Solar Supply Chain Over 85% Dependent on China; 'Preferential Prices' to be Applied to Domestic Equipment

As China's share in the entire solar industry process exceeds 85%, the government is implementing preferential measures, such as giving extra points to winning bid prices when using domestic equipment, to protect the domestic renewable energy supply chain. This is a response to the trend where major countries are restructuring their systems around domestic supply chains, as the concept of energy security expands beyond fuel imports to securing leadership in renewable energy production.

China's Dependence Exceeds 85%... Changes in the Concept of Energy Security

The background of this institutional reform, as reported by Understanding: All the Knowledge in the World, lies in the rapidly changing concept of energy security. While past energy security focused on fossil fuel import routes and stockpiles, in a future with a higher proportion of renewable energy, the key security factor will be who the producers of renewable energy are—that is, who holds the production leadership.

Currently, China's share in the solar value chain exceeds 85%. While there is an aspect where solar prices have lowered due to competition among Chinese companies, concerns are rising that if market consolidation occurs within China in the future and price dominance increases, the impact on the domestic market will not be insignificant. Accordingly, movements similar to the United States establishing its own supply chain through the IRA and Europe seeking to increase its regional production share through the NZIA are also appearing in South Korea.

Adding 7 to 16 Won to Winning Bid Prices... 'Preferential Prices' to Induce Use of Domestic Modules

The government supports the domestic industry through two methods within the renewable energy contract market system. The first is the 'preferential price' system. If a power generation business operator uses domestic modules with low carbon emissions, an additional amount is added to the winning bid price. Specifically, 16 won per kilowatt-hour (kW) is paid when using Grade 1 modules, and 7 won is paid when using Grade 2 modules.

The second is the 'non-price evaluation' method. At the bidding stage, factors such as contribution to the domestic supply chain, contribution to the local economy, and security elements are included in the evaluation items along with price. It is operated in a way that disqualifies those who do not meet certain criteria or grants extra points to those who exceed them. This is similar to the methods already being introduced by major countries such as the United Kingdom, Taiwan, and Europe.

Controversy over the Cost Burden of Localization, "Can be Offset by Procurement Interest Rates and Economies of Scale"

Regarding the point that preferential treatment for domestic equipment could increase power generation unit costs, the possibility of offsetting this through technological advancement and institutional improvement was presented. Since the proportion of modules in the total solar investment (CAPEX) is about 15%, it is analyzed that cost increases can be suppressed by managing the remaining portions, such as EPC (Engineering, Procurement, and Construction) or financing costs.

Specifically, by transitioning to a contract market system, procurement interest rates can be lowered, and by raising the current small-scale solar standard, which is centered on 100kW, to the 500kW level, economies of scale can be achieved to lower unit costs. Additionally, there is a strategy to reduce costs by increasing the current domestic factory utilization rate, which remains at the 30% level. The government plans to gradually lower these preferential prices (additional costs) in the long term through the technological development and learning effects of domestic companies.

Meanwhile, the government plans to present a renewable energy deployment roadmap in accordance with the Basic Plan for Electricity Supply and Demand. Based on the goal of cumulative renewable energy deployment of 100GW (87GW for solar, 13GW for wind, etc.) by 2030, the proportion of renewable energy is projected to reach levels of 20% in 2030, 30% in 2035, and 40% in 2040.

Source: original video (YouTube)