There is an outlook that the competition rate for the second-half onshore wind power bid, which closes at the end of this month, will remain sluggish. That is because profitability is falling as the government, saying it wants to lower the generation unit cost, has cut the cap on the price power producers can receive.
According to the renewable energy industry on the 12th, the Ministry of Climate, Energy and Environment has set a policy to continue lowering the bid ceiling price for onshore wind power under the logic that "if the bid ceiling price is lowered, the generation unit cost will also go down."
Domestic wind power is carried out under a government-led "fixed-price contract competitive bidding" system. When the government sets a price ceiling for the electricity produced and sold by wind power producers, only corporations that supply electricity at a price lower than that can carry out wind power installation projects. The system was introduced to expand wind power while lowering the electricity supply expense through competition among producers.
The bid ceiling price is the fixed price per kilowatt-hour (kWh) set by the government and represents the maximum price producers can receive for 20 years after winning a bid. From the producer's standpoint, profits increase as the ceiling price rises and the generation unit cost falls. The government's logic is that lowering the ceiling price will force producers to reduce the generation unit cost in various ways to make a profit, which will also bring down electricity bills.
The onshore wind bid ceiling price has fallen for three straight years. When the government first conducted fixed-price contract competitive bidding for onshore and offshore wind power producers in 2022, the onshore wind bid ceiling price was 169.5 won per kWh. In 2023 it fell to 167.78 won, and last year it dropped to 165.14 won. This year's ceiling is set at 163.84 won.
An official at the climate ministry said, "The goal is to bring the generation unit cost down to 150 won per kWh by 2030." The official added, "If the generation unit cost rises, it is inevitably passed on to electricity bills, increasing the public's burden," and "we want to send a signal to private producers to lower the generation unit cost."
However, the industry is voicing frustration that, with construction and labor costs for wind power rising and making it difficult to cut the generation unit cost, the government's insistence on lowering the bid ceiling price is sharply undermining profitability.
An official at an onshore wind company said, "Not only the expense of equipment such as wind turbines but also construction and freight, including wages, are steadily rising," adding, "as the bid ceiling price falls, we are in a position where it is hard to bear even the expense burden."
In fact, onshore wind bidding has failed to gain traction for two consecutive years. In 2023, the government's announced onshore wind procurement target capacity was 400 MW (megawatts), but the total capacity submitted by bidders was only 379.4 MW. Last year as well, submissions (199.4 MW) fell short of the announced onshore wind capacity (300 MW).
Industries related to onshore wind are also in a slump. The most representative area is onshore wind turbines. From the late 2010s to the early 2020s, several companies, including Hyundai Heavy Industries (HD Korea Shipbuilding & Offshore Engineering), Daewoo Shipbuilding & Marine Engineering (Hanwha Ocean), Doosan Heavy Industries & Construction (Doosan Enerbility), Hyosung Heavy Industries, and UNISON, manufactured onshore wind turbines. However, currently only two companies, Doosan Enerbility and UNISON, make onshore wind turbines.
If the number of producers participating in bids declines and the industry remains in a slump, it will become increasingly difficult to achieve the government's onshore wind power targets.
The government has said it will expand onshore wind power capacity to 6 GW (gigawatts) by 2030. Korea's onshore wind power capacity grew from 0.4 GW in 2011 to 2.3 GW as of last June, increasing by 0.1–0.2 GW each year. The government's goal is to roughly triple onshore wind capacity over the next five years, but the industry says this will be realistically difficult to achieve while sticking to the policy of lowering the sales price ceiling.
Instead of raising the ceiling, the government is said to be taking the position that it will secure large tracts of land needed for onshore wind power to meet the target. It plans to secure large sites in national forests and streamline major permitting processes such as environmental impact assessments to remove project uncertainty. It also decided to carry out a 100 MW pilot wind power project in wildfire-hit areas such as Yeongdeok and Yeongyang in North Gyeongsang.