Carbon Tracker’s latest report, Brown is the New Green, analyses the asset economics and relative competitiveness of South Korea’s coal power capacity. In doing so, it not only challenges the validity of planned coal investments but also the long-term viability of the existing fleet.
Key findings:
1. South Korea has the highest stranded asset risk in the world due to market structures. Our below 2°C scenario finds South Korea has $106 billion of stranded asset risk – the highest of the 34 countries modelled.
STRANDED ASSET RISK OF OPERATING COAL CAPACITY AND CAPACITY UNDER-CONSTRUCTION BY COUNTRY OR REGION
Source: Carbon Tracker analysis. Notes: for more information on the methodology see the full analyst note.
2. South Korea risks losing the low carbon technology race by remaining committed to coal. South Korea has 5.4 GW of coal under construction and 2.1 GW planned, as well as several retrofits in various stages of planning. Independent of additional climate or air pollution policy, our analysis shows it will be cheaper for South Korea to build new solar PV than to operate existing coal plants by 2027, calling into question not only planned coal investments but also the economic viability of the current operating fleet.
3. Planned retrofits could cost $3.6 bn which will accelerate the competitiveness of renewables and could impact KEPCO’s finances.
4. If South Korean policymakers remain committed to coal power, the nation will face a dilemma: continue to subsidise coal generators either directly (through higher tariffs) or indirectly (through out-of-market payments) to maintain their financial viability; or keep tariffs artificially low to shelter consumers from higher costs. Both outcomes could prove financially and economically unsustainable, as subsidising coal generation will either anger taxpayers or energy consumers, while artificially low tariffs for consumers will impact fiscal resources.
Carbon Tracker offers three recommendations for South Korean policymakers:
1. Stop investing in new coal (both new build and retrofits);
2. Develop a cost-optimised retirement schedule for the operating fleet;
3. Subject the retirement schedule to resource planning analysis to understand the system value of units.
*Image by Valery Rabchenyuk, “Jeonju Hanok Village in front of the sunset