How Is Lee Jaemyung's '2.5 Million Won a Year' Solar and Wind Pension Possible?... "Ultimately, the Public Bears the Burden" [Digging Energy]

Sinan-gun's Profit-Sharing Model Adopted as a Policy Pledge
Resident-County Cooperatives Join Solar and Offshore Wind Projects
"Large-Scale Transmission Network Construction Ultimately Burdens the Public"
Enforced by County Ordinance Without Legal Delegation from Higher Laws

On May 21, the Jeonnam Offshore Wind Power Phase 1 project, promoted by a consortium of SK Innovation E&S and Denmark-based renewable energy investment firm Copenhagen Infrastructure Partners (CIP), began commercial operations. This project is significant not only as the largest offshore wind power project in South Korea led by the private sector, but also as the first case of the so-called 'Wind Pension' being implemented in Sinan-gun. The Wind Pension, along with the Solar Pension, is one of the flagship renewable energy pledges of Lee Jaemyung, the presidential candidate of the Democratic Party of Korea.

According to Sinan-gun, starting in October, a portion of the profits from electricity generation at Jeonnam Offshore Wind Power Phase 1 (96MW) will be distributed to residents of the nearby Jaeundo island. An official from Sinan-gun stated, "We expect about 3.2 billion won in electricity generation profits per quarter from Phase 1, and 40% of this will be paid to Jaeundo residents as compensation for damages," adding, "We estimate that each resident will receive between 70,000 and 140,000 won in October."

Overview of Jeonnam Offshore Wind Power Phase 1 Project. SK Innovation E&S

"Annual Payouts Could Reach Up to 6 Million Won If Renewable Energy Expands"

Following Jeonnam Offshore Wind Power, the Sinan Ui Offshore Wind Power project (390MW) is about to begin construction in Sinan-gun. Since the scale of this project is larger than Jeonnam Offshore Wind Power, the profits distributed to residents are also expected to increase. Sinan-gun anticipates that residents could receive between 130,000 and 260,000 won per quarter from the Sinan Ui Offshore Wind Power project.

Before the Wind Pension, Sinan-gun implemented the Solar Pension model through solar power projects on six islands: Jarado, Anjwado, Jido, Saokdo, Imjado, and Bigeumdo. Through these projects, residents receive between 100,000 and 600,000 won per quarter, with some residents earning up to 2.4 million won per year.

The Solar Pension and Wind Pension in Sinan-gun are being promoted as part of Lee Jaemyung's pledge to expand renewable energy. On May 15, at a campaign event in the Jeonnam region, Lee stated, "Sinan-gun returns 30% of solar power shares to local residents. Some households receive up to 2.5 million won per year. That's why it is the only region where the population is increasing. This can be replicated elsewhere." His plan is to expand the Solar Pension and Wind Pension model nationwide to promote renewable energy adoption.

The Solar Pension and Wind Pension projects in Sinan-gun are simplified terms for the county's renewable energy profit-sharing system. In 2018, Sinan-gun enacted the "Ordinance on the Sharing of Profits from Renewable Energy Development in Sinan-gun," which requires that when renewable energy projects such as solar or wind power are implemented in the county, residents must participate with at least a 30% stake in the power plant's operating entity or at least 4% of the total project cost.

Residents can participate in the power plant operating entity through either a bond-type or equity-type (stock-type) model, with most choosing the bond-type model for more stable returns. In the bond-type model, resident and county cooperatives purchase 4% of the bonds issued by the operating entity. The initial funds to purchase these bonds are typically borrowed from financial institutions. The interest on these loans is repaid using the bond interest paid by the power generation company to the cooperative. Therefore, there is effectively no upfront cost for the cooperative. Residents become members by paying a 10,000 won membership fee to the cooperative.

When resident-county cooperatives participate in the project, the power generation company receives an additional 0.2 weighting in the Renewable Energy Certificate (REC) system. Renewable energy producers are awarded 1 REC per 1MW, which is directly linked to their profits, as total profits are determined by the sum of electricity sales and REC sales. With the additional 0.2 weighting, profits increase accordingly. The core of the profit-sharing system is to distribute these additional profits to cooperative members in the form of 'compensation for damages.'

As renewable energy generation from solar and wind expands, residents' earnings naturally increase. Residents have no reason to oppose the introduction of solar or offshore wind power, and project progress accelerates. An official from Sinan-gun said, "If the entire 8.2GW of offshore wind power projects currently being promoted in Sinan-gun are completed, we could pay up to 6 million won per resident annually."

"Ultimately, the Public Bears the Burden... Legal Basis Is Weak"

At first glance, the Solar Pension and Wind Pension appear to be innovative ideas that increase resident income and accelerate renewable energy adoption. The issue, however, is that the burden ultimately falls on the public as a whole.

To expand renewable energy in the Honam region, the transmission grid must be significantly expanded. Even now, renewable energy produced in Honam often exceeds transmission capacity, leading to frequent grid constraints. To address this, candidate Lee Jaemyung has proposed building a 'West Coast Energy Expressway' by 2030. This involves constructing a subsea high-voltage direct current (HVDC) transmission network to deliver electricity produced in Honam to the Seoul metropolitan area. Industry experts estimate that building the West Coast Energy Expressway alone will cost at least 10 trillion won.

Son Yanghoon, professor emeritus of economics at Incheon National University, said, "To expand the Solar Pension and Wind Pension, the transmission grid must be built, but the costs will ultimately be borne by Korea Electric Power Corporation, which already has accumulated debts of 205 trillion won, and by the public."

The entities purchasing RECs from renewable energy businesses are Renewable Portfolio Standard (RPS) operators, which include public power generation companies and large private power producers. The mandatory RPS supply ratio for renewable energy in total power generation will rise from 14% in 2025 to 25% in 2030. The cost of purchasing RECs is indirectly reflected in Korea Electric Power Corporation's 'climate environment fee.'

There are also criticisms that Sinan-gun's renewable energy profit-sharing system is enforced by county ordinance, which lacks a strong legal basis. The ordinance initially faced opposition from power generation businesses, leading to an audit by the Board of Audit and Inspection. In December 2019, the Board of Audit and Inspection notified and cautioned Sinan-gun to amend or repeal the ordinance to avoid restricting residents' rights or imposing obligations without legal delegation.

Sinan-gun requested a retrial and filed an administrative lawsuit, but these were dismissed or rejected. Nevertheless, Sinan-gun continues to pursue the profit-sharing system, as the Board of Audit and Inspection's findings were merely notifications or cautions without binding administrative force. An official from Sinan-gun stated, "From the perspective of power generation businesses, the profit-sharing system reduces costs associated with resident acceptance and various permitting procedures, so it cannot be considered a loss."

There is also analysis that the Solar Pension and Wind Pension models are suitable for regions like Sinan-gun, which have abundant renewable energy resources, but are difficult to apply to small-scale solar power projects on the mainland. Choi Jaebin, policy activist at Solutions for Our Climate, said, "The profit-sharing model can work for large-scale projects requiring extensive land and capital, such as in Sinan-gun, but for small-scale solar projects on the mainland, it is more desirable to accelerate projects by easing regulations on separation distances."