2010 Survey of Korea

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Contents 1. Executive Summary

2. Economic and Energy Landscape

2.1 Context

Figure 1: Map of Korea

2.2 Economy

Table 1: Economic Metrics

2.3 Energy Resources

Table 2: South Korea Energy Resources (BP 2007 Figures)

Table 3: South Korea Energy Consumption (IEA 2004 Figures)

3. Government Policy

Table 4: General Government Policies Aimed at Promoting New and

Renewable Energy

3.1 Government Support

Figure 2: Korean Fuel Cell R&D Roadmap

3.1.1Portable

3.1.2 Small stationary

Figure 3 Korean Roadmap for Residential Fuel Cell Systems

3.1.3 Large stationary

3.1.4 Transport

Figure 4 Korean Roadmap for Fuel Cell Vehicles

3.1.5 Components

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Glossary / Definitions Glossary AFC Alkaline Fuel Cell.

APU Auxiliary Power Unit.

CCP Combined Cooling and Power.

CCHP Combined Cooling, Hydrogen and Power.

CWP Combined Water and Power.

CWHP Combined Water, Hydrogen and Power.

CHP Combined Heat and Power.

CO Carbon Monoxide.

CO2 Carbon Dioxide.

DMFC Direct Methanol Fuel Cell.

DOE United States Department of Energy.

FIT Feed-in Tariff.

GDP Gross Domestic Product.

GDL Gas Diffusion Layer.

H2 Hydrogen.

HTPEM High Temperature PEM Fuel Cell.

IEA International Energy Agency.

IGCC Integrated Gasification Combined Cycle.

IP Intellectual Property.

JV Joint Venture.

KAIST Korea Advanced Institute of Science and Technology.

KEPCO Korea Electric Power Company.

KETEP Korea Energy, Technology Evaluation and Planning Agency.

KIER Korea Institute of Energy Research.

KIST Korea Institute of Science and Technology.

KOGAS Korea Gas Corporation.

kWe Kilo Watt of Electricity.

LDV Light Duty Vehicle.

LNG Liquefied Natural Gas.

MCFC Molten Carbonate Fuel Cell.

mCHP micro Combined Heat and Power.

MEA Membrane Electrode Assembly.

MKE Ministry of Knowledge Economy.

MtOE Million tonnes of Oil Equivalent.

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MWe Megawatts of electricity.

NOx Oxides of Nitrogen.

OEM Original Equipment Manufacturer.

PAFC Phosphoric Acid Fuel Cell.

PEM Polymer Electrolyte Membrane Fuel Cell.

PM Particulate Matter.

R&D(&D) Research and Development (& Demonstration / Deployment)

RPG Residential Power Generation.

SOx Sulphates of Oxygen.

SOFC Solid Oxide Fuel Cell.

UPS Uninterruptible Power Supply.

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1. Executive Summary South Korea represents one of the world’s most promising markets for fuel cell adoption

and is one of the foremost countries for fuel cell manufacturing. Korea has expertise in R&D

and manufacturing of stationary, portable and transport fuel cells, with early markets for

domestic adoption and large export opportunities.

Korea imports most of its energy requirements, with a widespread natural gas network

covering most of the country. Korea has a low ‘spark spread’ – i.e. a high retail natural gas

price but low retail electricity price. This makes conditions relatively difficult for stationary

fuel cell adoption, and urges the thought that ‘if we can make it here, we can make it

anywhere’.

Korea’s economy is strongly export-led, with over 80% of domestic production being for

export. Vehicles and consumer electronics are particularly strong export industries, and

both of these are promising future fuel cell markets. Korea has real strengths in stack and

systems manufacture, with a recognised gap in component manufacture.

South Korea has one of the most supportive policy environments for fuel cells apart from

Japan. In terms of specific policies, there are a number of government programmes to

increase energy efficiency and new and renewable energy, and promote economic growth

including:

• A requirement that by 2012, Independent Power Producers must generate 2% of

entire energy needs from new and renewable sources.

• 80% government subsidies for small stationary fuel cell installations, as well as up

to 10% from local government. This is promoting uptake of 1 kWe mCHP (known

as Residential Power Generators, RPG) in the hundreds of units this year.

• Government is also supporting the development of component manufacturing

(through R&D support of MEA, bipolar plate, and balance of plant manufacture).

All of this adds up to a substantial opportunity for fuel cells to be manufactured in Korea

both for the domestic market and for export. This is being pursued very aggressively by

companies focused on a range of electrolytes and applications.

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2. Economic and Energy Landscape

2.1 Context

South Korea occupies the southern half of the Korean peninsula (Figure 1), south of the

ceasefire line. Much of South Korea’s recent history is defined by the six decade long

conflict with North Korea, which followed the invasion of the South by forces from the North

in 1950. The resulting war between North and South Korea ended in a ceasefire in 1953,

which has endured to date.

Following the war, South Korea’s economy grew very rapidly, focusing on building export

industries in electronics, automotive, ships, machinery, chemicals and robotics. Today, the

country is Asia’s fourth largest economy and the world’s 12th largest economy on

purchasing power parity. The economy remains strongly export dependent. With few

natural resources, South Korea’s expertise is in importing low-value raw materials and

transforming them to high-value exports.

This report does not focus on North Korea, which remains a closed country with no known

fuel cell activities. Note in this report ‘Korea’ and ‘South Korea’ are used synonymously. It is

also worth noting here that were the two Koreas to be united, there would be a much larger

domestic economy, a larger workforce (with cheaper labour in the North), a larger resource

base, and reduced military spending (South Korea currently spends around 3% of GDP on

defence). Indeed, this could be of great benefit to South Korea’s fuel cell industry, making

the country even more of a competitor against Japan and China.

Figure 1: Map of Korea

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2.2 Economy The development of the South Korean economy over the last 50 years has been something

of a rags to riches story, in the same vein to that of Japan. Although South Korea’s post war

reconstruction began around a decade later than Japan’s, following the end of the Korean

War, South Korea’s economy grew rapidly in the period 1960-1980, and together with

Japan became the first of the Asian ‘tiger’ economies. From the 1960s to 1980s Korea’s

economic strategy was to develop competitive advantage in low cost, high value

manufacturing for export. This was supported directly by government, by the high domestic

savings rate and high levels of foreign investment. Combined with Korea’s small natural

resource base and small domestic market, a number of successful conglomerates grew up

to lead exports in areas as diverse as textiles, steel, shipbuilding, machinery, cars, and

electronics. A small number of these large, family run ‘chaebol’ still dominate the economy

today, and are responsible for around 60% of Korea’s economy, despite the government

forcing diversification recently. 80% of domestic production is for export, with electronics

and vehicles being especially strong. Both of these areas are promising potential future

markets for fuel cells.

Table 1: Economic Metrics (2008)

Population 46,136,101

GDP per Capita (US$) 16,472

GDP Growth (%, 2008) 4

Total Energy Production (‘000 TOE) 13,209

Energy Consumption (kg per Capita) 3,225

CO2 Emissions (‘000 metric tones) 465,643

CO2 Emissions per Capita 10.1

The 1970s and early 1980s saw economic difficulties in the form of inflation and the effects

of widespread government intervention in the economy. This led later on in the 1980s and

into the 1990s to liberalisation of imports and foreign direct investment to promote

competition, and a reduction in government intervention in the economy. Largely due to

these measures, Korea’s economic growth averaged over 9% in the early 1980s and over

12% in the later 1980s. Strong and stable growth continued in the 1990s, punctuated by the

Asian financial crisis in 1997. In late 1997, Korea received a US$58 billion bailout from the

IMF, and the Korean economy continued to shrink through 1998 at around 6.65% per

quarter. Growth returned in 1999 and continued at relatively modest rates through 2000 at

the same time as restructuring of chaebols and liberalisation continued. The economic

crisis of 2008 provided a further setback to growth and the government, still firmly in charge

of the economy, introduced a major economic stimulus package (of which fuel cells were a

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beneficiary). Korea is widely believed to have fared as one of the worst OECD countries as

part of the 2008 crisis and there remains widespread concerns over inflation and currency

volatility. This makes Korea’s export reliance something of a liability in the currently

uncertain economic climate; however the need to find new growth areas in the economy

represents a real opportunity for Korea’s fuel cell industry and its suppliers.

2.3 Energy Resources South Korea is a country with few natural resources, particularly energy resources, and as

such is almost entirely dependent on imports to meet consumption (Table 2). The country

is the 10th largest in terms of energy consumption, and 97% of South Korea’s energy

needs are imported. This reliance on energy imports has placed the country somewhat at

the whim of world energy markets, especially due to the country being the world’s fifth

largest net oil importer, and the second largest importer of liquefied natural gas.

Table 2: South Korea Energy Resources (BP 2007 Figures)

Resources Type Value (MTOE)

Oil Reserves -

Production -

Consumption 917

Natural Gas Reserves -

Production -

Consumption 33.3

Coal Reserves 135

Production 1.3

Consumption 59.7

Oil makes up the biggest share of energy consumption at 50% of total energy consumption

(Table 3), although its absolute share has been declining recently. Coal is South Korea’s

next largest energy source, supplying almost a quarter of consumption needs, with natural

gas (mainly in the form of imported liquefied natural gas) supplying around 12%, with

supplies for road transport making up an important part of this. Renewables (including

hydro) makes up a relatively small share of Korea’s energy consumption, although the

government is committed to increasing this share.

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Table 3: South Korea Energy Consumption (IEA 2004 Figures)

Type Share (%)

Oil 50

Coal

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Nuclear 14

Natural Gas 12

Renewables <1

3. Government Policy

The South Korean government is firmly committed to the idea of low carbon economic

growth and economic stimulus through the promotion of new technology. Indeed the South

Korean president recently affirmed his commitment to ‘green growth’ through the

establishment of the Global Green Growth Institute, a base for the development of green

technology in the international community, in June 2010.

The motivation for government interventions in green technology, and particularly fuel cells,

is to create conditions for future economic growth by establishing a domestic supply chain

for ‘green’ manufacturing and to adopt clean energy technologies in Korea while building a

market for future exports. Government activities in the area of fuel cells consist of a mixture

of incentives and regulations - with some specific ‘carrots’, such as generous funding for

fuel cell R&D, demonstration and deployment, and some general ‘sticks’ such as strict

rules through the Renewable Portfolio Standard, which calls for 2% of energy needs to be

new or renewable by 2012.

Fuel cells represent one of the few realistic low carbon technologies that can be brought to

market in the short term, helping achieve climate and energy policy targets while having the

advantage of creating jobs and wealth for the Korean economy. ‘Made in Korea’ is an

important driver for the government’s fuel cell activities and there is a widespread feeling

that the time for ‘traditional’ renewable energy such as wind and PV may have passed,

leaving substantial opportunities for less commercialised technologies such as fuel cells.

A number of general mechanisms are in place for the adoption of fuel cells (see Table 4)

while specific fuel cell related policies and government interventions are detailed in the

following section. The long term aim is to have a competitive domestic new and renewable

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energy sector capable of growing without government support, however for the next few

years at least, government support is clearly in place.

Table 4: General Government Policies Aimed at Promoting New and Renewable

Energy

Policy Detail Feed-in Tariff (FIT) 10c / kWh at present. Fixed electricity tariff of 21-22c / kWh.

Needs to be >200 kWe and grid tied to make sense of fixed costs. Ends in 2011

Green Home Project

‘Green home project’ 1 million green homes by 2020 (solar heat, solar thermal, geothermal, fuel cell), of which 100,000 1 kWe fuel cell units installed by 2020

Renewable Portfolio Standard

2% of generating capacity for Independent Power Producers must come from new and renewable sources (by 2012). Also 2-5% of power must come from new and renewable sources if the building is >3,000 m2. Double renewable energy credits if this comes from a fuel cell.

3.1 Government Support

The Korean government has been involved with fuel cell R&D since 1987. In 2003, the

government produced a 10 year plan for the development and dissemination of new and

renewable technology. Fuel cells were identified as one of South Korea’s three high-profile

core technologies. R&D funding was rapidly increased, with US$500 million going into

RD&D between 2004 and 2008. Highlights during this period included a fuel cell vehicle

and hydrogen infrastructure demonstration and the first phase of a stationary fuel cell field

demonstration.

In 2008, the Ministry of Knowledge Economy (MKE) announced the ‘3rd Basic Plan for the

Development of New and Renewable Technology’ which included fuel cells as one of six

‘new growth engine technologies’. This included a second phase of the stationary fuel cell

demonstration programme, which was begun in 2010, as well as a number of projects on

fuel cell manufacturing technology. In addition, the Korean government in 2008 introduced

a year-based feed-in tariff (FIT) for fuel cells, with the total capacity of 50 MW until 2011.

From 2011, the government is introducing a year-based feed-in tariff for stationary fuel cells

and from 2012, a Renewable Portfolio Standard will decree that 2% of generating capacity

for Independent Power Producers must come from new and renewable sources.

Figure 2: Korean Fuel Cell R&D Roadmap (used with permission of KETEP)

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In total, the budget for fuel cells in Korea is around US$100 million per year, mainly coming

from MKE and the Ministry of Environment (MOES) as well as a smaller amount from

industrial sources. There are separate funding streams for basic research, short term

manufacturing technology research, demonstration and medium-long term strategic

projects. This, together with a clear government roadmap for fuel cell commercialisation

(due to be updated in early 2011), adds up to substantial levels of government support for

fuel cells, which is rivalled only by the US and Japan. The overall strategy contained within

the National Long Term Plan is to achieve commercialisation of fuel cells in the domestic

market in the early 2010s, and establish an export industry before around 2020. 2020-2040

will be the period where market expansion takes place and ‘realisation of the hydrogen

economy’ is achieved.

Specific examples of government support for particular applications are given below.

3.1.1 Portable

There are few direct subsidies or support mechanisms for portable fuel cells, although the

Korean military is believed to have interests in portable solider power – the same area as its

ally the United States is working on with Korean company Samsung. The budget for

portable DMFC is only around US$5 million annually, and there is little specific mention of

portable applications in the Korean roadmap. Korea Institute of Science and Technology

(KIST) is working on GDLs and other DMFC components, as part of Korea’s focus on

building a domestic component supply chain.

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3.1.2 Small stationary

Government support for small stationary fuel cells mainly covers conventional PEM

adoption with support also going to R&D of key components and SOFC. The residential

fuel cell demonstration programme, starting in 2010, includes direct subsidies for adoption

of up to 80% of the cost of stationary fuel cell installations, mainly in domestic apartments.

The Korea Energy Technology Evaluation and Planning agency (KETEP) plans to make

installations of these 1 kWe mCHP units (known as Residential Power Generators, RPGs)

as follows:

• 2010: 200 units

• 2011: 300 units

• 2012: 500 units

Longer term, as part of its ‘Green Home Project’, the government has a target of 100,000

residential fuel cell units to be installed by 2020, at a cost of US$10-15 / kWh. To promote

this, the government has subsidies of up to 80% of installed costs between 2010 and 2012,

decreasing to 50% by 2013 – 2015. The Korean government’s feed-in tariff is also driving

stationary fuel cell adoption and overcoming the disconnect between natural gas price and

electricity price. Korea’s natural gas price is relatively high and grid electricity price

relatively low. This low spark spread is something of a barrier to fuel cell adoption, the feed-

in tariff making heat production more competitive than electricity production.

In addition to central government support, local government adoption subsidies of around

10% make the total system cost to the consumer around US$1,500. Companies involved in

this programme are currently GS Fuel Cell, FuelCell Power and Hyosung, with LS Industrial

Systems also chasing this market. The milestones in the roadmap for residential fuel cell

systems to 2012 are summarised below:

Figure 3 Korean Roadmap for Residential Fuel Cell Systems (used with permission of

KETEP)

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The government supported SOFC programme is mainly at the R&D stage, covering 1 and 5

kWe residential mCHP units, with stacks and systems being developed by Korea Electric

Power Research Institute (KEPRI), and fundamentals (such as metal support,

interconnects) and the internal reformer being developed by the Korean Advanced Institute

of Science and Technology (KAIST). Larger-scale SOFCs are also being developed by

these Institutes.

3.1.3 Large stationary

The large stationary programme for distributed power mainly focuses on MCFC

technology, with 300 kWe technology and MW-scale plants both being developed by

Doosan Heavy Industries, and POSCO Power separately developing MCFCs as part of a

technical alliance with FuelCell Energy. Government funding of Doosan’s MCFC activities

covers production of components and stacks/systems focusing principally on three distinct

markets:

1. Distributed power plants (2010-)

2. MCFC with desalination (for the Mideast market) (2014-)

3. MCFC with carbon capture and storage (1 MW ‘power plant’ range) (2018- )

SOFC development is focused on 100 kWe and 180 kWe fuel cell stacks and systems

being developed by KEPRI and industrial partners. POSCO Power in particular is involved

with 25 kWe units while Samsung SDI is developing 100 KWe tubular SOFCs.

3.1.4 Transport

The development of transport fuel cells has focused on developing an 80 kWe stack for

light duty vehicles (2004-9) and a parallel 200 kWe stack development for buses (2005-10).

Both projects have been conducted through Korea’s leading vehicle manufacturer,

Hyundai-Kia together with partners. The demonstration programme (2006-2009) saw

around 30 fuel cell vehicles deployed throughout Korea, served by seven hydrogen fuelling

stations. Looking forward, there is a planned demonstration of up to 1,000 vehicles per year

between 2012 and 2014. Beyond 2015, the roadmap calls for commercial production of

10,000 vehicles per year (see below).

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Figure 4 Korean Roadmap for Fuel Cell Vehicles (© Hyundai Motor used with

permission of KETEP)

In terms of niche transport, Pro Power and Korea Institute of Energy Research (KIER) are

also working together on DMFCs as range extenders for battery powered materials

handling vehicles and scooters.

In addition, the Ministry of Environment (MOES) has put around US$10 million into basic

R&D and on demonstration of hydrogen production, storage and utilisation (2003-13), one

result of which was the seven hydrogen refuelling stations.

3.1.5 Components

Common to the small stationary and transport programmes is the development of PEM

MEAs (2008-13), the development of a low cost, durable PEM system (2008-13) and a high

temperature PEM MEA (2009-14). Another element is the core technology development of

PEM, DMFC and SOFC (2004-11), all covered within the approximately US$80 million

budget for fuel cells from the Ministry of Knowledge Economy. Production of domestic

balance of plant components and stack components is a key objective of the Korean

national roadmap for small stationary, large stationary and transport fuel cells in the period

2012-15.

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Acknowledgements The author wishes especially to thank Moonho Kim of Johnson Matthey. Thanks also to all

Korean and non-Korean contacts, interviews with whom contributed to this report,

including:

• Doosan • FuelCell Power • GS Caltex • GS Fuel Cell • Hyosung • Hyundai Kia • Korea • Korea Advanced Institute of Science and Technology • Korea Energy, Technology Evaluation and Planning Agency • Korea Institute of Energy Research • Korea Institute of Science and Technology • LS Industrial Systems • POSCO Power • Pro Power • Samsung • UK Foreign Office Science and Innovation Network, Seoul

About the Author Dr Jonathan Butler is Senior Market Analyst, Asia specialising in market developments in

the Asia Pacific region, with an emphasis on portable applications of fuel cells. His current

focus includes supply chain developments, legislation, policy and intellectual property

aspects of fuel cell technology, particularly patent and patent opposition analysis, and their

commercial implications. He is also interested in fuel cell development in the Middle East.

Jonathan has worked extensively with corporate, government, NGO and SME clients

globally on a range of consulting projects, covering investment, supply chain analysis,

market forecasting, market due diligence, and business incubation. Jonathan previously

managed the fuel cell part of the UK government’s Low Carbon and Fuel Cell Knowledge

Transfer Network, specialising in international project brokering activities. Jonathan is a

regular speaker at international conferences, and has authored a large number of FCT

Syndicated reports, covering portable, transport, policy and IP topics. Jonathan also edits

and jointly writes the annual FCT Industry Review.