ESG Era – RE100 with Export Conditions, How Prepared Are Korean Domestic Companies?
The International Accounting Standards (IFRS) Foundation established the International Sustainability Standards Board (ISSB) at the United Nations Framework Convention on Climate Change (COP26) in Glasgow, England on November 3, 2021.
The ISSB released the ‘Draft Sustainability Disclosure Standard’ in March 2022, aiming to collect global opinions by the end of July 2022 and release the final draft by the end of the same year.
The sustainability disclosure standard aims to provide comprehensive disclosure of environment, society, and governance (ESG) related financial information useful for investor decision-making, reflecting global interest and trends.
The draft includes two parts: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, providing overall requirements for companies to disclose sustainability-related risks and opportunities financial information, and IFRS S2 Climate-related Disclosures, placing specific requirements on climate-related financial information for companies.
In line with this global trend, Korea also plans to make ESG information disclosure mandatory for listed companies with total assets of KRW 2 trillion (unit: WON) or more from 2025. As the export industry is Korea’s primary focus, ESG, particularly renewable energy, is expected to directly impact export competitiveness.
RE100 of Korean companies, ‘It is better than expected, but it is somewhat disappointing’
The current topic of high Korea companies is ‘RE100’. RE100 is a promise that by 2050, 100% of the electricity required by companies will be made or finished with environmental renewable energy such as ‘solar and wind power’.
As of the end of July 2022, the number of global companies that have joined RE100 is 376. Global companies such as Apple, Google, Facebook (Facebook), Microsoft, Intel, Airbnb, 3M, Shirts, Starbucks, Burberry, Pfizer, Ralph Lauren, etc. are participating. Currently, companies lift about 45% of electricity Latin renewables, and 29 have already completed RE100.
In Korea, at the end of 2020, six SK subsidiaries (SKC, SK Siltron, SK Materials, SK Co., Ltd., SK Telecom, and SK Hynix) became the first Korean companies to join RE100. In 2022, following Incheon International Airport Corporation, four Hyundai Motor Group affiliates joined this. In addition, KT, the largest telecommunications company and digital platform company in Korea, received final approval to join RE100 in June 2022, and LG Innotek joined RE100 in July. Samsung Electronics also announced that it would decide to join the RE100 within the year?
At one time, there was an argument that the RE100 was ‘not suitable for Korea, which is centered on the manufacturing industry’, but currently, the RE100 is being actively promoted in the manufacturing sector worldwide. As of 2020, the average share of renewable energy use by global manufacturing companies that joined RE100 reached 32%, and raw materials and materials related industries covered 48% of the electricity used by companies with renewable energy.
However, Korean companies’ participation in RE100 is still sluggish. First of all, as of June 2022, there are a total of 21 RE100 participating companies in Korea. This is a small number compared to other developed countries. As of July 2022, 95 companies in the US, 72 in Japan, and 48 in the UK are participating in RE100. Apple, Meta, Bank of America, etc. have already achieved their goal of 100% renewable energy.
The biggest problem is the lack of renewable energy generation in Korea.
The top 5 power consuming companies, including Samsung Electronics and SK Hynix, used about 48TWh (terawatt hours) in 2021, and domestic renewable energy generation during the same period was about 43TWh.
Even if only five companies are counted, the amount of renewable energy generation that companies can use is insufficient.
The power consumption of Samsung Electronics, the number one power user, is 18.41TWh. It is followed by SK Hynix (9.21TWh), Hyundai Steel (7.04TWh), Samsung Display (6.78TWh), and LG Display (6.23TWh). Samsung uses 25.19 TWh in just two places, Samsung Electronics and Samsung Display.
Samsung entered the countdown to join RE100, but failed to disclose the specific timing of subscription because of this reason.
In order for Samsung to achieve RE100 in Korea and Vietnam, where it has production plants, the national level of renewable energy must be rapidly expanded. It has to generate its own power.
In the age of ESG, joining the RE100 is an urgent task that cannot be postponed any longer.
In a report titled ‘The Impact of RE100 on Korea’s Major Export Industries’ published in September 2021 by joint researchers from the KDI Graduate School of Public Policy, the Korea Environmental Research Institute, the Energy Economics Institute, and the Korea Institute for Industrial Economics and Trade,
if Korean companies do not participate in the RE100, automobiles and semiconductors will be predicted that the exports of the display industry would decrease by 15%, 31%, and 40% respectively by 2040.
In a situation where RE100 has become a new trade barrier for the global economy, companies need measures to properly procure renewable energy.
In fact, Korea has been operating the Korean RE100 (K-RE100) system since 2021 after a long preparation period to ride the huge flow of RE100.
K-RE100 is a system implemented to support the preparation of the foundation for companies to implement the global RE100 and to promote the application of renewable energy by companies, public institutions, and local governments that wish to use renewable energy.
The K-RE100 system targets industrial and general electricity consumers. Not only companies that have joined the global RE100 campaign, but also companies, public institutions, and local governments that have not joined the campaign can participate, and it has the same 100% implementation goal by 2050 as the global RE100
Korea Government Policies and support needed to activate RE100
What policies and support would companies say they need? As a result of asking a total of 306 companies in Korea by the Korea RE100 Council in 2022 about the ‘government’s role and policy priorities for revitalizing domestic RE100’, ‘provision of renewable energy facilities and consulting support for small and medium-sized enterprises’ was found.
The opinion that it is necessary was the highest at 29.3%. Incentives such as tax benefits and financial support, which are support in terms of cost, were the second most common at 21.9%, followed by the establishment of the PPA system for buying and selling electricity between the private sector (18.1%) and the expansion of renewable energy supply (14.6%).
As a result of the survey, proposals for revitalizing the domestic RE100 system were largely converged into four;
The first is to expand public awareness of RE100 and renewable energy through publicity.
Second is the expansion of incentives and financial support for the purchase of renewable energy, which is still costly.
The third is the expansion of the power grid for the expansion of renewable energy and the vitalization of PPA, and support for network usage fees.
The fourth is support for joint projects that small and medium-sized enterprises can do together.
In the era of climate crisis, if companies do not reduce carbon, it is difficult to survive in global export competition. Now, consumers also ask for the social responsibility of companies that emit large amounts of greenhouse gases. However, this is not something that can be solved by corporate efforts alone. Both civil society and government will have to work together.
Korean exporters participating in Korea’s RE100 may face legal and financial consequences if they do not meet the RE100 regulatory requirements of their respective countries for the use of renewable energy.
In addition, non-compliance with regulatory requirements can damage a company’s reputation and result in the loss of customers, investors and business partners. This can ultimately lead to financial loss for the company.
This will result in large-scale national losses and loss of reputation in Korea, so it is essential to create regulatory standards in cooperation with developed countries.
There will be many difficulties in Korea due to the lack of green energy infrastructure, I believe it will work out….
The beginning of Korea's small steps : RE100 companies, direct purchase of green hydrogen power generation
Ministry of Industry, hydrogen power generation bidding market opened in the first half of the year (2023). RE100 companies expected to participate in earnest after 2030, Considering an electricity rate increase in response to the government’s lack of supply
Companies that have joined the RE100 initiative will soon be able to purchase electricity generated by green hydrogen directly from power generation companies through open bidding, bypassing the Korea Electric Power Corporation (KEPCO).
The Korean Ministry of Trade, Industry and Energy announced plans to open a hydrogen power generation bidding market within the first half of this year (2023), allowing end-users to purchase hydrogen-generated electricity in addition to mandatory buyers like KEPCO.
However, due to the high cost of hydrogen power, it is expected that only RE100 companies will participate in this market.
South Korea RE100 companies are aiming to achieve 100% renewable energy use between 2040 and 2050, so demand for renewable energy, including green hydrogen, is not expected to surge in the short term.
The government is opening the world’s first hydrogen power generation bidding market to foster various hydrogen power generation technologies, including hydrogen turbines, hydrogen engines, and ammonia fuel combustion, besides fuel cells.
The market will be divided into a clean hydrogen power generation market and a general hydrogen power generation market, and the Korean government is creating a clean hydrogen certification system (2024) to determine which hydrogen is clean.
The Korean Ministry of Industry aims to use clean hydrogen, which has a lower greenhouse gas emission level than gray hydrogen, for power generation.
Due to a lack of infrastructure for clean hydrogen and its market, the Ministry of Industry will open the general hydrogen power generation market first.
Bidding will be held twice this year, considering that the system is in its early stages. The Ministry of Industry plans to bid for 1,300 gigawatts per hour produced in 2025, followed by 1,300 gigawatts for 2026 and 1,300 gigawatts per hour for 2027 next year.
[Auction capacity by year]
|
Auction opening year |
2023 |
2024 |
2025 |
|||
|
Commercial Operation |
Purchase Capacity |
Commercial Operation |
Purchase Capacity |
Commercial Operation |
Purchase Capacity |
|
|
blue hydrogen power |
2025 |
1300GWh |
2026 |
1300GWh |
2025 |
1300GWh |
|
Green hydrogen power |
– |
– |
2027 |
3500GWh |
2028 |
3000GWh |
However, as the supply of green energy becomes more possible, the Korean Ministry of Industry plans to gradually reduce bidding for blue hydrogen power generation.
The clean hydrogen power generation market will open next year (2023) after establishing the Korea clean hydrogen certification system and relevant laws. The Ministry of Industry plans to bid for 3,500GWh of power generation in 2027 next year and 3,000GWh in 2028,.
Some people have criticized that the Korean Ministry of Industry’s bidding volume for companies that have invested in hydrogen power generation is too low.
However, an official from the Korean Ministry of Industry explained that the unit price of hydrogen power generation is higher than nuclear or renewable energy, so increasing the bidding volume significantly would cause an increase in electricity rates. “We have no other choice,” he said.
