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Latest Developments on the Hydrogen Act (with a Focus on CHPS)

2023.06.07

Hydrogen power, among other renewable energy sources, is garnering attention as one of the carbon-free power generation sources in Korea.  With the goal of invigorating the hydrogen economy, the Korean legislature amended the Hydrogen Economy Promotion and Hydrogen Safety Management Act (the “Amended Hydrogen Act”) effective December 11, 2022, introducing a new set of standards for hydrogen power that is distinct and separate from the original Renewable Portfolio Standards (the “RPS”).  The Amended Hydrogen Act mandated power generation businesses with an installed power capacity larger than 500 MW to prospectively meet an annual target of the ratio of renewable energy to total power generation.  Such power generation businesses must purchase Renewable Energy Certificates (the “REC”) to fulfill their obligations and are required to increase their share of renewable energy from 13% in 2023 to 25% by 2030.1  In parallel, the newly introduced Clean Hydrogen Portfolio Standards (the “CHPS”) are geared to open up a new bidding market for the purchase and supply of hydrogen and promote sale and usage of clean hydrogen by hydrogen power generation businesses. 
 
 
Key Features of the Amended Hydrogen Act 
 
In essence, the Amended Hydrogen Act (i) creates new definitions for “clean hydrogen”, “hydrogen power generation” and “hydrogen power generation business entity”, (ii) adopts a fee system for natural gas used for the production of hydrogen, (iii) introduces a certification system for clean hydrogen by grade, (iv) imposes obligations on hydrogen power generation businesses to sell and use clean hydrogen, and (v) establishes a bidding market to purchase and supply hydrogen, the details of which are set out in the table below. 
 
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The CHPS sets forth, inter alia, that an obligation may be imposed on any electric utility business entity to purchase or supply a certain quantity of hydrogen-generated electricity per year as prescribed by Presidential Decree (Article 25-6, subparagraph 1).  Moreover, a hydrogen power generation business entity that meets the standards prescribed by Presidential Decree, including acceptability by the local residents5, shall enter into an individual contract with purchasers or suppliers upon establishment of the bidding market (Article 25-6, subparagraphs 2 and 3).  The annual volume of hydrogen generation that must be purchased or sold shall be prescribed by Presidential Decree (Article 25-6, subparagraph 4).  The MOTIE Minister shall enable purchasers and/or suppliers to recover any expenses incurred in connection with implementing the volumes of purchase and/or supply by reflecting them in the electricity bill of end-users (Article 25-6, subparagraph 6).  The MOTIE Minister may designate any hydrogen-related businesses, organizations, or corporations that meet the standards prescribed by Presidential Decree as the management agency of the bidding market, who shall be permitted to enact operating rules on the bidding market and seek approval therefor from the MOTIE (Article 25-7). 
 
 
Highlights of the Notification 
 
On March 13, 2023, the MOTIE made an administrative pre-announcement to enact the Notice on the Calculation of the Annual Purchase Volume for the Bidding Market of Hydrogen-Generated Electricity (the “Notice”).  The highlights of the Notice are as follows: 
 
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Significance of the Latest Developments 
 
It is anticipated that the bidding market for the purchase and/or supply of hydrogen-generated electricity will open once in each of the first and second halves of this year.  Moreover, the Clean Hydrogen Market is expected to open for the first time in the beginning of 2024.  With the foregoing laws and regulations that have been put in place to bolster the Korean hydrogen industry, the principal challenge seems to be the integration of all actors in the hydrogen value chain. 
 
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