Korea's Energy Transition: What Are The Risks For Investors?

• Published date: 31 March 2024
• Subject Matter: Litigation, Mediation & Arbitration, Energy and Natural Resources, Energy Law, Oil, Gas & Electricity, Arbitration & Dispute Resolution, Renewables
• Law Firm: Herbert Smith Freehills
• Author: Mr Mike McClure, Dana Kim, Jerome Temme and Joel Halliday

As one of the four so-called Asian Tigers, South Korea's industrialisation and economic growth since the 1960s have been rapid. Yet Korea's advanced economy is highly dependent on energy imports. While its energy dependence has decreased slightly over the past decade, as of 2021, Korea still relied on imports for over 92% of its energy. And with no physical energy links to its partners in East Asia - whether in the form of pipelines, electricity interconnectors or road links - energy is primarily imported through its ports and liquefied natural gas (LNG) terminals.

Global investment for increased energy security

With energy security and a successful energy transition at stake, it is hardly surprising that Korean energy diplomacy has been particularly busy in recent years. In particular, Korea has sought to diversify the sources of its energy imports and to strengthen its connections with existing partners to ensure a reliable supply of hydrocarbons and renewable energy.

Korean energy companies, both state-owned and private enterprises, have played a crucial part in this policy. Under the protection of more than a hundred free trade agreements and multilateral or bilateral investment treaties, Korean investors have been actively investing in energy projects abroad, particularly in renewable energy projects such as solar, hydrogen and ammonium projects.

Benefits of foreign investments

Korea benefits from these investments in multiple ways, not just through the potential for returns, but through strengthened intergovernmental ties and ensuring Korean companies develop and retain the engineering expertise to construct and operate a variety of power plants and other infrastructure in the energy value chain.

In addition, there is the potential for Korean partners to establish an entire energy supply chain: clean energy produced abroad can be guaranteed to be delivered to Korea under long-term offtake agreements. It is no surprise that Korean investments have focused on countries benefitting from abundant hydro or solar power, and equipped with sophisticated ports and terminals, allowing the green energy to be shipped and delivered to Korea. An example of this is private Korean investors E1 Corporation who in late 2023 announced an early-stage investment in a low-carbon hydrogen/ammonia production facility in Canada. Another is SK Ecoplant, part of the SK Group, who made a similar announcement in December regarding green hydrogen and green ammonia production...