The government is reportedly reviewing a plan to newly revise the "same capacity, same unit" principle that had been applied when converting the fuel for combined heat and power plants supplying heat (steam) and electricity to industrial complexes from coal to liquefied natural gas (LNG). The direction would recognize the effect less than before even if a coal plant is converted to an LNG plant, and some experts warn that this could delay coal's phaseout.
According to the government and academia on the 23rd, group energy operators that run combined heat and power plants in industrial complexes, including GS E&R, Hanwha Energy, and SGC Energy, must win bids in the "LNG capacity market" to replace coal-fired combined heat and power plants with LNG combined heat and power plants.
Under the criteria for the last pilot bidding of the "LNG capacity market" held in Dec. 2024, when winning an LNG combined heat and power plant, the increase in generation capacity was calculated by subtracting the existing coal generation capacity. That was because the existing coal generation capacity was regarded as being replaced at a one-to-one ratio with LNG generation capacity.
Instead, when submitting a plan to build an LNG combined heat and power plant with the same generation capacity as the coal combined heat and power plant in operation, three bonus points were awarded. The reasoning was that maintaining the previously authorized heat and power production capacity would keep the facility capacity targets of the Basic Plan for Long-term Electricity Supply and Demand (hereinafter the power plan) from being excessively exceeded and reduce the likelihood of grid congestion.
However, there is now a possibility of changes to the system. The Ministry of Climate, Energy and Environment is reportedly reviewing from scratch the current same capacity, same unit principle in line with the announcement of the 12th power plan. A ministry official said, "Nothing has been finalized yet."
An academic in the energy field who requested anonymity said, "Since the 11th power plan, there has been an opinion to recognize only half of the existing coal combined heat and power generation when converting coal to LNG combined heat and power," adding, "The government is concerned that if combined heat and power plants are switched from coal to LNG, the capacity of LNG generation turbines is larger than coal, leading to a sharp increase in LNG generation and carbon emissions."
According to the power generation industry, the capacity of turbines for coal generation is usually about 100 megawatts (MW). But the capacity of turbines for LNG generation starts at around 500 MW. Operators that want to convert the fuel for combined heat and power plants from coal to LNG typically apply to scale up an existing 100 MW-class coal combined heat and power plant to a 500 MW-class facility.
If the same capacity, same unit principle is applied, when a 100 MW coal combined heat and power plant is closed and an LNG combined heat and power plant is built, the newly added generation capacity is counted as only 400 MW. However, if the same capacity, same unit principle is not recognized at all, the increase in generation capacity becomes 500 MW.
The government introduced the LNG capacity market bidding system starting with the 11th power plan. LNG emits less carbon than coal, but it is still a fossil fuel. It was a mechanism to prevent the indiscriminate construction of LNG plants during the carbon-neutral transition.
Under the 11th power plan, the government planned to cover 2.2 gigawatts (GW) with LNG combined heat and power by 2032. In Dec. 2024, the government held a pilot bidding for the LNG capacity market, announced 1.1 GW, and awarded 0.9 GW. The remaining volume is 1.3 GW.
But no new bidding has been conducted since. As a result, the conversion of group energy operators that have used coal as fuel to LNG combined heat and power plants has been blocked for more than a year. About 50% of the combined heat and power plant facilities operated by group energy companies use coal as fuel, but if LNG capacity bidding does not open, there is virtually no way to replace them with LNG.
If the government reexamines even the same capacity, same unit principle, group energy operators that were preparing to convert to LNG combined heat and power plants under the 2024 pilot bidding rules are highly likely to face policy uncertainty again.
Yoo Seung-hoon, a professor in the Department of Future Energy Convergence at SeoulTech, explained, "The greatest advantage of the same capacity, same unit principle is that by directly converting a coal combined heat and power plant to an LNG plant, the already built transmission lines, substations, and water infrastructure can continue to be used as they are." He said, "If the principle changes so that a new LNG plant is built at a different site and the existing coal plant is closed, the power infrastructure will also become useless, and the burden of building new power networks will increase."
Yoo added, "If bonus benefits disappear or capacity is reduced, group energy operators that intended to replace aging coal combined heat and power plants with LNG are likely to choose to extend the life of coal combined heat and power plants," adding, "This will lead to results that do not align with the government's coal phaseout policy."