South Korea’s Distributed Energy Special Zone Policy Faces Challenges
South Korea’s introduction of a “distributed energy special zone” has generated significant debate since its inception. The initiative was designed to reduce the high costs of industrial electricity and stimulate regional economic growth. However, three out of the seven proposed regions—Ulsan, Pohang in North Gyeongsang Province, and Seosan in South Chungcheong Province—were placed on hold, forcing local businesses to reevaluate their strategies.
Renewable Energy Utilization: A Key Factor?
According to government and industry sources, the Energy Committee, led by the Minister of Climate, Energy and Environment, evaluated the three regions and found that they had low renewable energy usage or were focused on fossil fuel-based projects such as liquefied natural gas (LNG) combined heat and power plants. These regions aimed to support industries facing financial challenges by offering cheaper electricity or meeting the rising demand for AI power. However, these plans now face potential setbacks, impacting core industries and large-scale infrastructure projects.
One notable example is the Ulsan Mipo Industrial Complex, where SK and Amazon Web Services (AWS) planned to construct the country’s largest AI data center. SK Multi Utilities, a local power provider, was set to supply electricity from an LNG combined heat and power plant to the data center. In Pohang, GS Engineering & Construction intended to sell electricity directly to the secondary battery industry using clean hydrogen produced from ammonia. Both initiatives failed to meet the Energy Committee’s criteria. Similarly, Seosan, home to a petrochemical complex, saw HD Hyundai E&F, a subsidiary of HD Hyundai Oilbank, plan to operate an LNG power plant to supply steam and electricity to nearby facilities. This project was also not designated as a special zone, leading HD Hyundai E&F to reconsider its original plans.
Emphasis on Renewable Energy and Local Initiatives
In contrast, the selected regions—Jeollanam Province (solar power), Jeju (Energy Storage Systems or ESS), and Busan (renewable energy)—demonstrated a strong focus on renewable energy policies. Uiwang in Gyeonggi Province proposed developing a “next-generation power grid” that would connect solar power, ESS, and electric vehicle charging stations within a park. Some local governments have already committed to providing residents with an “energy basic income.” Jeollanam Governor Kim Young-rok announced on the day of the selection that the province would implement an annual energy basic income worth 1 trillion Korean won, while Yeongam County stated it would start with a 2.1 GW-scale solar power facility and distribute energy basic income to all residents. This shift in focus appears to be influenced by local political interests rather than the original intent of the policy.
Analysts suggest that the newly formed Energy Committee under President Lee Jae-myung’s administration, which includes a majority of climate and environmental experts, prioritized renewable energy utilization as a key criterion. A professor in the energy field noted, “Although all seven candidates were initially expected to be selected, the change in the committee’s composition likely led to the rejection of projects that did not sufficiently utilize renewable energy.”
Understanding the Distributed Energy Special Zone
The distributed energy special zone system allows designated regions to use locally generated electricity directly, instead of relying on KEPCO’s long-distance transmission from large power plants. This approach enables direct purchases from nearby power providers and offers flexible pricing, aiming to establish a self-sufficient power system based on “local production for local consumption.” The concept emphasizes the importance of regional energy independence and sustainability.