Korea Development Institute (KDI) researchers Lim Hee-hyun and Jung Sung-hoon published policy recommendations on May 27 addressing renewable energy expansion challenges. The report highlights that domestic power generation facilities increased 154% over the past 20 years while transmission networks expanded only 26%, creating bottlenecks for renewable energy integration. South Korea aims to achieve 100GW cumulative renewable capacity by 2030, comprising 87GW solar, 9GW wind, and 4GW other sources, but current capacity stands at 39.1GW as of the first half of this year.
Transmission Network Expansion Lags Behind Generation Capacity Growth
From 2003 to 2023, domestic power generation facilities increased 154% while transmission networks expanded only 26%. Regions with concentrated generation facilities experience repeated grid saturation, leading to restricted new connections and output limitations. To meet the 2030 target, South Korea must install an average of 6.8GW or more of new facilities every half-year starting from the second half of this year. This represents four times the average half-year installation rate of 1.7GW over the past 5.5 years.
![KDI Briefing [Source: KDI]]()
KDI Cost-Benefit Analysis Shows Solar and Wind Subsidy Ratios
The Renewable Portfolio Standard (RPS) subsidy program invested KRW 4.5 trillion last year, with cumulative spending reaching KRW 28 trillion since its 2012 introduction. KDI's cost-benefit analysis based on 2020 data estimates social benefits at 1.33 won per subsidy won for solar power and 1.18 won for onshore wind power. These ratios account for environmental benefits from carbon reduction and air quality improvement, plus cost reductions from accumulated capacity.
However, excluding learning effects from technology accumulation, the benefit ratios drop to 0.89 won for solar and 0.80 won for wind per subsidy won, falling below costs. By comparison, US benefit estimates reach 3.50 won for solar and 5.21 won for wind per subsidy won.
Financing Challenges Include Price Volatility and Limited PPA Development
Renewable energy operators face high volatility in System Marginal Price (SMP) and Renewable Energy Certificate (REC) prices that determine revenues. Stable revenue channels such as long-term fixed-price contracts and Power Purchase Agreements (PPA) remain insufficiently developed. Delayed grid connections or output restrictions reduce expected sales volumes, prompting financial institutions to demand higher risk premiums and increasing capital costs.
KDI Proposes Three-Pillar Policy Framework
The report recommends three simultaneous policy initiatives. First, expand transmission network physical capacity while establishing supporting market infrastructure, resolving land acquisition, permitting, and community acceptance issues to accelerate grid capacity expansion. Second, reduce revenue risks for renewable energy projects and establish financial structures providing long-term, large-scale capital, including stabilizing competitive bidding-based long-term contracts and easing PPA transaction counterparty and scale restrictions. Third, design subsidy programs to create positive feedback loops between capacity expansion and cost reduction through learning effects, with regular cost-benefit evaluations prioritizing efficient projects and technologies.
Researcher Lim stated that Korean renewable energy policy stands at a turning point, requiring efficient design of power grids, capital financing conditions, and subsidy systems to achieve cost-effective and rapid deployment.
FAQ
What is the gap between South Korea's current renewable energy capacity and its 2030 target?
As of the first half of this year, cumulative renewable energy capacity stands at 39.1GW against a 2030 target of 100GW. To meet this target, South Korea must install an average of 6.8GW or more of new facilities every half-year starting from the second half of this year, representing four times the average half-year installation rate of 1.7GW over the past 5.5 years.
How do South Korea's renewable energy subsidy cost-benefit ratios compare to the United States?
KDI's 2020 cost-benefit analysis estimates social benefits at 1.33 won per subsidy won for solar power and 1.18 won for onshore wind power in South Korea. By comparison, US benefit estimates reach 3.50 won for solar and 5.21 won for wind per subsidy won, significantly exceeding South Korea's ratios.
