink of bankruptcy,” he said.
The Ministry of Commerce, Industry and Energy has adopted several measures to avoid a sharp drop in the prices of solar energy transactions. The demand for REC increased as the REC purchase ratio of power generating companies increased, which was forecast 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 burden of the public. This is because the government offsets the cost of purchasing REC from power generation companies from solar power generation companies. According to the National Assembly Budget Office, related spending of 1,612 trillion won in 2017 is expected to skyrocket to 2.2 trillion won this year and 4,281.1 trillion won in 2024. There is also the possibility that an increase in electricity rates is unavoidable due to such a load. Increasing long-term commercial contracts can reduce 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.
Despite this, the government is proud of the success of expanding the supply of solar power generation facilities. Last September, the Ministry of Industry announced: “Despite Corona 19, we are achieving the annual goal of new and renewable energy installations in early July and exceeding the goal of supplying facilities for 3 consecutive years.”
Reporter Noh Gyeong-mok [email protected]
