Last year, the five power generation state-owned companies under Korea Electric Power Corporation (KEPCO) spent more than 2 trillion won for the first time on buying external certificates to meet their "renewable portfolio standard (RPS)" quotas. It was the largest amount on record.
The RPS is a system that requires power plant operators, including the five power generation state-owned companies—Korea South-East Power Co. (KOEN), Korea Southern Power Co. (KOSPO), Korea East-West Power Co. (EWP), Korea Western Power (KOWEPO), and Korea Midland Power Co. (KOMIPO)—to supply a certain percentage or more of their total power generation from renewable energy. Because the power generation state-owned companies cannot meet their renewable energy generation targets through their own production, they buy related certificates from external generators to fill the quotas.
According to materials obtained on the 10th by the office of Rep. Lee Jong-bae of the People Power Party, a member of the National Assembly's Climate, Energy and Environment and Labor Committee, from the Ministry of Climate, Energy and Environment and the five power generation state-owned companies, the five companies secured up to 90% of their RPS through purchases of "renewable energy certificates (REC)" from external generators last year.
An REC is a certificate issued for generating electricity from renewable energy and can be traded. The five companies currently center their operations on coal-fired power plants. Therefore, it is difficult to meet the RPS with renewable energy they produce themselves, so they buy RECs externally.
Last year, the share of REC purchases in Korea East-West Power Co.'s RPS quota reached 90.34%. That means only 9.66% of its RPS quota was covered by renewable energy it produced directly. Korea Midland Power Co. also filled 86.6% through REC purchases. The REC purchase shares at Korea South-East Power Co. (68.3%), Korea Western Power (66.4%), and Korea Southern Power Co. (64.7%) also exceeded 60%.
The five companies spent 2.0563 trillion won on REC purchases last year, up 190.5 billion won from 2024 (1.8658 trillion won). Last year was the first time the combined REC purchase amount topped 2 trillion won. While the five companies' total REC purchases fell from 37.1 million in 2024 to 36.34 million last year, the average REC purchase price rose from 50,920 won to 56,689 won, increasing the total amount spent on RECs.
The rise in REC prices is analyzed to reflect the impact of falling liquefied natural gas (LNG) prices after they surged when the Russia-Ukraine war broke out in 2022. In the long-term contracts mainly signed by the power generation state-owned companies, REC prices are fixed. The fixed REC price consists of the system marginal price (SMP, the wholesale electricity price applied when electricity is traded through the Korea Power Exchange) plus the REC, so when the SMP falls, the REC rises.
The SMP is set by the generation cost of the last generator dispatched to meet demand in a given time slot. In Korea, it is common for the LNG generation cost to set the SMP.
An official at the Korea Power Exchange said, "Because the SMP is linked to LNG prices, as LNG prices began to fall back to normal levels in 2023, the SMP price also fell, and conversely the REC price rose."
Because Korea Electric Power Corporation (KEPCO) bears part of the REC purchase expense paid by RPS suppliers, the increase in purchase amounts due to higher average REC prices could negatively affect KEPCO's financial structure. KEPCO covers part of the REC cost settlement with climate environment costs included in electricity rates.
Last year, KEPCO shouldered part of the REC purchase expense for 29 RPS suppliers. KEPCO's RPS compliance expense was 4.481883 trillion won last year, about 36% higher than in 2024 (3.298335 trillion won).
An energy industry official said, "The problem is that the power generation state-owned companies try to make up their RPS shortfalls by buying RECs," adding, "With the end of this year as a turning point, the RPS system will shift to a government-led competitive bidding system, and how to set the price that will replace RECs will be key to establishing the new system."