AUCTION NOTEBOOK | South Korea bets big on offshore wind with gigascale auction but perils persist

October 27, 2023
5 min read
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The East Asia nation’s latest wind tender, which earmarked 1.5GW for sea-based wind projects, was a big step forward for the sector, says Simon Engfred Schlichting, but there are historical hurdles that still needs surmounting

What’s the news? 

South Korea is doubling down on its ambition to put wind power at the heart of its energy transition with the launch earlier this month of its latest offtake auction for power purchase agreements (PPAs). The tender has reserved capacities of 1.5GW of offshore wind and another 400MW for onshore wind. This marks a significant jump in volume since its 2022 auction, where 550MW was procured without a reserve set specifically for offshore or onshore. The tender, which closes 10 November, will be based on a combination of qualitative criteria (40%) and a price bid (60%).

What’s the backstory?  

Last year, South Korea held the first of a planned annually recurring series of auctions for wind power, where projects can bid for 20-year PPAs covering both electricity generation and accompanying renewable energy certificates. Only one offshore wind project, the 100MW Jeonnam 1, was awarded to the consortium of Copenhagen Infrastructure Partners and the in-country conglomerate SK E&S.

Seoul is looking to rapidly ramp up deployment of offshore wind in its waters, with the aim of having 14.3GW flowing to grid by 2030. So far, the South Korean market has only seen demonstration and stepping-stone projects come into operation, with 142MW installed by end of 2022. Construction is underway on several smaller-scale arrays, including the 100MW Hallim (see image above, courtesy of Kongsberg Maritime, of Hyundai Frontier installing turbines).

Headshot of Aegir Insights' Analysts, Simon Engfred Schlichting

"The absence of a formal auction plan makes it difficult for developers to plan ahead as the size of tender is not known before release by the government."

Simon Engfred Schlichting
Senior Research Analyst - regional lead APAC
Aegir Insights

What does this mean for the market? 

The newly announced auction, with 1.5GW up for grabs by offshore wind developers, demonstrates Seoul’s commitment to a yearly cycle – despite the slow start in 2022 – and to the promised increase in capacity coming under the government gavel. However, a formal plan has yet to be seen, creating uncertainty about the size of the auction pipeline for developers to plan for.

There is also the wrinkle that developers bidding into the latest tender will need to have their environmental impact assessment (EIA) approved ahead of auction day if they want to tender for acreage – potentially limiting the number of projects that will be in the running both this year and in the coming auctions.

Are there any showstoppers on the horizon?

While the 1.5GW auction marks a key step forward for the offshore wind sector in South Korea, there remain concerns about some aspects of the way forward mapped out by Seoul.

First and foremost, the absence of a formal auction plan makes it difficult for developers to plan ahead as the size of the tender will not be known before announcement by the government. Developers are calling for an annual 3-4GW to be bid on in the coming years, which must be combined with an acceleration of what have historically been slow-rolling EIA approvals. The danger with lack of visibility and red-tape could translate into a smaller number of projects eligible to bid. Currently, there is no public overview of projects with finalized EIAs, which only adds to the overall level of uncertainty in the market.

Moreover, as of today no ceiling price has been set, and the auction steering committee, headed by the Ministry of Trade, Industry and Energy, will only rubberstamp this only after applications are closed. This creates a blurry bidding scenario for developers, where they could find themselves disqualified after the deadline. Lastly, the guidance on the qualitative auction criteria (accounting for 40% of a bid’s weighting) is still quite basic, though it is more transparent and elaborate than in last year's auction.

How has the industry reacted?

The 532MW Anma project – the first industrial-scale offshore wind power project in South Korea to successfully navigate its way through the permitting process – finalized a 15-month long EIA consultation process in July. The project’s development consortium, which includes the Asian renewables developer Equis, has previously stated its intention to bid in the latest auction. The project could account for a significant amount of the reserved capacity and is looking to start construction in 2024 and be in operation by 2027. No other developer has thrown their hat into the ring yet, which makes it difficult to assess the overall response to Seoul’s auction announcement at this point.

POWER OF THREE: South Korea is developing its offshore wind resource in a trio zones off its western and eastern coastline, with a target of having over 14GW online by 2030 – up from 142MW today (MAP: Aegir Insights)

What could happen next? 

While the industry awaits the results of the auction – due to come out late this year– the fact that the South Korean government’s promise of a yearly cycle is kept, while also increasing total planned capacity and a reserved specifically for offshore wind, marks a step in the right direction for a market that has until now been best known for its complex regulatory scheme and lack of transparency.

The South Korean parliament is still processing a proposal for a special act on offshore wind that aims for major regulatory overhauls for project site allocation and support. This could mean the end of the ‘open-door’ model – where developers identify sites and apply for an electricity business license to build – and a start to lease-based auctions, but there is still no firm indication of a timeline for these changes and implications for existing projects.

This article was first published in Aegir Insights' intelligence newsletter, Beaufort.

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