Since undergoing rapid industrialization in the 1970s-1980s, Korea’s energy consumption has significantly increased. The total primary energy consumption in 1991 was 103.6 million tons of oil equivalent (TOE, equivalent to 11.630 MW/h), and grew to 228.6 million TOE in 2005, to rank Korea as the 10th largest energy-consuming country in the world. Despite the Korean government’s recent efforts to curb the country’s growing energy consumption, the sharp increase in energy demand is forecast to continue into the future.

Korea has no major domestic energy sources and relies on imports to meet 97% of its energy needs. In 2005, the cost of importing energy resources amounted to $66.7 billion, roughly one-forth of Korea’s total  imports in the year, $261 billion.

Korea’s major energy resources are oil, liquefied natural gas (LNG) and coal. In order to hedge against the rising cost of these traditional energy sources and the concomitant impact on Korea’s economy, the Korean government has started to diversify energy sources, and promoting new and renewable energy.

Market Demand

As commercially disadvantageous technologies in Korea, the market development of renewable energy is greatly subject to government initiatives and support. In 2003, the Korean government launched a plan to raise the level of its renewable energy supply to five percent of total primary energy supply by 2011.

Specific plans include leading and supporting research and development (R&D) projects and providing financial incentives to renewable energy developers, such as low interest loans, tax reduction and feed-in tariffs. It also mandated new government buildings to be equipped with renewable energy generation facilities. With these efforts, the Korean government plans to spend $1.6 billion by 2007.

The majority of renewable energy technologies such as hydrogen/fuel cell and biomass are still in the R&D stage. For further development of those technologies, the Korean government often forms working groups jointly with private research institutes, universities, technology and equipment suppliers, and endusers of renewable energy. Supplying products and technologies at this R&D stage is deemed critical for the supplier, as they will have an advantage to win contracts for commercial production stage.

The industry also runs R&D projects on its own for the development of renewable energy technologies. The types of companies vary from small to medium sized energy specialists to large conglomerates such as Samsung and LG, and state-run power companies. In most cases, they lack core technologies, and are keen on adopting advanced technologies from non-Korean suppliers.

Given the Korean government’s strong initiatives to develop renewable energy technologies, active private participation, and the rising price and consumption of oil, there exists a positive market outlook for the near term.

Market Data

The market data below was provided by various Korean government agencies.

The Korean government defines 11 renewable energy technologies: solar thermal, photovoltaic, biomass, wind energy, small hydro-power, fuel cells, coal liquefaction and gasification, ocean energy, waste energy, geothermal energy, and hydrogen energy. Among these, waste energy and hydro energy are the two biggest sub-sectors, accounting for about 75% and 19%, respectively, of total renewable energy generated in 2005.

Best Prospects

Most of the renewable energy markets are forecast to grow in the near future, creating demand for advanced equipment and technologies. Among these, the Korean government has prioritized hydrogen/fuel cells, photovoltaic, and wind power as key renewable energy sub-sectors to focus its efforts to develop. Several large-sized power plants using those renewable energy technologies are either operating or soon to be built in Korea. Local Korean companies supply non-core parts and equipment for the projects, but heavily rely on foreign technologies as they lack the core technologies. Local industry experts evaluate the level of Korean technology prowess below 50% of most advanced technology countries. Foreign renewable energy technologies are well received by Korean companies.

Prospective Buyers

The renewable energy technologies that are brought into Korea are used mostly for the construction of power plants using the technologies. Thus, the entities in charge of the projects, which can be either a single company or a consortium of several companies, have the buying authority. For government funded projects, the Korean government may exercise influence on the buying decisions of important parts and technologies. Academics are often times asked to provide advice on choosing products, thus convincing them with scientific data can be critical for suppliers to successfully win sales contracts.

Market Entry

Core renewable energy technologies are provided through either technical licensing, direct sales, or direct investment, such as being a joint venture partner with local Koran companies, etc. Renewable energy equipment requires high levels of precision, reliability, and maintenance. Therefore, technical features, pre-sales consultations, training and after-sales service, as well as price, are the prime factors associated with purchasing decisions for renewable energy equipment. In addition, U.S. service engineers should make periodic visits to Korea to discuss operational problems as well as improvements or modifications required in the equipment. If the decision is made to enter the market using an agent, it is important to choose a reliable and competent firm that possesses the requisite technical capabilities and has excellent government and industry contacts.

Partnerships with Korean firms can take many forms including: distributor or agent agreement, technology transfer or license agreement, and a joint venture company. If a U.S. company has substantial experience and knowledge of the Korean market, it can establish its own representative or branch office, or a wholly owned subsidiary. It is also possible to have a local presence by acquiring an existing Korean renewable energy company.

Although it is also important to prepare a clear-cut agreement, many Korean corporate decision-makers still greatly value personal trust and relationships more than contractual terms and conditions. Such a trusting relationship can be built by maintaining frequent and effective communications, both formal and informal, and through patience. In this context, it is also imperative to thoroughly evaluate the prospective partner(s) through reliable and objective sources in order to avoid or minimize any unexpected future conflicts and risks.

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Excerpts from Korea: Renewable Energy Industry, U.S. Commercial Service, 2007, http://www.buyusainfo.net/