Clean hydrogen is a carbon-free energy source that emits no CO2 when burned. Its low geographical limits and enormous storage capacity make it a promising next-generation energy source.
Deloitte’s March hydrogen economics analysis estimated the worldwide hydrogen supply at 90 million tonnes in 2021. 99% of this is grey hydrogen, which emits carbon during creation. Clean hydrogen generation is still negligible.
As an early market, the country that secures stable production capacity first may acquire energy hegemony. The US, Germany, Japan, Australia, and China are exploring hydrogen economy strategies for this reason. Since 2019, Korea has pursued the hydrogen market with a hydrogen economy strategy and a 2021 hydrogen law amendment. Korea, an energy-intensive nation that imports energy, has high hydrogen production ambitions.
The Clean Hydrogen Power Generation Required System underpins the hydrogen law adopted last year (CHPS). It forces power providers to buy hydrogen-powered electricity at a specific rate or greater to separate and operate hydrogen in the Renewable Energy Supply Required System (RPS). Hydrogen fuel cells create most hydrogen electricity in Korea. Unlike other renewable energies, when combined with the RPS, fuel cost volatility created operators problems. To revive the hydrogen economy, the government will open the first hydrogen power generation bidding market in the first half of this year.
After stabilisation, the bidding market opens once a year. It aims to manage the general hydrogen power generation market and the clean hydrogen market separately since clean hydrogen production is inactive. Considering dispersed power supply and clean hydrogen supply, it expects to gradually diminish the general hydrogen power generation market. Reformed hydrogen from LNG decomposition at high temperature and pressure is normal hydrogen.
The standard hydrogen contract lasts 20 years and the clean hydrogen contract 10 years for stability. Since the contract is long, the minimal conditions for operators to bid have been raised. Market players are non-registered RPS operators in both markets and must meet financial requirements such corporate credit rating BBB-, instantaneous voltage maintenance performance at a specific level, and reactive power supply capability performance.
The clean hydrogen market and general hydrogen market operate similarly, but the winning bidder is selected differently. For price considerations, ratings will be based on bidding participants’ prices, and for non-price aspects, a separate assessment committee will evaluate each item quantitatively and qualitatively. 60% and 40% are non-price considerations.
Non-price considerations will matter
Non-price criteria include resident acceptability, project progress, industrial and economic contribution, project reliability, environmental contribution, generator performance, transmission and distribution linkage, and general and system evaluation.
In the general hydrogen market, when a business operator submits a bid price by dividing fixed expenses and fuel prices, related indicators are adjusted and settled to reduce external fuel cost risks. The contract price is then paid via difference settlement (CfD). The winning offer price settles if the contract volume is the same. use it Insufficient contract volume prevents fixed cost recovery.
FIP generates hydrogen in the clean hydrogen market. The difference between the existing generator’s power generating cost, the fresh input cost, and the SMP is subsidised. It bids at an integrated price without distinguishing fixed and variable expenses, unlike the hydrogen market.
The Korea Power Exchange’s March 28 ‘Hydrogen Power Generation Bidding Market System Briefing’ addressed bidding volume and competitive structure. General hydrogen power generation tendering will take place in 2025, and the estimated opening volume from 2025 to 2027 is 1.3TWh (200MW of plant capacity). The 2024 clean hydrogen power generation bidding market will generate 3.5TWh in 2027 and 3.0TWh in 2028. KEPCO will buy the entire first hydrogen power facility (for 2025, 1.3 TWh). Industry estimates put the government-approved fuel cell facility power generation capacity at 7GW, much above 200MW. This raises fears that the market cannot absorb the power generation.
Clean hydrogen is mostly sourced from abroad, raising concerns about fair competition. “We will also analyse how much local technology has contributed to the industry with non-price factors,” said a Korea Power Exchange official. He said, “If marketplaces are divided, competition may not be activated, thus we analyse them in the same market.”