South Korea is preparing to hold one of the world’s first auctions for electricity generated from hydrogen in a move Seoul hopes will kickstart competition among nascent hydrogen-based power generation technologies and accelerate cost reduction.

The auction, scheduled to launch in mid-July, is thought to be the first of its kind in the world and marks the first step in South Korea’s efforts to commercialise green and blue hydrogen-based power generation by 2027. It will also create one of the world’s first hydrogen consumption mandates.

The tender will involve 650GWh of energy generated from ‘general hydrogen’—namely carbon-intensive grey hydrogen—for delivery in 2025, according to the Korea Power Exchange, the country’s only transmission system operator.

650GWh – Power covered by first auction

Technologies eligible to participate in the auction include fuel cells, coal/ammonia co-firing or LNG/hydrogen co-firing at existing fossil fuel power plants, or hydrogen-fired turbines to produce the electricity. The sole offtaker of the power will be state-run utility Kepco, but district heating companies and voluntary offtakers may eventually have access to the tenders.

Bids are to be submitted over 10–14 July, and the winner will be announced in August. A second auction of 650GWh of general hydrogen energy will follow in H2 2023, but auctions for electricity generated from ‘clean hydrogen’ to be delivered in 2027 will not start until next year as the market and supply infrastructure for power generation have not been fully established.

South Korea aims to deliver 14.7TWh of hydrogen-based energy in 2028 through auctions completed in previous years, which will require an estimated 590,972t of green and blue hydrogen and 240,000t of grey hydrogen based on the proposed auction mechanism. The government aims to have hydrogen account for 2.1pc of the Korean power mix by the end of this decade, rising to 7.1pc by 2036.

Policy flaws

But while the upcoming auction is a meaningful step in creating demand-side incentives for hydrogen, critics say the policy misses the mark on three key fronts. First is the lack of demand mandates for hard-to-abate industrial sectors. The emerging consensus is that chemical sectors such as ammonia, methanol and oil refining, and steelmaking have the highest potential for green hydrogen adoption. These industries account for more than half of hydrogen demand projected by forecasters such as the IEA in a net-zero world.

Hydrogen is likely to play a much smaller role in power sector decarbonisation, with hydrogen-based power accounting for slightly more than 1pc of global installed generation capacity in 2050.

Given the high cost of hydrogen-based power relative to renewables such as solar or wind, it is also better suited for seasonal balancing or back-up rather than baseload power. Neither has the upcoming auction mechanism defined the role hydrogen power will play in South Korea’s power system. Yet, Seoul’s long-term plan to have hydrogen power account for 7.1pc of the generation mix by 2036 suggests the envisioned role is closer to baseload power than peaking or back-up.

Permitting the use of grey hydrogen as feedstock for power generators also seems misguided. Accelerating the phase-out of grey hydrogen in the auction mechanism is also critical for the policy to support South Korea’s decarbonisation, but the government envisages grey hydrogen still meeting one-third of power-related hydrogen demand in 2028.

The long-term supply of clean hydrogen for power generation is unlikely to be a constraint given the number of hydrogen import projects under discussion between South Korea and Australia, Malaysia, Saudi Arabia, the UAE and the US. Setting up supporting infrastructure such as hydrogen and ammonia import terminals could be a challenge in the near term, however.

South Korea’s Lotte Fine Chemical received its first blue ammonia shipment in December 2022 from its project with state-owned Saudi Aramco, which will supply 50,000t/yr of blue ammonia—equivalent to 8,800t/yr of hydrogen. Another joint project by Lotte and fellow Korean firm Samsung Engineering is scheduled to import 193,000t/yr of green hydrogen from Malaysia starting in 2027.

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Author: Shi Weijun