A critical review of Korea's long-term contract for renewable energy auctions: The relationship between the import price of liquefied natural gas and system marginal price. (December 2020)

• Record Type: Journal Article
• Authors: Moon, Jongwoo; Jung, Tae Yong
• Is Part Of: Utilities policy. Volume 67(2020)
• Publication Date: 2020-12
• Subjects: Korea's renewable portfolio standard -- LNG Import price -- Cointegration -- Vector error correction model -- Long-term renewable purchase contract; RPS Renewable Portfolio Standard -- LNG Liquefied Natural Gas -- SMP System Marginal Price -- REC Renewable Energy Certificate -- KEPCO Korea Electric Power Corporation -- VECM Vector Error Correction Model -- ADF Augmented Dickey-Fuller -- FiT Feed-in-tariff -- MOTIE Ministry of Trade, Industry, and Energy; Public utilities -- United States -- Periodicals; Public utilities -- Government policy -- United States -- Periodicals; 363.6
• DOI: 10.1016/j.jup.2020.101132
• Languages: English
• ISSNs: 0957-1787

Abstract

Abstract: The aim of Korea's Renewable Portfolio Standard (RPS) and newly adopted auction system with a long-term fixed-price renewable contract was to support renewable energy providers in hedging electricity and Renewable Energy Certificate (REC) price risks. This study found a long-run positive relationship between the import price of Liquefied Natural Gas (LNG) and System Marginal Price (SMP) in Korea, demonstrating that the fluctuations in global fuel prices are likely to increase uncertainties in renewable investments. The fixed-price contract, which cannot be revised once determined, encourages renewable energy providers' speculative decision-making, and the uncertainty caused by the contract system may discourage investment decision-making. Highlights: Examining the long-run relationship between electricity and natural gas prices. Identifying issues in Korea's renewable and auction contract policies. Discussing how the relationship affects renewable energy providers' remuneration. Criticizing the structure of the long-term fixed-price contract scheme and RPS.