Hydrogen power, among other new and renewable energy sources, is garnering attention as one of the carbon-free power generation sources in Korea. The Korean government sees the production and use of hydrogen, a fuel to generate electricity, as one of the nation’s major economic strategies for the future and established a “Roadmap to Promote the Hydrogen Economy” in January 2019 to integrate hydrogen power into the country’s urban energy system.
For the promotion of the hydrogen economy, the Act on the Promotion of Hydrogen Economy and the Safety Control of Hydrogen was enacted and implemented as of February 5, 2021 (the “Hydrogen Act”). The Hydrogen Act provides a legal basis to nurture and support hydrogen-specialty enterprises; the installation of hydrogen charging stations; the establishment of a foundation to develop human resources and safety control. The Korean legislature recently amended the Hydrogen Act (the “Amended Hydrogen Act”), effective December 11, 20221 , introducing a new set of standards for hydrogen power that is distinct and separate from the Renewable Energy Portfolio Standards (the “RPS”).
Specifically, under the Act on the Promotion of the Development, Use and Distribution of New and Renewable Energy, a key law in the regulation of renewable energy businesses in Korea, the RPS requirements mandate that certain power generation businesses whose generation capacity exceeds 500MW generate a certain percentage of their electricity from new and renewable energy resources. However, as the RPS requirements alone have shown limitations with respect to promoting and expanding the use of hydrogen for power generation, the Amended Hydrogen Act adopted a hydrogen power generation bidding market, through which certain electric utility entities, such as Korea Electric Power Corporation (“KEPCO”) and district electricity companies, will be required to purchase a certain quantity of hydrogen power generation, etc.
And, on March 13, 2023, the Ministry of Trade, Industry and Energy (“MOTIE”) made an administrative pre-announcement to enact the Notification on the Calculation of the Purchase Quantity Per Year for the Hydrogen Power Generation Bidding Market, which has now taken effect as of May 24, 2023 (the “Notification”). The Notification contains the bidding quantity for hydrogen power generation and the annual purchase quantity for buyers for the certain time periods stipulated thereunder. Based on the Notification, MOTIE is expected to hold the first hydrogen power generation bidding in the first half of this year.
Some key highlights of the hydrogen power generation bidding market, as currently contemplated under the Amended Hydrogen Act and the Notification, are set forth below.
- Division of the bidding market by fuel source: The bidding market of hydrogen-generated electricity will be divided into the general hydrogen generation market (the “General Hydrogen Market”) and the clean hydrogen generation market (the “Clean Hydrogen Market”). The Amended Hydrogen Act defines “clean hydrogen” as “hydrogen or hydrogen compounds that have received a clean hydrogen certificate, including carbon-free hydrogen [produced from renewable energy resources], low-carbon hydrogen, and low-carbon hydrogen compounds”2. The General Hydrogen Market means a market in which hydrogen (including hydrogen produced from fossil fuel or natural gas resources) or ammonia is used as a fuel source to generate electricity, whereas the Clean Hydrogen Market means a market in which clean hydrogen is used as a fuel source to generate electricity pursuant to the Amended Hydrogen Act. Over time, however, the Clean Hydrogen Market will only remain if production of clean hydrogen becomes stabilized.
- Minimum bidding volume: The following is the minimum volume per year that is required to open the bidding market.
- For 2023: 1,300 GWh for the General Hydrogen Market for the dates of commercial operation (“COD”) in 2025.
- For 2024: 1,300 GWh for the General Hydrogen Market for the COD in 2026, and 3,500 GWh for the Clean Hydrogen Market for the COD in 2027.
- For 2025: 1,300 GWh for the General Hydrogen Market for the COD in 2027, and 3,000 GWh for the Clean Hydrogen Market for the COD in 2028.
- Purchase volume per year: The annual purchase volume means the sum of the volume that mandatory buyers purchase and the volume that persons other than mandatory buyers purchase. For 2025, each of KEPCO and 5 district electric utility companies have been allocated to purchase a certain volume of hydrogen-generated electricity. The annual volumes set for a period from 2025 through 2028 are as follows:
- For 2025: 1,300 GWh for the General Hydrogen Market
- For 2026: 2,600 GWh for the General Hydrogen Market
- For 2027: 3,900 GWh for the General Hydrogen Market, and 3,500 GWh for the Clean Hydrogen Market
- For 2028: 5,200 GWh for the General Hydrogen Market, and 9,500 GWh for the Clean Hydrogen Market
The introduction of the hydrogen power generation bidding market this year will accelerate the use of hydrogen power generation and bring positive effects by improving hydrogen power generation-related technologies. It is also expected to contribute to promoting distributed electricity power generation (as opposed to centralized electricity power generation) to take advantage of cost reductions in the installation of power transmission facilities. However, the progress of hydrogen power generation is still in the early stages and will need time to be firmly established, including the adoption of detailed regulations related to the operation of the bidding market for clean hydrogen.
1However, the effectiveness of certain provisions, such as those pertaining to the definitions of clean hydrogen, clean hydrogen certification, the obligation to sell and use clean hydrogen, and penalties and fines will come into effect within five (5) years of the effective date of the Amended Hydrogen Act in accordance with the presidential decrees.
2Therefore, this definition of clean hydrogen does not limit the scope of clean hydrogen to green hydrogen produced using renewable energy.
