South Korea

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5.5. Lessons from Abroad

5.5.1. South Korea

As was highlighted in a previous section, where we discussed the functioning of the Act and its relationship with electricity prices in Taiwan, the low cost of energy is certainly one explanation for a FIT rate which doesn‟t provide for „adequate‟ financial support for solar PV. This explanation, however, is not particularly compelling when we look at how South Korea has gone about implementing its solar PV development program. Despite electricity prices which are as comparably low as Taiwan‟s, South Korea still offers very competitive FIT rates (and a subsidy support scheme) which allows the average investor to see returns within six years. This would tend to indicate that South Korea is both prioritizing the development of solar PV, and making the necessary financial resources (at least provisionally) available.⁴⁸

We should note here, however, that there is a potential downside to this picture (high rates of return and very short payback periods) which involves speculation in the

renewable energy market, a blow-out in costs, and collapse of the overall scheme. Given that the costs of FIT scheme in South Korea are largely worn by the taxpayer,⁴⁹ and given that to date most of the solar PV capacity is centralized rather than distributed, we may have the unsustainable (and inequitable) situation emerging whereby the South Korean public underwrites the profitability of a few large renewable energy operators or utilities.

Nevertheless, in returning to why South Korea has experienced relative success in growing its solar PV market (besides the obvious financial incentives), we find that part

48 We should perhaps note here, however, that the efficiency of South Korea‟s administrative and approvals process for new solar PV developments is a separate issue and one likely to be just as influential as

financial considerations in attracting investment.

49 Mendonca et al. (2010, p. 61) describe how the South Korean government have already announced plans to replace the FIT scheme in 2012 with a renewable portfolio standard mechanism. This has been attributed to the high costs of the program and the program‟s financing arrangements. As we know from the literature review component of this thesis, however, RPS schemes tend to be more expensive and less effective at promoting a broad-basket of renewable energy technologies when compared with FITs. It‟s therefore questionable as to whether this change of strategy will be successful.

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of the reason may be to do with the composition of the market and overall development strategy adopted in that country. Table 2 reveals that approximately 78% of South

Korea‟s 442MW of solar PV capacity is centralized grid-connected capacity; in its annual submission to the PVPS, South Korea noted that „during 2008, the annual installed capacity exceeded 276 MW…mainly due to the (approval) and construction of a

tremendous number of large size PV plants under the feed-in-tariff scheme‟ (Yoon, 2010).

Taiwan‟s government, and the MOEA in particular, could benefit from South Korea‟s example by beginning to explore options for opening up the market to larger-scale solar PV investments and building projects. This approach would seem to have several

(theoretical) advantages, including: (1) An immediate easing of the pressure on Taipower to sift through the large number of individual applications currently (and projected) to be in the system. (2) Raising quite substantially (and quickly) the share of installed solar PV capacity giving confidence to other investors and reducing system prices. (3) Larger (commercial) operators entering the market means that the government (MOEA) could afford to apply a lower FIT rate thereby reducing the costs of the overall scheme.

Large-scale private operators are perhaps also better placed than the average household investor to take advantage of the current (but less than ideal) arrangements again for several reasons; (1) In relative terms, larger solar PV installations should result in

reduced establishment costs (dollars per KWp) due to additional purchasing power along the supply chain – in practical terms this would mean shorter relative payback periods and higher overall net returns than would otherwise be the case for smaller distributed applications. (2) Obstacles facing individual household investors like those of high set-up costs and prolonged installation times should be less problematic for a larger private concern – providing the company has ready access to credit, construction could begin as soon as the project had met with approval from the relevant authorities. (3)

Administrative and logistical support – renewable energy operators are likely to be better equipped to negotiate the complicated applications process.

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This hypothetical scenario of private operators coming to occupy a larger space in the energy market is of course dependent on the willingness of the government (and by extension Taipower) to „outsource‟ Taiwan‟s electricity supply to renewable energy providers. It‟s also highly dependent on private (solar PV) operators deeming the

investment environment in Taiwan to be sufficiently stable and attractive enough. While to date we have seen little to encourage us in either view, it nevertheless remains one possibility for growing domestic solar PV capacity, and one which the government (if it‟s not already) should be considering seriously. Such a strategy, incidentally, would also benefit the distributed sector of the market as the benefits associated with learning effects and lower PV unit prices filter down to all.

5.5.2. Japan

Moving on now to potential lessons from the Japanese experience and we find that Japan is worthy of further examination for precisely the opposite reason as is the case in Korea.

That is, how has Japan managed to integrate solar PV capacity so comprehensively into new and existing building designs so that distributed solar PV now accounts for 96% of its 2,627MW of installed capacity? Readers may be disappointed to learn that this author has no sure answers to this question, but that possibilities include, the:

 Diversity of solar PV applications planned or currently deployed; in general terms, solar PV installations at Japan‟s public facilities account for approximately 2.8%

of the entire PV market, while PV systems deployed at industrial and commercial locations account for 7.4% (Yamamoto, 2010). These results have been achieved on the back of a number of targeted initiatives including the „Field Test Project on New Photovoltaic Power Generation Technology‟ (propagated since 2003) which has seen approximately 80MW of solar PV capacity installed at industrial

facilities and public-use facilities across Japan; the Project for Promoting the Local Introduction of New Energy (in operation since 1997), similarly, supports PV developments initiated by local authorities – in 2009, 547 solar PV projects (73.5MW) were approved, including new installations at city halls, water

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treatment facilities, schools, kindergartens, hospitals, social welfare facilities, temples and factories (Yamamoto, 2010).

 Cross-ministerial approach: Besides the Ministry of Economy Trade and Industry (METI) and the Ministry of Environment (MoE), at the time of writing at least two other ministries were closely involved with the roll-out and expansion of solar PV applications – notably, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), and the Ministry of Education, and the Culture, Sports, and Science and Technology (MEXT) (Yamamoto, 2010). Both ministries offer subsidy support for set-up costs, which is available in addition to financial assistance from the central governing authorities (METI). The MLIT and MEXT through a collaborative partnership, are also responsible for the Eco-School Pilot Model Project (initiated in 1997) which gives assistance to schools wanting to incorporate solar PV into new or existing building designs, as well as enhance overall sustainability.

 Involvement at the local level: Since the METI resumed the Subsidy for Installation of Residential Photovoltaic Systems program for residential PV systems, over 500 municipalities have implemented their own support programs for residential PV systems – In 2009, for example, the Tokyo Metropolitan Government began providing residents with a subsidy of $100,000 JPY (NT$35,000) per KWp of solar PV installed (resulting in approximately 8,000 applications) (Yamamoto, 2010).

So while we don‟t have firm answers with regard to why Japan has so successfully grown the distributed sector of the solar PV market, when taken in sum these three factors perhaps go some way to explaining progress to date. The types of initiatives and

collaborative efforts across government departments seen in Japan, furthermore, may also have some value for Taiwan and its policy-makers. As an example of what could be done to enhance the diversity of solar PV applications in Taiwan, introducing minimum

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standards for renewable energy production for new facilities of a certain size (and then partially subsidizing the cost of installation) would help lead to the spread of solar PV in industrial, commercial and residential contexts, and supplement electricity supplied to the grid in those built locations.

As another example, this time focusing on the local engagement aspect of development, local governments (empowered by the MOEA or BOE) could consider forming

partnerships with public schools and universities interested in reducing electricity costs and enhancing their environmental credentials. Such activities would serve to broaden the appeal of solar PV (both amongst government and non-government entities) and allow the general public to learn about its advantages without necessarily having to invest a lot of time and money personally. Incorporating solar PV (where appropriate/suitable) may also come to be viewed as simply the next stage (after efficiency measures) in reducing the energy requirements of new and existing buildings.