Offshore Wind Worldwide 2022 edition - Flipbook - Page 164
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IV. Offtake issues
A. O
fftake, remuneration
and tariff scheme
As noted above, an IPP’s revenues are
derived from a combination of the sale of
electricity (at the SMP) and the sale of RECs.
The SMP is determined by the KPX. The KPX
as the market operator forecasts electricity
demand for the next day and receives bids
for generation from generators on the
previous day. In other words, the market
runs on a “one day ahead” system where the
bidding for tomorrow’s dispatch occurs
today. The KPX then determines the SMP as
the hourly settlement price based on the
projected demand and bids for generation
for each hour of the day. That said, the
marginal cost of the generation unit that is
last to receive the dispatch order for such
hour is determined to be the SMP, which
represents the most expensive price at which
electricity can be supplied at any given hour
based on the demand and supply at that
hour.
RECs can be sold either on the spot market
operated by the KPX or via long-term
contracts. Most utility-scale offshore wind
projects opt for long-term fixed-price
contracts, which enable an RPS Participant
to purchase RECs for a term of 20 years
based on an aggregate fixed price of the SMP
and the REC price. As SMP is determined by
the market and fluctuates by the hour, the
REC price is automatically determined by
subtracting SMP from the agreed fixed price.
HoganofLovells
Republic
Korea
The implementation of the “long-term
fixed-price contract” system enables IPPs to
obtain a stable income stream, and thus
facilitates the financing for development and
construction of new renewable power
projects.
PPAs between IPPs and KEPCO (direct
PPAs) are not currently allowed in Korea
because IPPs are required to sell electricity
on the KPX and, in principle, only KEPCO is
permitted to purchase electricity wholesale
from IPPs through the KPX and retail it to
electricity consumers. In March 2021,
Korea’s National Assembly passed an
amendment to the Electric Utility Act that
will enable companies to enter into PPAs
directly (Direct PPAs) for electricity
generated from renewable energy projects
and details of Direct PPAs are going to
emerge soon. Moreover, the MOTIE
introduced indirect PPA arrangements
where IPPs and electricity consumers enter
into back-to-back PPAs with KEPCO in June
2021. Direct PPAs and indirect PPAs are key
developments of the K-RE100 program
which is implemented to encourage the use
of electricity generated from renewable
energy.
B. Consequences of a project delay
Offshore wind developers who obtain EBLs
are granted a four-year “preparation period”
within which they are required to achieve
COD. If a project is delayed beyond this
preparation period, the developer will need
to obtain an extension of the preparation
period in order to retain its required EBL.