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Nuclear power emerges victorious from South Korea’s presidential election, but gas, renewables could lose out

17 March 2022 Max Tingyao Lin

South Korea's president-elect Yoon Seok-yeol is promising to revise the country's decarbonization roadmap, and experts said his pro-nuclear policy could squeeze out renewables and natural gas from the power mix.

Earlier this month, as the opposition candidate, Yoon narrowly defeated Lee Jae-myung from the ruling Democratic Party in the presidential election. Incumbent president Moon Jae-in is not eligible to run for a second term under the South Korean constitution.

Yoon, whose five-year term will begin 10 May, pledged during the campaign that he will change the current government's approach to climate change—in particular, a nuclear phaseout policy will be scrapped.

When submitting its latest Nationally Determined Contribution (NDC) to the UN in December, South Korea—Asia's fourth-largest economy—committed to a 40% cut in GHG emissions from 2008 levels by 2030 and carbon neutrality by 2050.

The promises came after the National Assembly, where the Democratic Party's super majority will last until 2023, passed a bill to mandate an emissions reduction of at least 35% by 2030 and carbon neutrality by midcentury.

Yoon reportedly suggested the 2030 goal will remain intact while the 2050 goal could be adjusted, arguing that aggressive decarbonization would add burden to industries. But there is little chance for any actual change due to the lawmakers' likely opposition and diplomatic pressure, according to some.

"It may cause huge diplomatic issues … Backlash from the country's biggest ally US will be paramount as well as [from] other countries, as the NDC plan needs to be reviewed under the UN Framework Convention on Climate Change," said S&P Global Commodity Insights' Vince Heo, associate director for power at ENR.

Still, Yoon's administration will determine South Korea's next Basic Plan for Electricity Demand and Supply and Long-Term Natural Gas Supply Plan, which are due by early 2023. Heo described the two as "the country's most critical plans guiding energy market fundamentals over the next 15 years."

Without support from the National Assembly, Yoon can still use the executive orders to build and decommission power plants, allocate research and development budget to his preferred energy sources, and revise permitting process and safety regulations for the power sector.

Nuclear revival

Moon, the outgoing president, created a de facto nuclear phaseout policy by not approving new plants and letting the existing ones retire on time. But he refrained from cancelling the projects approved by the previous administrations.

Construction of some plants continued during his term. Four 1.4-GW reactors—namely the Shin Hanul No. 1 and 2, and the Shin Kori No. 5 and 6—are due to come online between 2022 and 2025, according to S&P Global's Platts Analytics. Meanwhile, the permits for seven reactors with a total capacity of 6.72 GW are set to expire in 2023-2029.

According to the Moon administration's decarbonization roadmap, nuclear energy's proportion in the power mix will increase from 23.4% in 2018 to 23.9% in 2030 before falling to 6.1%-7.2% in 2050. The president-elect said the low-carbon energy source should make up for 30%-35% in 2030 to generate more job opportunities at home.

Moon stopped the design work for two additional Shin Hanul units with 1.4 GW capacity each, but Yoon has vowed to revive them. Even if he succeeds, the two reactors are not expected to be commissioned by 2030.

"Due to the relatively long construction periods for new nuclear plants, it is likely that some operating permits will be extended if South Korea wants to increase nuclear power generation by 2030," said Andre Lambine, senior power analyst at Platts Analytics.

Kwanghee Yeom, senior associate for South Korea at thinktank Agora Energiewende, said building new plants in South Korea would be hard as local communities tend to prefer renewable projects over them.

Instead, he expects that the 680-MW Kori No. 2 reactor, the 1-GW Kori No. 3, the 1.04-GW Kori No.4, and the 1-GW Hanbit No. 1—whose permits are due to expire between 2023 and 2025—will see their operating lives extended during Yoon's term.

Renewables development in trouble

But the nuclear renaissance could come at the expense of renewables expansion. The outgoing government wants renewables to account for 30.2% of power generation in 2030 versus 8.2% in 2018. Yoon's target is a 20%-25% share in 2030 and 30% in the mid-2030s.

"Renewable power development will likely hit by the pro-nuclear policy, because the new government may restrain budgets for subsidizing renewables," said Heo. "Offshore wind will be particularly at risk because it calls for huge grid infrastructure investment … It's likely that the pace of the grid infrastructure development will be less prioritized by Yoon's government."

Currently, state-owned Korea Electric Power Corp. (KEPCO) controls all the country's transmission and distribution networks. Its wholly owned subsidiary Korea Hydro & Nuclear Power owns and operates all nuclear plants in South Korea, and analysts believe that could be where KEPCO deploy its resources to in the coming years.

"We expect the renewables sector to be negatively affected," said Yeom, who served as a policymaker under the outgoing president in 2017-2020. "Even if the [financial] support policy stays in place, the expansion of infrastructure including transmission and distribution networks—currently the most important step for scaling up deployment of renewables in the country—might not be accelerated."

Changing dynamics for gas and coal

Among other energy sources, the current government's decarbonization plan is to cut coal's share from 41.9% in 2018 to 21.8% in 2030 and gas' from 26.8% to 19.5%. Yoon is eyeing a combined share between 40% and 45% for the fossil fuels in 2030.

In South Korea's electricity dispatch systems, gas represents another base load after coal and nuclear power . "This may culminate in lower utilization of existing gas power generation as well as cancellations of some new gas power plants," said Heo, adding that "the stakes of cancellation are high" for gas-fired plants with a total capacity of 4.6 GW that are due to come online after 2030.

Others highlighted Yoon's mixed messages on coal power during his campaign, and said this could leave an opening for gas. The president-elect suggested Moon's plan to phase out coal power by 2050 could be unrealistic, but he also promised to curb operation of the more polluting coal-fired plants to reduce fine dust pollution.

Seoul-based Solutions for Our Climate (SFOC) noted Yoon's People Power Party has generally taken a more negative position regarding gas power due to its nuclear ambition. "However, this does not necessarily mean that the new president will take a negative stance towards fossil gas," the nonprofit said in an emailed comment.

Business opportunities

Like the outgoing administration, Yoon believes the world's low-carbon transition can lead to more opportunities for South Korea's export-oriented economy.

He set a target for South Korean firms to win orders to export 10 nuclear plants by 2030, with small modular reactor technology being an area of particular focus.

Yoon's administration also plans to enhance the competitiveness of South Korean battery makers, including LG Energy Solution, which completed the country's largest initial public offering earlier this year. It will also continue to develop hydrogen clusters while shifting focus to "pink" hydrogen generated from nuclear energy.

But some suggested that Yoon's energy transition plans emphasize economic benefits rather than decarbonization effects. South Korea is home to some major steelmakers, petrochemical producers, and metal smelters that require a lot of renewable energy to cut emissions from their operations.

"Yoon has not made emission reductions a priority for the power and industry sector. Thus, we anticipate that these sectors will not increase efforts to reduce their GHG emissions in his presidency," Yeom said.

SFOC called on the incoming president to introduce a retirement mechanism for coal plants, enhance the pricing mechanism for renewable electricity, and rein in public financing for oil and gas. "So far, Yoon has not made any pledges or comments concerning the above," it said.

Posted 17 March 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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