SOUTH KOREA: An Introduction to Projects & Energy

Infrastructure Pursued through PPP

Recent disputes in PPP projects

Disputes between concessionaires and government authorities are increasing, often arising from unilateral government actions or breaches of concession agreements. The rulings in the following cases will clarify the extent to which government authorities can take unilateral actions inconsistent with concession deeds.

The Ilsan Bridge

Gyeonggi Province attempted to revoke the concession rights regarding Ilsan Bridge and eliminate tolls. The concessionaire filed an administrative lawsuit, and the Supreme Court ultimately ruled in favour of the concessionaire.

The Misiryeong Tunnel

The government unilaterally sought to amend the concession agreement for its own benefit and refused to provide financial support as stipulated in the agreement. The government justified its actions based on certain provisions of the Toll Road Act. In response, the concessionaire filed an administrative lawsuit to revoke the government’s action and petitioned the Constitutional Court to review the constitutionality of the relevant provisions in the Toll Road Act. The cases are currently pending.

Recent trends in the development and financing of PPP projects

The scope of PPP projects is expanding and diversifying. In addition to traditional infrastructure assets such as roads, railways and ports, PPP models now include arenas and cultural complexes. Furthermore, PPP structures are evolving into profit/risk-sharing models between a concessionaire and a government authority, to better accommodate stakeholders’ needs, with an increasing number of hybrid risk-sharing PPP schemes.

While high interest rates have dampened financing activity, expectations of prime interest rate reductions and government financial stimulus are likely to boost infrastructure project development.

Energy

Offshore wind farms

The Special Act on Offshore Wind Farm Promotion

On 28 February 2025, the National Assembly passed the Special Act on Offshore Wind Farm Promotion, which has been forwarded to the executive branch for promulgation. Once promulgated, it is expected to take effect on the first anniversary of the promulgation date.

This legislation incorporates government policy as well as industry feedback, including:

• designated zones for offshore wind farm projects to enhance social acceptability and grid connectivity; and
• a one-stop-shop provision in designated zones, allowing certain development and construction permits to be deemed obtained upon approval of the implementation plan.

The bill is expected to enhance predictability and significantly reduce the lead time required to reach ready-to-build status.

Floating wind project awarded

Renewable energy projects generate revenue from two sources: the System Marginal Price (SMP) for electricity sales to KEPCO (a majority state-owned company responsible for the generation, transmission and distribution of electricity in South Korea) via KPX (a quasi-governmental agency under the Ministry of Trade, Industry and Energy responsible for operating the electricity market and the electric power system in South Korea) and the sale of Renewable Energy Certificates (RECs) for traded renewable electricity. Given SMP’s volatility, the Contract for Difference (CfD) scheme (fixed price = SMP + 1 REC) is preferred for bankability.

To facilitate renewable energy deployment, the government periodically conducts REC offtake auctions under the CfD scheme. Recognising cost differences between wind and solar projects, wind projects are auctioned separately. However, previous auctions required floating wind farms to compete against fixed-bottom wind farms, disadvantaging floating projects. In the December 2024 auction, the government introduced a separate segment for floating offshore wind farms, resulting in the award of the 750MW Bandibuli floating offshore wind project.

Solar farm projects

While large-scale solar projects continue to be developed and financed, land scarcity is limiting further expansion. A notable trend is the rise of small-scale, distributed solar projects, including rooftop installations.

Utility-scale solar projects typically secure REC offtake arrangements under the CfD scheme to enhance bankability. In contrast, small-scale and distributed solar projects, whether structured as portfolio assets or under a holding company, increasingly enter into power purchase agreements (PPAs) with electricity consumers committed to RE100 goals (a global corporate renewable energy initiative of businesses committed to achieving 100% renewable electricity). Financing for small-scale projects is expected to shift toward corporate or Holdco financing rather than traditional project financing structures.

Hydrogen and CHPS

The Korean government has removed hydrogen from the existing Renewable Portfolio Standard (RPS) and adopted the Hydrogen Portfolio Standard (HPS) framework. The HPS framework consists of two market segments: one for clean hydrogen (CHPS) and another for regular hydrogen (HPS).

Recent CHPS and HPS auction results have provided benchmark pricing that will help assess the feasibility of upcoming hydrogen projects.

The 11th Electricity Demand and Supply Basic Plan

The Electricity Demand and Supply Basic Plan outlines policy goals, demand forecasts, and supply strategies for the next 15 years and is updated biennially. The finalised 11th Plan (February 2025) includes:

• new generation capacity projections based on target demand and existing supply plans;
• demand management strategies and adjustments to confirmed and planned generation capacity;
• a revised generation mix, with increased nuclear, LNG, and renewable capacity, alongside a reduction in coal-fired power;
• measures to promote distributed energy sources and uses, including data centre distribution and virtual power plants (VPPs);
• transmission and distribution network enhancements, such as high-voltage direct current (HVDC) deployment; and
• market reforms to encourage competition among carbon-free generation sources.

A key highlight of the 11th Plan is its emphasis on expanding carbon-free generation through competitive mechanisms.

Potential consideration of RPS scheme reform

Under the existing RPS scheme, conventional generators (RPS obligors) above a certain capacity threshold must either develop their own renewable energy sources or procure RECs from renewable energy generators. This flexibility has led to high REC prices, increasing costs for RPS obligors and, ultimately, electricity consumers.

To promote renewable energy development more efficiently, the government has proposed an auction-based mechanism. Under this scheme, the government would conduct auctions with separate segments for different renewable energy sources. Once an auction concludes, certain conventional generators meeting the threshold capacity would be required to purchase electricity under the auction’s terms including prices, which are expected to be more competitive than those in the current RPS model.

This bill has been submitted to the National Assembly, which needs to be closely monitored.