Executive summary Korea’s energy sector is characterised by the dominance of fossil fuels, which in 2018 accounted for 85% of total primary energy supply (TPES), a strong dependence on energy imports at 84% of TPES, and the dominance of industrial energy use at 55% of total final consumption, the highest share among IEA countries. In 2018, Korea had the lowest share of energy from renewable sources in energy supply among all IEA countries. The Korean government is committed to advance the country’s energy transition by increasing the share of renewable electricity to 20% by 2030 and to 30-35% by 2040, to gradually phase-out coal and nuclear from the energy mix while significantly improving energy efficiency, and by fostering the country’s nascent hydrogen industry. Under the Paris Agreement, Korea is committed to limit its emissions to 536 million tonnes carbon dioxide equivalent (Mt CO2-eq) in 2030; in 2018, emissions were 709 Mt CO2-eq. Reaching these ambitious targets will require Korea to substantially enhance decarbonisation efforts across all energy sectors, address regulatory and institutional barriers, introduce flexible market designs, and make use of the country’s advanced technologies and innovative capacity. The government’s announcement of a Green New Deal in July 2020 as part of its post Covid-19 recovery package is a significant step towards accelerating Korea’s energy transition. in power generation, while use in final consumption is relatively small, at 5% of TFC in 2018. Natural gas demand has grown in recent decades, and in 2018 accounted for 17% of TPES. Nuclear accounted for 12%, bioenergy and waste for 3%, and other renewables for less than 1%. Due to the strong reliance on fossil fuels, Korea’s energy intensity measured in TFC/GDP was the third highest among IEA member countries in 2018 (see Chapter 4). In 2018, domestic energy production covered 16% of TPES. Of this, nuclear accounted for 77% of the total domestic production (note: nuclear feedstock is also imported), followed by bioenergy and waste with 16%. Other renewable energy sources, including solar, hydro, wind and geothermal, accounted for 4% of the production, and their shares have been growing slowly.
Energy security and system resilience Korea imports almost all of its fossil fuels and its nuclear feedstock. Its energy import dependency is over 90% (if nuclear energy is considered as domestic, energy import dependency declines to around 85%). Given the country’s geographic location, Korea has no inter-country electricity and gas connections, which is an added challenge for ensuring energy security. The government is pursuing a policy to diversify its oil and gas supply sources, and engages with neighbouring countries for an eventual creation of inter-country gas pipeline and electricity connections. Specifically, in the 3rd EMP, the government renews its commitment to the creation of a North East Asia Super Grid, to enhance not only energy security, but also the competitiveness of Korea’s domestic renewable energy industry. Korea is also co-operating with China and Japan to improve the transparency and flexibility of the global liquefied natural gas (LNG) market.
Energy efficiency Korea has a highly energy-intensive economy. In the period 2000-18, Korea’s total final consumption (TFC) increased by 43% while its economy expressed as gross domestic product (GDP) in purchasing power parity (PPP) doubled, resulting in a 25% decline in energy intensity (TFC/GDP). Since the financial crisis in 2008, there has been little improvement in energy efficiency and ensuring decoupling of economic growth from energy consumption has become a more urgent issue (Figure 4.1). Korea’s 3rd Energy Master Plan (EMP) of 2019 well reflects this sense of urgency and shows the government’s strong commitment to prioritise energy efficiency as the country’s first energy source. Based on the plan, the government aims to reduce Korea’s total final consumption by 18.6% in 2040 compared to the business as usual (BAU) case. The Energy Efficiency Innovation Strategy 2019 provides interim targets up to 2030 as well as specific measures to transform the domestic energy consumption pattern through the application of Korea’s most innovative technologies, such as information and communication technology (ICT) for energy management in industry and intelligent transport systems. Strengthening the existing regulatory measures while applying new technology-driven innovation in energy efficiency can not only accelerate Korea’s clean and safe energy transition, but can also help reduce its reliance on energy imports.
Energy innovation In February 2019, Korea made a major institutional change to its energy efficiency set up. The Ministry of Trade, Industry and Energy (MOTIE)1 established a new Energy Innovation Policy Bureau directly managed by a director general, which revamps the previous structure where the Energy Demand Restraint Division was placed under the New and Renewable Energy Policy Bureau of MOTIE and was the principal body responsible for energy efficiency (Figure 4.4). For the first time, an independent division was dedicated to improving energy efficiency, underlining the increasing prominence of energy efficiency in Korea’s energy policy. It also reflects a shift towards demand-side management instead of merely energy conservation to improving the efficiency of energy consumption. The main objective of the new office is to bring innovation to the centre of energy demand management with its five sub-divisions operating hand in hand. The Energy Innovation Policy Division is responsible for setting an overarching policy framework to transform Korea’s energy consumption pattern, which is one of the 3rd EMP’s primary targets. Acknowledging that such fundamental change requires a corresponding reform in energy pricing, markets and infrastructure, MOTIE placed three other divisions – Electric Power; Electricity Market; and Smart grids, Transmission and Distribution, and District Heating, as well as a Greenhouse Gas Reduction Team – under the same bureau.
Oil is the largest energy source used in the industry sector, accounting for 54% of total industrial energy consumption in 2018, followed by 24% for electricity, 9% for coal and 7% for natural gas. The rest were small shares of bioenergy and waste and district heating.
Given the dominance of energy-intensive heavy industries in Korea’s economy, decoupling industry’s energy consumption from its economic activity has been the government’s top priority. The majority of the existing energy efficiency measures in industry are of a voluntary nature. The Energy Champion programme, introduced in 2015, is a typical example that employs incentives to elicit voluntary actions such as the purchase of high-efficiency equipment and improvements of operating processes. Under the programme, companies set their own annual voluntary targets and register with the KEA to be selected as energy champions following an assessment of their proposed voluntary actions. After the establishment of an assessment framework and a pilot project in 2017, Energy Champion was enforced in 2018. The assessment framework is based on both a quantitative evaluation, with a maximum of 70 points, and a non-quantitative evaluation, with a maximum of 30 points of the activities undertaken in the previous year. Any company reaching a score of at least 80 points is accepted into the programme. The quantitative evaluation looks at the energy intensity improvements and the reduction of energy consumption, while the qualitative evaluation reviews the energy management effort and the practical actions for energy efficiency development.
New and renewable energy Promoting energy from renewable sources is at the core of Korea’s energy transition.1 Over the last decade, renewable energy in both total primary energy supply (TPES) and electricity generation has expanded significantly with the government’s strong support. However, the country’s mountainous topography, high population density and the absence of transborder interconnections creates challenges for Korea to accelerate renewable energy deployment. In addition, Korea had the lowest share of renewable energy among IEA countries in 2018 Korea is committed to increasing the share of renewables in power generation up to 20% by 2030 to be on track to meet the long-term target of 30-35% in 2040. For this, addressing the institutional barriers that have stalled renewable energy development, such as engagement with local communities, and establishing a coherent policy framework, systematic monitoring-based incentive schemes and flexible market design are essential. Korea can also benefit from its advanced technology and innovation capacity to lead the
development of new technologies like tidal and floating offshore wind power and further scale up decentralised energy systems, which in turn will enhance energy security in Korea, which is highly dependent on fossil fuel imports.
After a long period of slow growth, the shares of renewables in TPES and TFC soared between 2008 and 2018 (Figure 5.1). The sharp fall in the share of renewables in electricity generation between 1988 and 2008 is not due to declining use of renewable energy, but the exponential increase in Korea’s electricity generation, which more than quadrapled. With the demand for electricity slowing down and renewables growing over the last decade, the proportion of renewables in electricity generation jumped from 1.0% in 2008 to 3.9% in 2018.
Participatory business model for new and renewable energy development In addition to improving the mix of renewables, RE 3020 also emphasises improving the mix of participation by engaging with diverse stakeholders (Figure 5.6).
Electricity Electricity generation: 586.2 TWh (coal 44.1%, natural gas 26.5%, nuclear 22.8%, oil 2.2%, solar 1.6%, bioenergy and waste 1.4%, hydro 0.6%, wind 0.4%, other sources 0.4%) +32% since 2008 Installed capacity: 127.5 GW Electricity consumption: 545.5 TWh (industry 51.1%, services and other 33.4%,
residential 12.4%, other energy 2.6%, transport 0.5%) Electricity generation in Korea relies heavily on fossil fuels, which accounted for 73% of total electricity generation in 2018. Coal is the largest source with 44%, followed by 27% of natural gas and 23% of nuclear power (Figure 7.1). Korea has no electricity interconnections with neighbouring countries and operates an isolated system. The
government is committed to strongly increase the share of energy from renewable sources
in the period to 2030 and to a gradual phase-out nuclear and coal-fired power generation.
The 8th BPLE includes several projects to ensure the reinforcement of transmission infrastructure to accommodate expected demand growth and the increased construction of decentralised variable renewable electricity generation facilities. In Korea, new renewable generation capacity mainly comes from rural and mountainous areas and requires the construction of additional lines to bring generation to load centres. From 2018 to 2031, the 8th BPLE estimates that an additional 43 substations, 89 transformers and a total of 860 km of transmission lines will need to be constructed (MOTIE, 2017). The plan has identified a significant time gap of about four years between the installation of small-scale renewable generation facilities and the necessary transmission system reinforcement. As most IEA member countries, Korea has experienced delays in the construction of transmission lines due to opposition from the local population. To address the low public acceptance of new transmission lines and of transformation facilities, the government enacted the “Act on Transmission Facilities and Assistance to Adjacent Areas” in 2015. One objective of the act is to improve conflict resolution between the project proponents, local governments and other stakeholders. One key demand of local residents is that new transmission facilities be installed underground and the government is also committed to increase the involvement of residents early on in the site selection process (MOTIE, 2017).
Supply and demand Domestic oil production is very limited in Korea and covers less than 1% of oil demand; domestic oil production does not contribute to security of supply in the country. In 2018, Korea produced 0.5 thousand barrels per day (kb/d) of condensates and 15.4 kb/d of additives and oxygenates. Crude oil production is concentrated in two offshore fields, which started production in 2004 and 2016. Oil is produced as associated oil since those fields mainly produce gas. Korea’s oil demand stood at 2 562.1 kb/d in 2018 with a growth of 22% over the last decade (Figure 9.2). Only residual fuel oil and other gasoil consumption for heating have declined (35% and 6% respectively); consumption of other fuels has increased. Demand for naphtha has increased by 51% since 2008 and accounted for almost half of the total oil consumption at 1 287.5 kb/d in 2018. Naphtha is in high demand as the main feedstock for Korea’s growing petrochemical industry. Industry is Korea’s largest oil-consuming sector, accounting for half of total oil consumption in 2018, followed by transport (30.8%), minor shares of residential (3%), commercial (4%), and heat and power generation (3%). Diesel consumption (372 kb/d) is much higher than gasoline consumption (218 kb/d) and this has been a steady trend since 2000. In 2018, jet/kerosene consumption stood at 198 kb/d and residual fuel oil consumption was 215 kb/d.
Korea’s coal consumption has nearly doubled since 2000, from 72 million tonnes (Mt) to 137 Mt in 2018. The most rapid increase happened during the period 2006-11, when consumption grew by 54% in five years. Since then, coal demand has increased at a slower rate, with a 5% growth from 2011 to 2018. While coal demand has increased, domestic coal production has decreased by 86% since 2000 from already low levels, leading to a substantial growth in coal imports. In 2018, domestic production covered less than 1% of total coal demand; the rest was imported (Figure 10.2). Korea is the world’s fourth-largest coal importer (IEA, 2020b). Steam coal used in power generation accounted for 71% of coal imports in 2018 and the rest was coking coal used mainly in coke ovens and blast furnaces of industries. By weight, 36% of total coal imports came from Australia in 2018, followed by 28% from Indonesia, 17% from Russia and 7% from Canada (Figure 10.3).
Nuclear energy policy in Korea The 8th Basic Plan for Electricity Supply and Demand and the 3rd Energy Master Plan promote a long-term reduction of the reliance on nuclear power in Korea with no nuclear new build beyond the plants currently under construction (MOTIE, 2017). This means that Korea will halt electricity production from nuclear in 2083 at the latest, 60 years after the last plants will be connected to the grid. The new nuclear energy policy is built on four measures: 1) no life extensions of existing reactors beyond their initial 40-year design lifetime; 2) no new reactors built beyond those under construction; 3) more energy efficiency; and 4) a shift towards renewables and liquefied natural gas for electricity generation. Under this policy, the completion of the four APR-1400 reactors under construction should balance over the next decade the closures of about ten units that reach the design lifetime of either 40 years (seven pressurised water reactors with a rated capacity of 6 841 MW) or 30 years (three pressurised heavy water reactors with a rated capacity of 1 912 MW). As no new reactors beyond those under construction will be built, the initial plans for two additional APR-1400 reactors at Shin Hanul and four APR+ reactors have been respectively suspended and cancelled (Reuters, 2018).
The International Energy Agency (IEA) regularly conducts in-depth peer reviews of the energy policies of its member countries. This process supports energy policy development and encourages the exchange of international best practices. The Korean government is committed to substantially increasing the share of renewable energy sources in the electricity supply, gradually phasing out coal and nuclear power from the energy mix, significantly improving energy efficiency, and fostering the country’s nascent hydrogen industry. Many of these measures will help Korea advance its energy transition and improve its energy security, a high priority given the country’s limited domestic energy production. The government’s pledge of a Green New Deal as part of its Covid-19 economic recovery package in July 2020 is a significant step towards accelerating Korea’s energy transition. Achieving the ambitions of the Green New Deal will require addressing regulatory and institutional barriers, introducing more flexible energy markets, and making use of the country’s expertise in advanced technologies and innovative capacity.