Removing Domestic Industry Protections... Accelerated Chinese Penetration through Competitive Bidding [Domestic Offshore Wind Power Crisis] ①

Abolition of Protection System Amid Trade Dispute Concerns
Opening the Way for Low-Priced Chinese Products

The domestic offshore wind power ecosystem, which has just begun to take shape, is faltering under the onslaught of low-priced Chinese products. Critics point out that the problem started when the government removed mechanisms that could protect the domestic industrial base, citing trade friction issues. The government plans to hold offshore wind power bids annually until 2030. Improving the system to protect the domestic offshore wind power industry has become an urgent issue.

According to the related industry on the 3rd, the first competitive bidding for wind power facilities by the Korea Energy Agency in December last year was conducted after the Local Content Requirement (LCR) was abolished. LCR stipulates that a certain percentage of domestic components must be used when manufacturing wind turbines. It is a minimum measure to open up opportunities for domestic component companies, which have found it difficult to secure supply opportunities due to the lack of projects so far. Countries pursuing large-scale offshore wind power projects such as Taiwan, the United Kingdom, and China utilize various forms of LCR to protect their domestic industries and attract domestic production bases.

The government introduced this system in December 2021. It provided up to 4.9 times the Renewable Energy Certificate (REC) weighting for projects with more than 50% domestic component ratio. The LCR rate was added as an item to the existing bidding method, which comprehensively evaluates technical aspects and wind turbine prices.

However, in April last year, the government suddenly abolished the system. The reasons cited were concerns over trade disputes due to the European Union (EU) consistently raising the possibility of violations of World Trade Organization (WTO) rules and concerns about double benefits. They argued that since there is an item (16 points) evaluating domestic economic and supply chain contributions when selecting the winning bidder in the wind power bidding system, providing REC weighting could result in double benefits.

The results were quite different from the period when the system was in place. Before abolition, among government-commissioned projects awarded in 2022, there was not a single project using major Chinese components. However, at the end of last year, five projects were awarded: Wando Geumil (Phase 1) 210 MW, Wando Geumil (Phase 2) 390 MW, Sinan Ui 390 MW, Nakwol Offshore 365 MW, and Gochang 76 MW. Among these, Nakwol Offshore and Gochang Offshore used Chinese-made turbines and other core components.

The industry analyzes that the removal of REC weighting based on LCR from the bidding process and the shift to a price-competitive method accelerated the infiltration of Chinese companies. The structure changed to favor bidders proposing Chinese products that supply equipment at low prices.

The government maintains that domestic companies still hold a more favorable evaluation. The bidding criteria include price and industrial contribution items, and the 16-point industrial contribution score benefits domestic companies.

However, domestic companies argue that since the price score is 60 points, it is fundamentally difficult to compete with Chinese companies. No matter how competitive the price is, they say there is a structural limitation in competing against China.

A representative from the domestic offshore wind power industry said, "Previously, companies could refer to the publicly disclosed ceiling price when submitting bids, but since the ceiling price was changed to confidential, companies are forced to submit the lowest possible price. This has created an environment favorable to companies using low-priced Chinese components."