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[11월호, 2020년] Growing Investment in Renewable Energy: Tasks Remain in South Korea - 6기 윤형찬

Growing Investment in Renewable Energy: Tasks Remain in South Korea

 

[Rise of Renewable Energy]

    Decades ago, renewable energy was hard to compete with conventional energy in the market despite its importance to environmental protection. Everyone knew that the growth in renewable energy will greatly contribute to mitigation of climate change, but only few states and investors engaged in the new industry. However, technological development in renewable energy has brought about rapid improvement in its cost. Cost reduction of Solar Photovoltaic (PV) is the representative example. From 1976 to 2015, Solar PV panel recorded 21.5% of “Learning Factor”. Learning factor is an indicator that shows how much the price of a product drops when the selling of that product is doubled. In the case of solar PV panel, the price has dropped by 21.5% every time when the quantity of selling was doubled. In accordance with this amazing learning factor, the panel price reduced from 100 dollar/W in the 1970s to 0.65 dollar/W in 2013 improving about 99% from its original cost.


Source: https://merculexenergy.com/2020-make-renewable-energy-an-option/


    As the price competitiveness meets the demand of energy market, investment in renewable energy has surged in 21st century. Global investment in renewable energy only remained at 40.1 billion dollars in 2004 but has increased to 282.2 billion dollars in 2019 even excluding investment to large hydropower plants. Meanwhile, the total investment flow moving into traditional energy such as coal-fired plant and new gas-fired plant were 37 billion dollars and 47 billion dollars, respectively. Now it is certain that the investment in renewable energy has surpassed that of conventional energy, marking a downtrend of past energy dominators.

Source: Bloomberg NEF (https://www.fs-unep-centre.org/wp-content/uploads/2020/06/GTR_2020.pdf - page 23)

 

[Governmental policy to promote renewable energy]

    The rise in global investment in renewable energy is projected to continue in alignment with Renewable energy 2030 targets by 87 governments around the world. Not only the OECD countries but also developing countries are setting policy guidance to move toward energy transition. Germany has already achieved in generating 40% of its national energy consumption by renewable energy. China is the global largest investor in renewable energy and the government aims to realize a renewable energy share of 45-50% by 2050. The total amount of global investment required to achieve the 2030 energy target is supposed to reach $1 trillion during the next 10 years. While the global investment moves toward renewable energy industry, and the industry being the most prominent one in the future, what endeavors are taking place in South Korea to promote renewable energy investment?

 

[ Concerns over Renewable energy finance in South Korea]

    South Korean government has emphasized renewable energy since 2008, when the national development scheme was dominated with a term “Green Growth”. Green Growth aims to attain economic growth and environmental protection at the same time by introducing environment-related industry such as renewable energy as a new driving power for economic growth. Under the national scheme, the government introduced “green finance” in 2009 to activate money flow into renewable energy industry. Green bond, which was named over bonds associated with any green industries, was the main outcome of green finance. However, the green finance scheme ended up with a lack of investment among corporates and individuals. The major reason for its failure was due to the lack of public interest in green growth. Another reason was the small size of green bond markets, which made investors reluctant to engage in the new bond market. Green Finance in the beginning remarked an opening of a new financial market. But the public discourse on the importance of environmental protection remained at an early stage, leaving the renewable energy finance room for further improvement.

Source: https://canadawood.org/covid-19-update-south-korea-to-invest-60b-in-green-projects-as-part-of-new-deal-scheme/

 

    Recently in 2020, South Korea announced an introduction of a new financing strategy, which is called “New Deal Fund”. The New Deal Fund plays the same role with Green Finance but merely changed its name to differentiate from the previous scheme. It involves 3 types of financing; 1) Policy New Deal Fund, 2) New Deal Infra Fund, 3) Private New Deal Fund. The Policy New Deal Fund aims to absorb impact from investment loss by bearing investment risk up to 35%. New Deal Infra Fund provides tax reduction to infrastructure projects which contribute to environmental development. Private New Deal Fund fosters a better funding condition where individuals can voluntarily engage in new deal related industry. The New Deal Fund is designed to call upon a shift in industrial paradigm and it mainly contains a goal for energy transition from conventional energy to renewable energy. The new fund seems to be more strategic and systematic than the previous financing scheme. Furthermore, public interest on environmental protection reached higher than any other time.

 

    But there are also rising concerns whether the New Deal Fund will truly work in the real financial setting. The minister Hong Nam-ki of Ministry of Strategy and Finance officially said that the expected profit from New Deal Fund would reach only above 1.5%, which is slightly higher than government ten-year bond but significantly lower than other market bonds. Thus, there is a concern that only large financial institutions will engage in the fund while small and medium sized corporates may not be so participative.

 

    South Korea’s first financing scheme, Green Financing, resulted in weak outcome and thus, the government plans to launch its new financing initiative next January. Since private sector rises as a major player in global renewable investment, the New Deal Fund is indeed required to induce private sector’s participation to achieve the 2030 energy target. Will South Korea be able to activate its green financing flow in the next few years, or will it end up undergoing the same failure?

          

 

 

Reference

[1] Bloomberg NEF. (2020). Global Trends in Renewable Energy Investment 2020. Bloomberg NEF, UNEP. 11-78.

[2] Tony, S. (2014). Clean Disruption of Energy and Transportation. Clean Planet Ventures. Silicon Valley, California, USA.

[3] Oh, D & Kim, S. (2018). Green Finance in the Republic of Korea: Barriers and Solutions. Asian Development Bank Institute. 1-25

[4] 녹색금융 종합포털. “녹색금융 개념소개”. http://www.green-finance.or.kr/sub07/sub07_01_01.php

[5] Korea Herald. (October 10, 2020). AIIB calls for Korea’s efforts in ‘climate finance’. Retrieved November 13, 2020 from https://www.koreatimes.co.kr/www/biz/2020/10/126_297347.html

[6] 이지훈. 한국금융. (2020.09.03). “국민참여형 뉴딜펀드 조성 및 뉴딜금융 지원방안 발표 – 정부”. https://www.fntimes.com/html/view.php?ud=202009030840437745c7303b8f3d_18

[7] 문가영. 매일경제. (2020.01.01). “해외 신재생에너지 투자시장 못 따라가는 한국”. https://www.mk.co.kr/news/stock/view/2020/01/2202/

[8] 강진규. Digital Today (2020.10.21). “[막 오른 뉴딜 금융④] 정부 말 바꾸기에 벌써 엇박자… 녹색금융 전철 안 밟으려면”. http://www.digitaltoday.co.kr/news/articleView.html?idxno=250131


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