Hong Kong, October 30, 2017 -- Moody's Investors Service says that Korea's (Aa2 stable) increasing
focus on renewables, and particular on solar and wind power,
will drive growth in the country's renewable sector over at least
the next three to five years.
"The Korean government's aim to increase generation from renewables
to 20% of total generation by 2030 from 5%-6%
in 2016 will likely mean capacity expansion of 40-60 gigawatts
for new solar and wind power from around 5 gigawatts at end-2016,"
says Mic Kang, a Moody's Vice President and Senior Analyst.
Moody's conclusions are contained in its just-released report "Power
Sector -- Korea: Government initiatives to drive growth in
renewable sector," authored by Kang.
The estimated capacity for new solar and wind power is based on Moody's
assumption that growth in Korea's power demand will be minimal,
while plant load factors for new projects will remain similar to historical
averages.
The Korean government's plan to expedite the development of renewables
is consistent with its commitment to reduce carbon emissions under the
Paris Agreement, as well as with its aim to gradually reduce its
reliance on coal and nuclear power.
Specifically, the government will likely require non-renewable
power generators to produce a greater proportion of power from renewables.
In January 2017, the government also introduced long-term
fixed settlement prices for solar and wind, which will support the
feasibility of solar and wind projects, via bilateral contracts
with the six generation subsidiaries (gencos) of Korea Electric Power
Corporation (KEPCO, Aa2 stable).
Moody's estimates that the government's targeted capacity
expansion in solar and wind power by 2030 will require a total investment
of KRW100 trillion-KRW130 trillion over the next 12-13 years.
The gencos will lead the government's initiatives, owing to
their key policy role and increasing exposure to carbon transition risk.
At the same time, private sector participation in renewable developments
-- for example through project finance -- will be increasingly
important, given the significant funding needs. The government
aims to boost private sector participation in renewable developments by
easing various regulations.
"Despite improving business conditions, major credit risks,
particularly for large-scale solar and wind projects, will
come from potential cost overruns and project delays at the construction
stage mainly as a result of civil complaints," adds Kang.
As such, procurement of project sites with manageable construction
risk will be crucial for the viability of Korea's projects, particularly
given the country's high population density and the prevalence of mountains.
Renewable developments will likely erode KEPCO and the gencos' credit
strength, owing to the huge funding needs, and their growing
exposure to execution risk.
That said, the capital cost of new renewable energy capacity has
been declining, owing to greater economies of scale and improving
efficiencies associated with equipment for solar and wind.
The potential adverse impact from renewable developments will also be
manageable over the next two to three years as the capacity expansion
in wind and solar power will be gradual. In addition, KEPCO
and the gencos will receive incremental cash flows from new nuclear and
coal power plants under construction and new solar and wind farms.
Independent power producers (IPPs), mostly with liquefied natural
gas (LNG) powered plants, will likely face higher curtailment risk
for dispatch over the next three to four years because of increasing generation
from renewables, as well as new coal and nuclear power.
In the longer term, however, the IPPs should benefit from
high dispatch volumes, because LNG power plants can rapidly ramp
up during low output from renewables and cover part of the decreasing
generation from nuclear or coal power, and/or new power demand.
Subscribers can find the report at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091734
NOTE TO JOURNALISTS ONLY: For more information, please call
one of our global press information hotlines: New York +1-212-553-0376,
London +44-20-7772-5456, Tokyo +813-5408-4110,
Hong Kong +852-3758-1350, Sydney +61-2-9270-8141,
Mexico City 001-888-779-5833, São Paulo
0800-891-2518, or Buenos Aires 0800-666-3506.
You can also email us at [email protected] or visit our
web site at www.moodys.com.
This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Mic Kang
Vice President - Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077