Policy synergy or conflict for renewable energy support: Case of RPS and auction in South Korea

Governments provide various incentives for the production of electricity from renewable energy sources (RES-E). South Korea has promoted the use of such electricity through various programmes, such as Feed-in Tariff from 2002 to 2011, and Renewable Portfolio Standard (RPS) since 2012. The RPS appears to have been particularly effective in stimulating the use of RES-E. However, there remain several issues regarding the current RPS' policy design. This study examines South Korea's RPS by focusing on two issues. The first issue is the regulation of technology competition under the RPS; and the second issue is risk mitigation, which is generally known as a weakness of the RPS policy. This study suggests that one option for addressing both these issues is a policy mix of RPS and long-term contract auctions with a sliding premium. In particular, a technology-specific auction can be a complement to the technology-neutral RPS, not only in terms of minimising risk, but also in terms of cost and dynamic efficiencies. The synergy effect between these two policies is expected to be more significant than alternative policy combinations.