By Kim Sung-woo
The levelized cost of electricity (LCOE) for solar and wind power last year fell by 13 percent to 15 percent year-on-year, thanks to an increase in global investment and advances in relevant technologies, according to a report titled "Renewable Power Generation Costs in 2021" released by the International Renewable Energy Agency (IRENA) on July 13.
The LCOE is the value of all costs incurred, from the construction of a power plant to closure of the plant, divided by the total amount of power generated during the operation period, serving as a useful metric for how economical the power plant is. More surprisingly, last year's solar LCOE fell 90 percent compared to 2010, while onshore wind power dropped 68 percent and offshore wind power declined 60 percent during the same period.
Relatedly, renewable energy power facilities newly built last year accounted for 81 percent of all new power plants, a 163-gigawatt (GW) capacity of which, or two-thirds, cost less than thermal power generation. Low costs are key to survival in a crisis. Moreover, Europe, the current leader in the international society's war against the climate crisis, is accelerating its supply of renewable energy in an effort to reduce the continent's dependence on Russian energy, even accelerating the increase in renewable energy supply amidst the global energy crisis.
I could sense this trend when I attended the International Green Energy Expo & Conference as a panelist last April. Under the agenda of accomplishing carbon neutrality by 2050, the panelists shared their views on market analysis, policies and investment trends by country. The majority seemed to be acknowledging that we were seeing sustainable growth and huge investment opportunities amidst the current crisis.
Notwithstanding the looming economic recession triggered by the widespread inflation and the Russia-Ukraine war, the current situation can be an amicable landscape for the renewable energy sector to keep growing. A rise in fossil fuel prices means more price competitiveness of renewable energy. It can also serve as a motivating factor for countries to invest in renewable energy supplies to maintain their national security.
The Export-Import Bank of Korea also predicted that the capacity of the world's new solar power plants in 2022 would be 230 GW, up 27 percent from 2021. As driving forces of such growth amidst the crisis, the bank pointed to demand from China and the United States remaining high, a sharp increase in European demand due to skyrocketing electricity prices caused by the Russian crisis, and an increase in demand from developing countries reaching grid parity (i.e., their costs of alternative energies are less than or equal to the costs of energies based on traditional sources such as coal).
Growth comes with investment opportunities. Per the Financial Times, Larry Pink, the CEO of BlackRock, the world's largest asset manager, commented on these opportunities. He remarked that in the short term, the war in Ukraine would increase production of crude oil, a traditional energy source, but in the long run, these series of events would accelerate the spreading of more eco-friendly energy sources to countries around the world.
He also added that opportunities are wide open and we need years of investment, stressing that there would be an important opportunity for investors in the medium to long term despite the geopolitical economic crisis that we are currently facing.
In this trend, we need to take a closer look at how Korea is performing. According to a report titled "Global Electricity Review 2022" released by British think tank Ember in March, wind and solar accounted for 10.3 percent of global power generation last year but Korea had only 4.7 percent which is not even half the world average.
While Korea was underperforming, China (11.2 percent), Japan (10.2 percent), Mongolia (10.6 percent) and Vietnam (10.7 percent) exceeded the 10 percent mark for the first time last year, out of a total of 50 countries that supply more than 10 percent of electricity through wind and solar power. The data is of significance from two aspects: competitiveness of Korean companies in the global market and growth potential of the Korean market.
Global companies such as Apple and BMW are strongly calling for their Korean suppliers to use renewable energy. Against this backdrop, Korea's competitiveness in the area of renewable energy has begun affecting Korean companies' competitiveness in export markets.
Moreover, as the introduction of carbon border adjustment in the EU and the U.S. becomes more visible, it is expected that the amount of renewable energy used to make a product will have a direct impact on the product's price competitiveness in the global market. A lack of renewable energy supply at the national level is expected to undermine global competitiveness of the nation's companies.
On the flip side of the coin, Korea's underperformance in a relative scale also means that its market for renewable energy has large growth potential. Many of the large energy-consuming companies in Korea that form the backbone of the nation's economy have just declared their drives for RE100 and carbon neutrality, which means it is now urgent for the Korean economy to increase its domestic supply of renewable energy.
Plus, the return on renewable energy sales is still relatively high in Korea compared to other countries, while the country risk is low. For global investors seeking a relatively low-risk and high-return market by country, Korea's renewable energy market is an attractive place to invest.
Kim Sung-woo is head of the Environment & Energy Research Institute at Kim & Chang.
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The LCOE is the value of all costs incurred, from the construction of a power plant to closure of the plant, divided by the total amount of power generated during the operation period, serving as a useful metric for how economical the power plant is. More surprisingly, last year's solar LCOE fell 90 percent compared to 2010, while onshore wind power dropped 68 percent and offshore wind power declined 60 percent during the same period.
Relatedly, renewable energy power facilities newly built last year accounted for 81 percent of all new power plants, a 163-gigawatt (GW) capacity of which, or two-thirds, cost less than thermal power generation. Low costs are key to survival in a crisis. Moreover, Europe, the current leader in the international society's war against the climate crisis, is accelerating its supply of renewable energy in an effort to reduce the continent's dependence on Russian energy, even accelerating the increase in renewable energy supply amidst the global energy crisis.
I could sense this trend when I attended the International Green Energy Expo & Conference as a panelist last April. Under the agenda of accomplishing carbon neutrality by 2050, the panelists shared their views on market analysis, policies and investment trends by country. The majority seemed to be acknowledging that we were seeing sustainable growth and huge investment opportunities amidst the current crisis.
Notwithstanding the looming economic recession triggered by the widespread inflation and the Russia-Ukraine war, the current situation can be an amicable landscape for the renewable energy sector to keep growing. A rise in fossil fuel prices means more price competitiveness of renewable energy. It can also serve as a motivating factor for countries to invest in renewable energy supplies to maintain their national security.
The Export-Import Bank of Korea also predicted that the capacity of the world's new solar power plants in 2022 would be 230 GW, up 27 percent from 2021. As driving forces of such growth amidst the crisis, the bank pointed to demand from China and the United States remaining high, a sharp increase in European demand due to skyrocketing electricity prices caused by the Russian crisis, and an increase in demand from developing countries reaching grid parity (i.e., their costs of alternative energies are less than or equal to the costs of energies based on traditional sources such as coal).
Growth comes with investment opportunities. Per the Financial Times, Larry Pink, the CEO of BlackRock, the world's largest asset manager, commented on these opportunities. He remarked that in the short term, the war in Ukraine would increase production of crude oil, a traditional energy source, but in the long run, these series of events would accelerate the spreading of more eco-friendly energy sources to countries around the world.
He also added that opportunities are wide open and we need years of investment, stressing that there would be an important opportunity for investors in the medium to long term despite the geopolitical economic crisis that we are currently facing.
In this trend, we need to take a closer look at how Korea is performing. According to a report titled "Global Electricity Review 2022" released by British think tank Ember in March, wind and solar accounted for 10.3 percent of global power generation last year but Korea had only 4.7 percent which is not even half the world average.
While Korea was underperforming, China (11.2 percent), Japan (10.2 percent), Mongolia (10.6 percent) and Vietnam (10.7 percent) exceeded the 10 percent mark for the first time last year, out of a total of 50 countries that supply more than 10 percent of electricity through wind and solar power. The data is of significance from two aspects: competitiveness of Korean companies in the global market and growth potential of the Korean market.
Global companies such as Apple and BMW are strongly calling for their Korean suppliers to use renewable energy. Against this backdrop, Korea's competitiveness in the area of renewable energy has begun affecting Korean companies' competitiveness in export markets.
Moreover, as the introduction of carbon border adjustment in the EU and the U.S. becomes more visible, it is expected that the amount of renewable energy used to make a product will have a direct impact on the product's price competitiveness in the global market. A lack of renewable energy supply at the national level is expected to undermine global competitiveness of the nation's companies.
On the flip side of the coin, Korea's underperformance in a relative scale also means that its market for renewable energy has large growth potential. Many of the large energy-consuming companies in Korea that form the backbone of the nation's economy have just declared their drives for RE100 and carbon neutrality, which means it is now urgent for the Korean economy to increase its domestic supply of renewable energy.
Plus, the return on renewable energy sales is still relatively high in Korea compared to other countries, while the country risk is low. For global investors seeking a relatively low-risk and high-return market by country, Korea's renewable energy market is an attractive place to invest.
Kim Sung-woo is head of the Environment & Energy Research Institute at Kim & Chang.
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