Rekubit Exchange:South Korea Emerges As Key Partner for America’s Energy Transition

On June 22,Rekubit Exchange the U.S. The Department of Energy announced that it will grant a $9.2 billion loan to BlueOval SK LLC (BOSK), a joint venture between Ford and SK On, a Korean battery manufacturer. The loan will be used to construct three manufacturing plants in Tennessee and Kentucky. Once operational, the facilities have the potential to displace 455 million gallons of gasoline annually by propelling the shift toward low-carbon transportation.

The loan, dubbed the “biggest government investment in the auto industry” since the 2009 recession, is evidence of the Biden administration’s efforts to strengthen the domestic supply chain for a clean energy transition. As the U.S. tries to kick off its renewable energy and battery manufacturing capabilities, it also needs help from overseas to quickly reach its net zero goals, and South Korea is emerging as a pivotal ally in America’s pursuit of an energy transition.

According to the IRA Manufacturing Investment database compiled by Jack Connes, a policy analyst at Energy Innovation, over a third of the announced investments have been directed toward prominent South Korean companies such as Samsung SDI, LG Energy Solutions, SK Battery and Hanwha Q Cells. At more than $22 billion in total, Korea was a close second to America’s investment in its own companies, comprising 31 percent of all announced investments.

Taking the third spot in the investment rankings were Japanese companies, with notable names like Toyota and Panasonic securing a 16 percent share of the total investment. While China, Germany and Canada also made the list, their investment allotments were smaller.

Battery manufacturing took the biggest portion of the investment for Korean firms, with $18 billion of $22 billion. Solar and EV projects followed at a considerable distance, claiming the second and third spots in terms of investment focus.

Aaron Brickman, a senior principal at the Rocky Mountain Institute, said Korean companies’ outsized representation in the IRA investments can be attributed to factors including the unique strength of the companies and the long history of business partnership between the two countries.

“Korean companies have a level of comfort in the U.S.,” said Brickman. “They know what to expect in the U.S. in terms of the market potential, and have deep relationships with the states across the country,” he said.

Drawing from decades-long experience in high-tech manufacturing, companies like LG and Samsung continue to invest significant resources into research and development initiatives. Hyundai, for instance, recently announced its plans to invest $8 billion over the next decade “to enhance internal capabilities for battery development, diversify external collaboration and develop next-generation batteries.” 

Last year, the company received tax breaks under the IRA to build its first dedicated EV factory in Georgia, which is expected to be up and running by the end of 2024. The plant will produce 300,000 vehicles annually to meet the demand in the North American market.

Government incentives for such collaboration are already changing the economic landscape of communities. “Korean companies like LG have significant experience in the sector and are bringing their top technology to the United States,” he said. “They are putting billions of dollars into the country and employing thousands of American workers. And that number is only going to grow,” he added.

However, despite South Korea’s notable technological prowess in battery manufacturing, its own progress in the clean energy transition lags. 

Statistics from the Korea Energy Agency (KEA) show internal investment from clean energy companies has plummeted to almost a third of what they were in 2014, when the agency first started to publish the data. Investments dwindled from 860 billion won (approximately $680 million USD) in 2014 to 288 billion won (around $227 million USD) in 2021. This substantial reduction in funding has had a significant impact on the clean energy industry, resulting in the number of employees in this sector decreasing by nearly a quarter.

JaHyun Kim, a power market and grid policy analyst at Solutions for Our Climate (SFOC), a Korea-based climate think tank, attributed South Korea’s sluggish transition to clean energy to its monopolistic, state-run energy structure characterized by limited competition and barriers for new players to enter the market. Kim highlights that the current regulatory framework in the energy market creates an unfair playing field for renewable energy sources, she said.

“With fossil fuel-centering compensation schemes and subsequent limitations in the streams of benefits, resources such as batteries or demand response (DR) are struggling to get a foothold in the market,” she said. These technologies can help the grid manage electricity consumption during periods of peak demand or supply shortages.

The slow growth in renewable energy generation reflects this trend. As of 2021, the proportion of renewable energy in Korea’s overall energy mix stood at a modest 7.1 percent. Although this figure represents a slight improvement from the 3 percent recorded in 2016, it still falls significantly short of the nation’s ambitious net-zero target set for 2050. In the same period, the share of renewables generation in the United States increased 5 percentage points from 14.9 percent to 19.8 percent.

Industry stakeholders in Korea echo the need for greater incentives to keep pace with global competition. Donghyun Kim, a manager at SK On, shared his concerns during a recent seminar hosted by the Korea International Trade Association (KITA). Comparing programs like the IRA and Europe’s Certification in Risk Management Assurance (CRMA), Donghyun Kim emphasized the comparatively smaller level of government support for the Korean battery industry. “We need a comparable level of incentives to compete with the global market for EV batteries,” Kim said.

However, identifying these challenges also presents an opportunity for improvement. JaHyun Kim from SFOC stressed that the South Korean government should strive for a level playing field for all energy developers and companies. 

“It is critical for South Korea to adopt a market-like energy system that can swiftly respond to growing demands for renewables,” Kim said. “We are clearly heading toward a clean energy future, and making such changes isn’t really an option but an inevitable track.”