1.1. Global Overview on PV Generation
The Paris Agreement was adopted with the consent of 195 nations through the 21st annual Conference of Parties (COP21) held on 12 December 2015 in Paris, France [
1]. In addition, countries participating in the Paris Agreement are pursuing a bold reduction policy in the energy sector, which has a high greenhouse gas (GHG) emission level, in order to achieve the GHG reduction target contained in the Intended Nationally Determined Contributions (INDC) submitted to the United Nations (UN) [
2].
These efforts are bringing changes in investment in the energy market and are leading energy transition. In 2018, power sector investment was over USD775 billion and this was the largest investment among energy sectors [
3]. In particular, the investment in the renewable energy sector increased 55% from 2010 to 2018, led by PV and wind power. In 2018, 181 GW of renewable energy was newly installed, of which PV power was 100 GW and wind power was 51 GW [
4]. With the exception of power distribution facilities, PV and wind power areas drew the largest investment in the power sector for the three years of 2016–2018. Improved benefits of renewable energy from capital cost decrease and strong governmental dissemination policies led this trend [
3]. For example, the capital cost of utility scale PV for 2018 fell to about 25% compared to 2010. On the other hand, during the same period, the capital cost of coal fired power, gas power, and nuclear power, have changed little or even increased.
In addition, developed countries such as the United States and European countries are endeavoring to cope with climate change and to lead energy transition with the expansion of renewable energy. The United States has decided to cut its GHG emissions by 26–28% from 2005 levels by 2025, according to the INDC submitted to the UN on 31 March 2015 [
5]. It plans to cut about five billion tons by 2020, which is a 17% reduction compared to 2005, and 4.3 billion tons, which is a 26–28% reduction, by 2025. To that end, the Environmental Protection Agency (EPA) announced a Clean Power plan for carbon-dioxide reduction on 23 October 2015 [
6]. This guideline aims to reduce GHG emissions in power generation by expanding natural and renewable energy and reducing the use of fossil fuels. On 10 October 2017, the abolition plan containing the review result based on the reconsideration request was submitted, and the Affordable Clean Energy Rule was proposed on 21 August 2018 [
7,
8]. As a result, the proportion of coal-fired power decreased from 50% in 2005 to 30% in 2017, natural gas power increased from 19% to 32%, and non-hydro renewable energy, such as wind and solar, increased from 2% to 10%, and CO
2 emissions decreased by 27% [
9].
In Japan, which has decided to reduce GHG by 26% by 2030 compared to 2013, the nation’s total GHG emissions decreased by 3.0% year-on-year in 2014 [
10]. Despite the decrease in the proportion of nuclear-power generation, carbon-dioxide emissions decreased because of the decrease of petroleum thermal power, the increase of renewable energy, and the improvement of power generation facilities. Japan submitted its INDC with a detailed generation mix plan for 2030. According to the plan, the 2030 generation mix consists of 26% coal-fired power, 27% LNG, 22–24% renewable energy, 20–22% nuclear power, and 3% petroleum. Among them, renewable energy is planned to be 7% solar PV energy, 1.7% wind, 1.0–1.1% geothermal, 8.8% to 9.2% hydro power, and 3.7–4.6% biomass.
In fact, Japan installed 7 GW of solar energy in 2017, and its cumulative installed capacity reached 42.8 GW as of the end of 2017 [
11]. Meanwhile, the feed-in tariffs (FIT) deadline, which was on 31 March 2019, was extended by six months, until 30 September 2019, and the installed capacity of solar power in Japan is expected to be increased to 65.6 GW by 2018–2020 by adding about 17 GW [
12,
13].
China, the world’s top GHG emission country, plans to reduce carbon-dioxide emissions per unit of gross domestic product (GDP) by 60–65% by 2030 compared to 2005 [
14,
15]. To this end, China plans to achieve 20% of total non-fossil fuels by constructing 100 GW of solar power and 200 GW of wind power by 2020, constructing low-carbon coal plants of 300 g/kWh, and expanding the proportion of primary energy consumption of natural gas to 10% [
14].
European Union (EU) member states are considering setting carbon-neutral targets by 2050 in accordance with the European Parliament’s recommendation to implement the Paris Agreement [
16]. A total of nine countries, including Britain and Germany, are considering setting goals related to carbon neutrality in the form of policy or legislation.
In addition, European countries, which are leading the expansion of renewable energy, expanded 338 GW renewable energy facilities, excluding hydro power [
4]. Among the European countries, Germany, which leads the energy transition, has a total 113 GW renewable energy, including wind power reaching nearly 60 GW, and has the world’s largest PV power, considering its overall system capacity.
As a result, European CO
2 emissions related to electricity production fell 5% in 2018 due to renewable energy, although global energy-related CO
2 emissions increased for the second consecutive year [
4].
In June 2015, South Korea decided to reduce its GHG emissions by 37% compared to Business as Usual (BAU) in 2030 [
14]. This reflects the government’s willingness to make the new industry an innovation and growth opportunity for the Korean market. The Korean government adopted a 25.7% reduction scenario, but decided to further reduce by 37%, adding 11.3% of the GHG reduction using the international market mechanism.
In addition, the Korean government announced the 2030 Renewable Energy Implementation Plan on 20 December 2017, to achieve a 20% share of renewable energy generation by 2030 [
17,
18,
19]. This plan includes not only raising the proportion of renewable energy generation to 20% by 2030, but also introducing more than 95% of new facilities as renewable energy sources, such as PV and wind power, for a total of 48.7 GW from 2018 to 2030, and plans to expand to 63.8 GW of renewable energy by 2030. In particular, the target for supplying PV generation facilities during this period is 30.8 GW, which is 63% of the total renewable energy supply. As a result, it is expected that the PV power capacity of 5.7 GW as of 2017 will be expanded to 36.5 GW by 2030. This would be about 57% of the total renewable energy in 2030.
Furthermore, through the announcement of the 3rd Basic Energy Plan on 4 June 2019, the Korean government will raise the portion of renewable energy generation, excluding hydro power, to 30–35% by 2040. The 30% is above the average of the OECD countries’ target of 28% for renewable energy generation in 2040, and the 35% is the limit on renewable energy penetration, considering the characteristics of Korea’s isolated power system. If renewable energy exceeds 35% of Korea’s power generation, the cost of backup facilities, such as ESS, needed to follow the sudden fluctuations in the output of renewable energy is expected to surge sharply.
1.2. Challenges with Increase of PV Penetration
Since renewable energy sources, including PV power, are inherently intermittent and uncontrollable, they are commonly known to have negative effects on the power system when they are connected to the grid [
20,
21].
First, PV generation, which is intermittent by nature and fluctuates within a short time, makes the operation of a power system difficult and requires a lot of reserve power.
Second, distributed PV power resources generate reverse flow and voltage fluctuation in the distribution network [
22,
23]. The system operator should be reminded of problems caused by the reverse flow, such as local voltage rise and the need for relay settings for fault-current detection.
In addition, where the generated PV power is more than is needed to supply electricity to the loads, the over-generation risk becomes high [
24,
25,
26]. Lower net load than must-run generation for spinning reserve leads to inefficiency in system operation, because it entails the curtailment of PV power generation and can even lead to a system collapse because of the deviance of the generators.
On the other hand, the transient response of the grid depends primarily on the synchronous inertia of the thermal power plants using the rotating synchronous machine [
27]. However, the increasing proportion of renewable energy, including PV, reduces system inertia more than total power generation does, making it difficult to maintain the stability of the system. The difficulty of system operation caused by the decrease of system inertia that results from the increase of renewable energy integration can be further exacerbated in isolated systems with low system inertia, because there is no link to external systems, such as in Korea [
21,
28].
However, the problem caused by the systematic linkage of renewable energy is a problem that can be solved, and a technical solution has already been greatly studied [
26]. A study by Sovacool et al. [
26] shows that the disturbance to the spread of renewable energy results from social inertia. In contrast, renewable energy has many advantages of managing investment fund and risk because it can be built on a small scale in various areas adjacent to the load, the construction period is short, the initial investment cost is low, and it is not affected by changes in fuel prices. In addition, PV power has no noise and no toxicity [
29].
1.3. Roles of ESS to Integrate PV Energy
Recent studies are sending a message not only to spread PV generation but also to prepare for it to be integrated into power systems in a stable manner in order to cope with the possible situations caused by the increase in PV system penetration.
The International Energy Agency (IEA) emphasizes that when the proportion of renewable energy generation reaches 25%, most of the demand at low load times, such as weekends, will be covered by renewable energy, so it is necessary to have the capacity to recover system stability immediately in the case of supply instability [
30]. The IEA also stresses that ultimately it is important to have flexibility in the system.
According to the NREL report, more than 30% of renewable-energy integration is inconsistent in supplying demand, and for systems without external links, such as islands, this problem can occur with a lower proportion of renewable energy [
21]. In another recent report, NREL says that for PV generation to be 15–20% of the total, particular attention should be paid to system operation; especially considering the retirement of aging coal power, cost-competitive ESS are a good option that can increase the rate of PV penetration [
31]. The need for ESS is higher for systems with lower system flexibility that can be achieved through demand response, external system linkage, and EV charge management. Also, in systems with 50% PV generation, ESS should be considered even for highly flexible systems.
Several studies suggest that solutions for PV penetration using ESS will enhance the value of PV power and contribute to PV diffusion. Dvorkin et al. [
32] have shown that the value of variable renewable energy can be improved through the ESS. They also proposed profitable uses of ESS with arbitrage transactions of surplus energy from the variation of renewable generation through the decision making of the size and location of ESS.
Shivashankar et al. [
22] propose a way to control battery ESS by introducing ESS as a method for smoothing fluctuations of PV output caused by solar intermittency. In addition, the authors found that voltage fluctuation, reverse flow, and frequency fluctuation can be reduced by such ESS as batteries, super-capacitors, and hydrogen fuel cells. Among these, battery ESS are the most suitable for MW-size PV generation. They finally argue that, despite the challenges of integrating PV power into power systems, efforts to expand PV generation should continue.
According to Hill et al. [
33], the ESS can control both real and reactive power, allowing both var control for voltage support and frequency droop control, reducing the requirements of traditional fossil-fuel generation assets for PV expansion, and improving the economic value of PV.
The study conducted by Rudolf and Papastergiou [
34] defines the profit-maximization problem that determines the storage and sale of PV power generation combined with ESS, and argues that shifting PV generation using ESS can increase the revenue from solar-power generation based on the economic evaluation results. It also emphasizes that, although there are many advantages of ESS in PV generation, it is necessary to encourage investment in ESS in order to expand ESS in PV generation. Recently, the trend of PV generation has shifted from rooftop to utility scale, in which the ESS’s role becomes more necessary.
Denholm and Margolis [
35] proposed three options to deal with the surplus generation of PV power in order to increase PV penetration beyond 20% of a power system’s energy: Increased flexibility by improving the ramping capability and reducing minimum load constraint, load shifting that concentrates load during daytime with high PV generation, and energy storage of PV power that can be released when not enough PV power is generated. High PV penetration, which is 10% to 20% of the total energy of the system, requires additional PV integration solutions despite increased system flexibility. Load shifting requires having a real-time price system that responds to PV output. Energy storage, on the other hand, is a solution that relieves the problem of PV output being intermittent and overcomes the must-run constraint of base generation. They suggest that the ESS’s capacity to store much less than the average daily demand can allow PV to supply 50% of the total system energy.
Moore and Shabani [
36] stated that a 10–20% ESS capacity is generally needed, depending on the specific conditions of each grid, in order for the intermittent renewable energy sources such as wind and solar PV power, to be effectively integrated into power systems. In addition, the results of analysis conducted by Norwood et al. [
37] indicate that solar thermal, PV, and battery ESS will play an important role in meeting Europe’s targets for renewable energy supply.
The results of the studies above have shown that ESS relieves the burden of the power system due to increased variable renewable energy integration by mitigating the volatility of the power generation output of renewable energy, including PV, and by providing the primary and secondary reserves for frequency regulation service [
21,
22,
23,
30,
31,
33,
35,
36,
37,
38,
39]. The studies also have verified that ESS increases the economic value of variable renewable energy by storing surplus power to participate in the energy trading market, and by bringing new investment opportunities through the substitution of a need to upgrade old distribution and substation facilities [
32,
34,
39,
40].
1.4. Efforts to Promote ESS for Increase PV Generation
ESS, especially battery storage, accounted for only a small portion of the whole power sector. However, it has shown a rapid growth of 45% in 2018. Over USD 4 billion was invested in ESS in 2018, and the capital cost has dropped to half of the level compared to in 2010 [
3].
Countries such as the U.S., Korea, Japan, and Germany, which are striving to expand PV energy, are implementing policies to expand ESS simultaneously [
36,
41]. In particular, the grid-scale ESS is led by Europe, China, and U.S. while behind-the-meter ESS is led by South Korea, Europe, and China [
3]. In early 2019, the installed capacity of ESS is over 3 GW worldwide, with nearly 80% of them concentrated in five countries [
4].
States in the U.S., namely, California and Puerto Rico, have implemented a mandatory supply of ESS [
42]. ESS is not as part of RPS; however, stored energy could contribute to comply with RPS in California. Other states in the U.S. such as New Jersey and Hawaii give economic incentives to ESS.
Germany aims to raise the proportion of renewable energy to 80% by 2050, and is expected to need 16 GWh of hourly energy storage capacity by 2030 [
36]. Germany has supported the market with subsidies and low-interest loans through the government-owned development bank, KfW.
The UK plans to replace old coal power plants with renewable energy, highly concentrated in wind power, over the next decade [
36]. To do this, the UK aims to reduce over GBP 6 million in costs for system upgrades by evaluating the economic effectiveness of ESS in renewable energy integration, alleviation of network congestion, and ancillary services while pursuing many large-scale projects around the lithium-ion battery ESS. Also, the UK government has focused its ESS investment in the transmission and distribution sector with the Low Carbon Network Fund (LCNF) of GBP 500 million to drive forward technical innovation of grid modernization.
Korea has also been making mandatory and incentive policies on ESS. In addition to making ESS mandatory in public buildings, the government implemented an incentive policy for electricity charges on the demand side. In the renewable energy sector, ESS was recognized as an RPS resource to give RECs to ESS that are linked to wind or PV power and to provide incentives for wind and PV power investors to invest in ESS together [
43].
Korea has decided to grant RECs for PV-linked ESS. This is aimed at strengthening the profit structure of ESS through the REC market, thereby attracting investment in PV-linked ESS and ultimately increasing the dissemination of PV generation. The aim is to increase the dissemination of PV generation by attracting investment in PV-linked ESS by strengthening the profit structure of ESS with the REC market mechanism.
Our aim here is to analyze the effectiveness of the incentive policy for the expansion of PV-linked ESS which the Korean government has pursued to expand PV power continuously. We analyzed the effect of the policy on issuing RECs to the PV-linked ESS, which was promoted by the Korean government to expand PV-linked ESS, in terms of the economic feasibility of the PV-linked ESS. Also, we analyzed how this policy contributed to the expansion of PV generation, which is the ultimate objective of this policy.
Section 2 describes how the Korean government provides economic incentives for ESS to be integrated through the REC market. In
Section 3, we numerically analyze the value of the PV-linked ESS. We evaluated the economic feasibility of PV projects with and without ESS linkage, and demonstrated that PV power generation can be increased by the ESS linkage by analyzing the effect of generation shifting. The effect of public policy on the expansion of PV power generation by incentivizing PV-linked ESS is reviewed and discussed in
Section 4. We provide government policymakers with a reference to what role ESS can play in expanding PV power.