LONDON, April 08: South Korea should pivot from reliance upon LNG power generation toward renewable sources to protect consumers from record energy price volatility, geopolitical supply shocks and deliver on net zero goals, finds a new report ‘Stop Fuelling Uncertainty’ and briefing for South Korean policymakers released today by Carbon Tracker.

Report author, Senior Analyst Jonathan Sims said:
‘Now is not the time for South Korea to further increase dependence on volatile gas markets for energy sector needs. Building new large-scale gas units in South Korea will increase reliance on the increasingly volatile global LNG market unnecessarily, at a time when the risks of gas market exposure have never been higher. Planning for a power system centred on lower-cost renewables with battery storage not only represents the best option for cutting exposure to commodity price volatility and stranding risk, but also to deliver against climate targets.’

Designing a power system centred around renewables with battery storage will minimise commodity price risk, can be developed at lower cost than new gas, and will prevent billions of dollars of LNG infrastructure investment from becoming stranded. These are the key findings of ‘Stop Fuelling Uncertainty’.

South Korea is a signatory to the Global Methane Pledge with an NDC climate target considered to be stretching for business and the economy. President-elect Yoon Suk-yeol, due to take office in May has suggested however that ambitious renewable energy targets may need to be scaled back, and that “traditional” sources of energy, including nuclear and gas, will be required in future.

‘Stop Fuelling Uncertainty’ urges policymakers to grasp the immense opportunities available in the lower cost and lower risk renewables sector and highlights the extreme risks to investors of long-term fossil gas plant investment at this juncture, with the political sensitivities surrounding the gas market producing wild swings in supply and demand. Wedding the energy grid to gas locks users into a worst-case outcome, when compared to lower cost and cleaner renewables.

Fuel costs are inevitably the largest single cost item for gas-fired power stations. Gas prices are subject to international commodity market movements, which can result in significant variations in cost from year to year. This has been highlighted by the Russian invasion of Ukraine. Since the war began, we have seen global energy markets disrupted, record price volatility, with growing concerns of a deep energy supply crisis with calls for energy demand curbs not witnessed since the 1970s.

Such price moves can be the difference between gas-fired power generation capacity being profitable to operate or not, and volatile fuel prices should make the continued investment case for such assets even less attractive when compared with renewables which require near-zero marginal costs for operation.

LNG market values have spiked to levels more than 300% above our base case within recent months. Even aside from the environmental concerns, we have over increased investment in fossil gas infrastructure, the political sensitivities surrounding this market produce wild swings in supply and demand. Now is not the time for nations to be increasing their dependence on gas.

The high level of risk that the LNG market poses to gas plant economics in South Korea, compared with lower cost and lower risk renewables should discourage decision-makers from increasing their dependency on gas, even before considering how misaligned any investment in new gas infrastructure is with net zero emissions by 2050 pathways.

Opportunities for renewables in South Korea are vast and more cost-competitive than gas. South Korea’s solar power capacity more than tripled to around 14.6 GW over the 2015-20 period , and the new government should look to further support this deployment rate, as well as for onshore and offshore wind expansion. As the report shows, it is already cheaper to build new solar capacity in South Korea than it is to build new gas-fired capacity. As shown in the chart below, by 2025, solar with battery storage capacity will also be a cheaper investment than new gas. New solar is also projected to become cheaper than the costs associated to continue running South Korea’s existing gas fleet by just 2024, or 2031 with battery storage costs added on.

This means South Korea will have a low carbon energy source able to provide comparable flexibility services to a gas unit available at lower cost to the system within a decade, allowing policymakers to plan their phase-out of power sector gas use in line with their net zero emissions by 2050 targets. This inflection point could come even earlier in the event of upward swings in LNG prices.

Offshore wind sector growth potential in Asia is huge. South Korea’s large coastline and territorial waters mean the country is extremely well-positioned to become world leaders in offshore wind development. Offshore wind capacity in South Korea will become cost competitive with new gas this decade.

Our models project that by just 2025, a new onshore wind farm in South Korea will become a cheaper overall investment than a new fossil gas-fired power station in the country, when comparing the LCOEs of both. This inflection point could be reached earlier, however, and with new onshore wind beating new fossil gas projects from as early as 2023 under our low-range scenario estimates.

Once the embargo lifts report can be downloaded here:

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Joel Benjamin – – +44 7429 637423

About Carbon Tracker
The Carbon Tracker Initiative is a not-for-profit financial think tank that seeks to promote a climate-secure global energy market by aligning capital markets with climate reality. Our research to date on the carbon bubble, unburnable carbon and stranded assets has begun a new debate on how to align the financial system with the energy transition to a low carbon future.