Producing electricity at home is tricky business

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Producing electricity at home is tricky business


President Moon Jae-in wants to wean Korea off of nuclear energy and encourage alternative energy sources, particularly renewables like solar and wind power. But analysts say investors in renewables must be cautious since there are many factors that might affect the profitability of such a business.

A company that installs solar energy power generators has been holding investment seminars in Daegu and Busan. It tells potential investors they can rake in the cash if they get in early.

It wants investors to put solar power generators on land they aren’t using and then sell electricity to Korea Power Electric Corporation (Kepco), the country’s power distributor.

“It cost about 240 million won ($211,411) to build a solar power generator with 100 kilowatt capacity,” said a representative of the company. “You can take out up to 150 million won in loans at a 3 percent annual interest rate. The government is encouraging the industry so this is s very safe investment. You only have to pay about 30,000 won a month for weeding of the plot of land.”

Solar power generators can make money by selling electricity to Kepco based on a so-called system market price (SMP). They can also sell renewable energy certificates (REC) to 18 big power companies including Korea Hydro & Nuclear Power Corporation.

Let’s say an investor operates a solar power generator with a capacity of 100 kilowatts for 3.6 hours every day. It can generate 10,800 kilowatts of energy in a month. Based on June’s SMP and REC prices, the investor could earn 228.4 won per kilowatt. That investor could earn 2.46 million won a month or 29.6 million won a year. If he or she invested 240 million won to install the generator, the annual profit rate is 12.3 percent. But this is when nothing happened with the business.

An official from the Korea Energy Agency warned that there are many variables such as operation costs, taxes and the interest rates on loans taken out by an investor.

Kepco and major power companies do buy electricity generated by individuals. The Ministry of Trade, Industry and Energy requires them to buy renewable energy. They buy it but actually have a hard time transmitting that energy to actual consumers due to a shortage of electrical transformers.

In the past, Kepco turned away people trying to sell their renewable energy when transformers’ capacity was full and asked them to try to sell it again later. But in October, the Ministry of Trade, Industry and Energy mandated power companies buy energy from small plants with capacities less than 1 megawatt. Capacity for renewable energy transformers is still low but Kepco has them wait in line to sell their power.

“We are having people apply to sell energy but we don’t think they will make money since we can’t give a promise as to when they will be actually delivered to transformers,” said a representative of Kepco.

As of the end of February, some 2,330 megawatts of renewable energy generated by small plants was waiting to be sent to transformers. “I heard that it takes about 8 to 11 months after they are delivered to Kepco,” said an industry insider.

Prices are volatile too. SMP prices were 122.3 won per kilowatt in January 2010 and rose to 162.8 won in April 2013. However, they fell to the mid-70 won level recently.

“Kepco and other power companies can only receive a certain amount of energy and bidding is very competitive,” said Yoo Jae-gook, a researcher at the National Assembly Research Service. “Small power generators might be disadvantaged.”

Choi Jae-ho, a manager at Hanwha Q Cells, said the solar energy power business is pretty predictable since the technologies are already developed. “Investors should be cautious though and see if it is reasonable to take out loans or to rent land,” said Choi.

Moon has promised to give financial support to renewable energy generators. Small generators may get subsidies from the government when trading prices of renewable energy are low. That idea began in the Roh Moo-hyun administration, which Moon was a part of, but was abandoned by the Lee Myung-bak administration.


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