South Korea: A Projects & Energy Overview
PPP Projects and Enhancing Renewable Energy
Infrastructure pursued through PPP
Recent disputes in PPP projects
Disputes between concessionaires and governmental 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.
Ilsan Bridge
Gyeonggi Province attempted to revoke the concession rights of Ilsan Bridge and eliminate tolls. The concessionaire filed an administrative lawsuit, and the Supreme Court ultimately ruled in favour of the concessionaire. In 2025, Gyeonggi Province nonetheless announced a policy to subsidise/exempt tolls from January 2026, underscoring ongoing political sensitivity around user‑pays PPPs even after litigation closes.
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 governmental 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 financial stimulus from the government are likely to boost infrastructure project development.
Energy
Offshore wind farms
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. It was promulgated on 25 March 2025 and will enter into force on 26 March 2026.
This legislation incorporates the government’s policy as well as industry feedback, including the following.
- Designated zones for offshore wind farm projects to enhance social acceptability and grid connectivity.
- 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 Act is expected to enhance predictability and significantly reduce the lead time required to reach ready-to-build status.
Floating wind project awarded an REC
Renewable energy projects generate revenue from two sources: the System Marginal Price (SMP) for electricity sales to KEPCO via KPX and the sale of Renewable Energy Certificates (RECs) for traded renewable electricity. Given the 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 awarding 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 (100% renewable electricity) goals. Financing for small-scale projects is expected to shift toward corporate or Holdco financing rather than traditional project financing structures.
Hydrogen and CHPS
The South 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 (green and blue) and another for regular hydrogen.
Recent CHPS (Clean Hydrogen Portfolio Standard) and HPS auction results have provided benchmark pricing that will help assess the feasibility of upcoming hydrogen projects.
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 the following.
- 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.
- 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. The finalised 21 February 2025 plan increased solar/wind targets vs the May 2024 draft and dovetails with the Special Act on the Expansion of the National Power Grid to accelerate transmission build‑out and improve local compensation.
Standalone Battery Energy Storage System (BESS) Auction
As a part of South Korea’s long-term energy roadmap, the South Korean government, in May 2025, launched its first nationwide BESS Capacity Auction, announcing a total of 540MW across mainland regions (500MW) and Jeju Island (40MW). This represents a significant expansion from Jeju’s pilot and commercial auctions in 2022 and 2023 (each approximately 65MW). The auction is expected to be held at least twice annually going forward as part of the national energy strategy.
To date, all standalone BESS projects have participated in, or are considering participating in, the capacity market (while South Korea does not formally operate a capacity market, the Central Contract Market Auction shares similar features, such as compensation based on availability rather than actual dispatch) auction operated by KPX. The 2025 auction delivers a 15-year offtake contract with KPX, underscoring the government’s commitment to providing long-term revenue certainty for energy storage projects. Successful bidders receive guaranteed fixed capacity payments based on their compliance (with that being said, a standalone BESS is not required to pay for charging, nor entitled to payment for discharging) with KPX’s instruction. No additional market-driven revenues through energy arbitrage or ancillary services have been contemplated in the capacity market auction (a standalone BESS that does not participate in a 15-year contract with KPX may pursue merchant-driven revenues from market arbitrage, ancillary service or bilateral trade, however, we do not have such a precedent).
As standalone BESSs are treated as generators in the context of grid operation, it is required to obtain the electricity business licence (EBL) under the Electricity Business Act. It is notable that KPX allows potential bidders of a capacity market auction to participate in the auction without an EBL in place. If a successful bidder fails to obtain the EBL within six months from being awarded, it will lose its status in the auction.
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, and should be closely monitored.