[인터뷰] Yong-Sung Cho, President of Korea Energy Economics Institute-The Energy News

Carbon-neutral, the key is’the carbonization of electricity generation’
Corona 19 causes a decrease in energy demand and a decline in oil prices at the same time
Expected economic recovery this year… Energy demand is also gradually increasing

[에너지신문] In 2020, the energy industry has also undergone major changes due to Corona 19. While oil prices fell, oil refineries suffered the worst slump in history, while KEPCO escaped its 10,000-year deficit thanks to lower fuel costs. In particular, even in the coronavirus situation, the new and renewable industry still recorded significant growth. This paper asked about the prospect of this year after hearing the impact of Corona 19 on the energy market last year from Cho Yong-sung, director of the Institute for Energy Economics.

► What was your evaluation of the domestic and foreign energy markets last year?

Corona 19 caused a decrease in energy demand and a decline in oil prices at the same time due to the shock of the demand side, which dampened global economic and social activities. The IEA analyzed that the global energy demand in 2020 fell 5% compared to the previous year due to Corona 19. Greenhouse gas emissions (energy combustion) decreased by 7% and energy investment by 18%, respectively.

The international oil price (Dubai crude) fell 34.6% from the 2019 average annual price ($63.53/barrel) to $41.53/barrel due to the decline in demand caused by the economic downturn. The main factors are the decrease in global oil demand caused by Corona 19, and the temporary breakdown of the production cut-off cooperation system of OPEC member countries and Russia and other participating countries (OPEC+).

According to the IEA, investments in the global energy sector in 2020 were mainly in the oil and gas supply sector. Even if the Corona 19 incident subsides, it is expected that fossil energy prices will not rebound and investment recovery will be difficult due to the seriousness of the climate crisis. The domestic oil and gas industry also suffered from declines in oil demand and exports, worsening refining margins, and falling domestic natural gas wholesale and retail prices.

Investment in low-carbon energy industries such as renewable energy and electric vehicles has not shrunk as green investment, including the Green New Deal as a major means of overcoming the Corona 19 crisis, has expanded and more than 70 countries around the world participated in the 2050 declaration of carbon neutrality. Compared to fossil fuels, it can be said to have less damage. In particular, it is judged that Korea has hardly been affected by Corona 19 due to the expansion of new and renewable energy.

► I would like to hear your opinion on the direct introduction of natural gas.

The LNG direct import system is expected to have positive effects that contribute to the national economy, such as lowering the introduction price of direct importers due to the expansion of fuel options, but the decline in the ability to respond to volatility in electricity demand of direct importers with a high proportion of spots and the contracts of wholesale operators due to a surge in direct imports. Problems such as volume handling can also occur.

Problems arising from the prospect of direct import growth should be preemptively reviewed, and measures to improve the system should be prepared to mitigate the side effects of direct import growth.

With the energy conversion, the role of LNG power generation among traditional power plants is becoming more important and the share of power generation is expected to increase. However, if LNG power generation increases, there is a possibility that there is a possibility of rising pressure in electricity prices.

On the other hand, the direct introduction of LNG by power generation companies can create a competitive environment in the gas import market, enable cheaper LNG introduction, and have a positive effect of relieving the pressure on rising electricity rates. In fact, in September of last year, there was a phenomenon in which the supply ranking of direct gas generators increased.

► In relation to the construction of power plants, what would you suggest for reinforcing acceptance?

In order to strengthen resident acceptance, a system that shares the benefits of power plant construction with local residents needs to be established. Compensation for resident-participating power generation projects should be systematized and financial programs such as loans should be expanded.

It is also important to standardize different licensing regulations for each local government, and establish a system in which local governments lead power plant locations and secure residents’ acceptance. In particular, it is necessary to consider establishing a conflict management support center for each local government to manage and prevent conflicts in the power plant construction process.

It is necessary to prepare governance and systems to solve the problem of regional acceptance by taking the conflict related to solid fuel power generation facilities including the Naju SRF cogeneration plant as a teacher on the other hand.

The main issues of Naju SRF are summarized as the resistance of local residents to the use of wastes from six cities and counties in Jeollanam-do, including Naju, as solid fuel materials, and errors in conveying information about facilities in this process.

It is necessary to prepare a cooperative governance system that can easily resolve the ambiguity of unfamiliar technologies to local residents, and a compensation system for local residents that comprehensively and consistently reflects the social costs of energy supply and demand.

► What would you suggest for a way to build a desirable hydrogen ecosystem?

The government’s goal of promoting the hydrogen economy is’Achieving the No. 1 market share in the world market for hydrogen vehicles and fuel cells’. The key is to create an export industry through market creation and promotion of hydrogen-using industries such as hydrogen vehicles and power generation and private fuel cells. This can be seen as a result of considering the economic value of the hydrogen economy as important as it is centered on the high-tech industry promotion policy, which is a part of the government’s innovative growth policy.

Currently, the government is emphasizing not only the economic value of the implementation of the hydrogen economy, but also environmental values such as reduction of greenhouse gases and fine dust by decarbonization of energy consumption through the use of hydrogen.

In order to make the implementation of the hydrogen economy justifiable in terms of the environment, in order to create and foster the initial market of the fuel cell-based hydrogen utilization industry, in the short-term, natural gas extraction method of hydrogen production and supply expansion will be promoted. The government’s promise to promote and achieve supply expansion must be fulfilled.

In the end, the success of the government’s hydrogen economy implementation should be able to contribute to the decarbonization of energy consumption as well as export industrialization and sufficient supply of eco-friendly green hydrogen as an economically innovative growth engine.

In addition to the government’s willingness and support to build a hydrogen ecosystem, active participation from the private sector is also important. POSCO declared that it will achieve carbon neutrality by 2050, and proposed emission reduction targets of 20% by 2030 and 50% by 2040 as mid- and short-term targets. In addition, it announced that it will endeavor to develop innovative technologies such as hydrogen reduction steel for the production of low-carbon green steel. The government’s willingness to implement policies is also important, but the private sector should also actively participate and strive to achieve the establishment of a domestic hydrogen ecosystem.

► What is your outlook for the global energy market this year?

The biggest variable that will determine the global energy market in 2021 is the progress of Corona 19 and the level of global economic and social activity accordingly. According to the OECD’s December outlook, economic and social activities will increase due to the development of COVID-19 vaccines and treatments, and response to the spread of COVID-19 by governments in different countries, and the global economic growth rate will increase from -4.2% in 2020 to 4.2% in 2021. It is expected to be.

If the global economy recovers, global energy demand is expected to gradually recover this year. However, it will be difficult to reach the level before Corona 19. The IEA also predicted that energy demand will recover to pre-Corona 19 levels only in 2023.

As energy demand recovers, prices are expected to rise. According to the scenario, the international oil price in 2021 as forecasted by the Korea Energy Economics Institute recently ranged from $42 to a maximum of $56 per barrel, but the current situation is highly likely to be close to the high oil price scenario. As international oil prices rise and demand for each energy source increases, the prices of other energy sources, such as natural gas, are expected to rise gradually with a lag.

The inauguration of the US Biden administration is expected to contribute to accelerating the global flow of energy conversion. President-elect Biden has announced a presidential election pledge to achieve carbon neutrality by 2050 and to invest $2 trillion in clean energy. Therefore, it is expected that the low-carbon energy industry, centered on renewable energy and eco-friendly vehicles, will become more active.

This can be an opportunity to improve the business environment for the energy industry, which was suffering from a decrease in energy demand and a drop in prices due to the impact of Corona 19. However, we need to be careful of the’rebound effect’, which increases greenhouse gas emissions as the economy recovers.

► What is the energy mix direction to achieve ‘2050 carbon neutral’?

As of the end of 2018, fossil energy such as coal (28.2%), oil (38.5%), and natural gas (18%) accounted for 84.7% of the nation’s total primary energy consumption. Carbon neutral means that the proportion of these fossil energies will be made virtually ‘0’, so a major innovation in the current energy system is inevitable.

The basic direction of decarbonization worldwide is electrification of final energy consumption and decarbonization of electricity production. Basically, we must maintain that stance and materialize decarbonization strategies for areas where electrification is not easy.

For electrification and decarbonization of electricity production, it is necessary to expand the supply of renewable energy. However, it is not expected that Korea’s physical and geographic conditions and the current technology level will make it easy to realize the carbon neutral goal. Therefore, major technological innovations that go beyond existing limitations such as facility efficiency improvement and space utilization optimization technology must follow.

On the other hand, if renewable energy, which is affected by natural conditions, is greatly expanded, the burden of operation of the power system will increase. Therefore, expansion of physical and institutional infrastructure to secure the stability and reliability of the power system must also be carried out.

In areas where electrification is not easy, especially for businesses that consume a lot of energy, transporting large cargoes, and heating buildings, a decarbonization strategy using green hydrogen will be useful. It is important to establish a system that can stably supply green hydrogen while promoting the use of green hydrogen in areas where electrification is not easy, such as industries, transportation, and buildings.

► What energy issues are you particularly interested in?

First, the final energy is reduced to carbon to realize carbon neutrality. Heat, transportation, and power are the three final energies, and’raw materials’ account for the largest share (36%) of the final energy in the industrial sector. Representatively, naphtha (naphtha) is mentioned. In the process of producing such raw materials, a large amount of carbon is generated.

There are three options for reducing carbon emissions in the steel sector. Reduce production, convert blast furnaces into electric furnaces, and use green hydrogen instead of coke. Reducing output hurts the industry. If it is produced in an electric furnace instead of a blast furnace, the quality may be affected. Therefore, reduction to hydrogen is most likely to be realized. One way could be to make hydrogen in Siberia and Mongolia and bring it by ship.

In the case of heavy industries such as steel and cement, it is not easy to reduce greenhouse gases in the short term, as the share of employment is large. Therefore, it is necessary to create a mid- to long-term roadmap.

In addition, cooperation with the international community, especially neighboring countries, is necessary for successful greenhouse gas reduction. The representative example is the’Northeast Asia Super Grid,’ which is currently slowing down. In particular, it is possible to think of a plan for Korea, China and Japan to set a common goal to reduce greenhouse gas emissions and to form a market for emission trading between countries.

Meanwhile, recently, a lot of news about energy has been delivered through YouTube. However, since there is a lot of information that is different from the facts, an open forum for more objective and fact-based discussion should be prepared. Energy should not be politicized. Information sharing and fact-based quality discussions from a neutral perspective are needed.

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