This is an extract from a recent report “South Korea’s Economy Risks Missing Out on Global Transition to Ren” by IEEFA. This report analyses South Korea’s current standing with thermal energy and the reasons for their inability to reduce carbon emission or move to renewable energy.

The South Korean economy has grown rapidly since the Korean War in the 1950s because of swift industrialization and technological innovation. In 2024, South Korea has the 14th largest Gross Domestic Product (GDP) in the world and is ranked among the top 20 in GDP per capita. Within Asia, South Korea is the fourth-largest economy based on GDP and the fifth-largest based on GDP per capita.

However, South Korea’s remarkable economic growth and industrial development have come at a cost. The country has seen a sharp rise in CO2 emissions, ranking as Asia’s fourth-largest emitter based on total emissions and per capita emissions in 2021.

The country relies heavily on a high-carbon, fossil fuel-backed industrial sector, coupled with high energy consumption driven by relatively low electricity prices. South Korea’s electricity demand per capita in 2023 was 11.85 megawatt hours (MWh), more than triple the world (3.73MWh) and Asia (3.52MWh) averages, and 50% higher than the OECD average (7.92MWh).

In 2021, South Korea became the 14th country to pledge to achieve carbon neutrality by 2050 in its Nationally Determined Contributions (NDCs). By 2030, the country aims to reduce GHG emissions by 40% and plans to halve methane emissions. Furthermore, South Korea joined the international effort at COP28, pledging to triple renewable energy capacity and double energy efficiency by 2030.

Despite ambitious decarbonization targets, South Korea’s renewable energy deployments have lagged significantly. South Korea’s renewable electricity — which includes wind, solar, conventional hydropower, and other sources— accounted for a mere 9.64% of the power generation mix in 2023, falling far short of the world (30.25%) and Asia (26.73%) averages. Meanwhile, the share of wind and solar generation was just 5.3% in 2023. Even with the inclusion of nuclear power generation, South Korea’s share of clean electricity (40.32%) falls short of the OECD average (49.96%).

The International Energy Agency (IEA) classifies countries into six variable renewable energy (VRE) integration phases. Phase 1 indicates that a country is at the earliest deployment stage, with VRE technologies like wind and solar having no meaningful impact on power system operations. South Korea is at Phase 1 alongside Indonesia and lagging behind most OECD countries.

Since 2019, the gap between South Korea’s Renewable Portfolio Standard (RPS) — which mandates that utilities procure a specific share of electricity from renewables — and actual renewable energy generation has widened. Despite this policy, the share of renewable electricity in the power mix remains far below the mandated levels.

South Korea’s renewable energy generation status contrasts with the global trend which shows a record 30% of electricity in 2023 was produced by renewable power, driven by strong growth in solar and wind generation.

The International Renewable Energy Agency’s (IRENA) 1.5°C scenario requires roughly 68% of global power generation to come from renewable sources by 2030. By contrast, South Korea’s recently released BPLE implementation guide, issued in May 2024, outlines that renewable electricity will increase to 21.6% of the power mix by 2030 and 32.9% by 2038.

South Korea’s wind and solar power generation is ranked 32nd out of 38 OECD members, whereas coal and gas ranked 5th and 10th respectively. South Korea trails other countries by at least 15 years in reaching the 30% threshold for renewable electricity generation. Meanwhile, South Korea’s share of renewable energy in the total energy supply in 2022 was 5.29%, far lower than renewable power.

Since South Korea’s methodology for categorizing renewable energy technologies includes hydrogen, fuel cells, integrated gasification combined cycle (IGCC), and waste-to-energy – many of which have potential fugitive CO2 emissions – the real proportion of zero-carbon renewables in the energy mix is likely much lower when using IEA or other international classifications.

South Korea’s renewable energy deployment has lagged behind other countries because of industry and public resistance to energy transition, financing constraints, and inconsistent government policies. Since 2021, several South Korean industry associations and companies, including the Independent Power Producers Association (IPPA) and state-owned utility, Korea Electric Power Corporation (KEPCO), have voiced scepticism about the renewable energy transition, citing technical and economic feasibility concerns.

Fossil fuel subsidies further hinder South Korea’s transition to renewable energy. According to International Monetary Fund (IMF) data, fossil fuel subsidies amounted to around US$162 billion (bn), or 8.1% of the GDP in 2023.

A significant obstacle to deploying renewable energy is the delay in grid integration due to an inadequate transmission and distribution network. Out of 48,182MW of renewable energy connection applications submitted between 2018 and August 2023, only 62.8% have completed grid connection and commenced commercial operation. This means that approximately 17,924MW of renewables have not been permitted to connect to the grid.

South Korea’s renewable energy transition faces additional hurdles at the local level due to resistance from the public. An increasing number of local governments are restricting solar and wind power installations due to conflicts with residents. These concerns include land degradation and potential environmental impacts on local communities. The permit processes for offshore wind farms, are also cited as a roadblock. The government has not designated sites for offshore wind development. Without a national site licensing system, developers have to identify, study, and get permits for offshore project sites themselves.

Developers must negotiate with fishermen, local government, and other stakeholders from the beginning of the project development cycle. The ability of a project to connect with the grid is also uncertain as the national transmission utility has not allotted interconnection points for offshore supply cables or provided information on how much capacity could be accepted. Such complexities in the approval process significantly delay or terminate project development.

The risks of a delayed renewable energy transition

South Korea’s heavy reliance on fossil fuels and delayed renewable energy deployment creates vulnerabilities beyond environmental concerns. The ongoing war in Ukraine has underscored the geopolitical risks associated with depending on a limited number of suppliers for energy resources. Disruptions in global energy markets can lead to price volatility and supply instability, jeopardizing economic and energy security.

Recently, concerns have grown about China’s dominance in the renewable energy sector. Over the past decade, China has become a global leader in renewable energy advancing rapidly in technologies, economies of scale, and cost competitiveness. This raises questions about potential supply chain vulnerabilities and price fluctuations for South Korea as it seeks to expand its renewable energy deployment.

In 2023, more than 50% of global installed solar and wind capacity was in China. The country recorded the world’s highest annual capacity addition in the renewable energy sector over the last decade.

Achieving competitiveness in renewable energy generation is crucial for addressing climate change and is also a critical factor in enhancing national and industrial competitiveness, gaining geopolitical influence, increasing energy security, and improving trade risk management and global capital access.

The race to develop and deploy renewable energy sources is the defining energy challenge of the 21st century. It mirrors the historical dominance of fossil fuels such as coal in the Industrial Revolution of the 18-19th century and oil in the World Wars and Middle East conflicts of the 20th century.

The power struggle among nations is unfolding in the renewable energy sector, with countries adopting onshoring and nearshoring strategies to secure industrial competitiveness and internalize supply chains. The rapid rise of China’s renewable energy sector has sparked a fear of missing out among key players like the U.S. and Europe. These concerns include the potential loss of geopolitical influence, national security, industrial leadership, access to financing, and public well-being. In response to China’s dominance, the U.S. and E.U. have implemented more robust policy measures to support their renewable energy development.

Carbon-neutral technologies are now featured in geopolitical power struggles. In 2022, the U.S. Biden administration introduced the Inflation Reduction Act (IRA), which aimed to create a domestic renewable energy supply chain. The IRA allocated US$128bn in tax credits for investment in clean energy, including solar and battery technologies.

Similarly, in 2023, the E.U. announced the Net-Zero Industry Act (NZIA) to promote critical carbon-neutral technologies and encourage industries to build internal renewable energy value chains.

Meanwhile, South Korea proposed the Act on Special Measures for Protecting and Enhancing the Competitiveness of the Carbon Neutral Industry, which is pending approval in the National Assembly. South Korea has also enacted several laws since 2023, including the Special Act on the Nurturing of National Strategic Technologies, the Act on Partial Amendment to the Tax Special Limitation Act, and the National Resource Security Act.

However, these measures overlap significantly and require a unified approach. Compared to the American IRA or European NZIA, South Korea needs a similarly comprehensive policy that integrates national and energy security, industrial competitiveness, and renewable energy development holistically.

Conclusion

Unlike geographically centralized fossil fuel systems, South Korea relies heavily on imported fossil fuels. Renewable energy could offer greater stability in supplies and autonomy backed by an abundant and decentralized resource distribution system. An indigenous and widespread renewable energy system is based on technology availability, manufacturing capability, demand and supply management flexibility, and a modernized infrastructure. By contrast, fossil fuels are concentrated in a limited number of countries, assets, and infrastructures, susceptible to geopolitical disruptions and price volatility.

Several factors have hindered South Korea from harnessing the potential and opportunities in the new renewable energy landscape, including inefficient and fragmented policies, limited industrial strategies, disinterested investors, and public resistance. These roadblocks stalled South Korea’s potential to become a frontrunner in the renewable energy sector.

The future of renewable energy promises to be a geopolitical battleground, impacting energy security, industrial leadership, access to capital, and public well-being. While South Korea lags in its transition, competitor nations like China, the U.S., and European countries are gaining advantages with proactive and holistic approaches.

This fear of missing out on renewables is escalating rapidly. Policy frameworks such as the U.S. IRA and the E.U.’s NZIA, stricter emission regulations like the CABM and IFRS S2, and initiatives such as RE100 and the green finance movement have placed South Korea at a disadvantage. Recognizing and addressing the fear of missing out related to renewable energy is critical for the success of South Korea. The country’s delayed renewable energy transition could have unfavourable effects on geopolitics and national security, industry and trade, financing and capital, and public wellbeing, resulting from missed opportunities and socio-economic penalties.

A proactive approach from policymakers, industry leaders, and the general public can ensure the long-term sustainability and competitiveness of South Korea’s vital industrial sectors in semiconductors and emerging AI.

Prolonged reliance on fossil fuel-based power for these industrial sectors will place the country at a significant disadvantage. A faster transition away from fossil fuels to renewables will contribute to South Korea’s energy security, industrial leadership, and global economic competitiveness.

Key recommendations

  • South Korea should reduce reliance on fossil fuels in its power mix and expedite the transition to clean energy sources.
  • Meet the COP28 pledge of tripling renewable energy by 2030 instead of continuing fossil-fuel based power generation to meet the growing electricity demand from semiconductor clusters and AI data centres.
  • Implement more robust policy measures to accelerate renewable power deployment with a cohesive and holistic policy framework rather than fragmented and overlapping policies.
  • Accelerate the renewable energy transition to safeguard geopolitical influence, national security, industrial leadership, access to financing, and public well-being.

Access the complete report here