Korea’s power market is entering a period of structural growth. The sharp rise in electricity demand across advanced industries — driven by semiconductor capacity expansion, the rapid growth of data centers, and the wider adoption of electric vehicles — extends well beyond near-term economic cycles. It reflects a fundamental, long-term shift in the structure of industrial infrastructure.

Unlike traditional demand patterns, which were closely tied to manufacturing cycles, demand from advanced industries is becoming a core part of modern economic infrastructure. As a result, structural growth drivers are increasingly outweighing cyclical volatility in Korea’s power market. This shift calls not only for more generation capacity, but also for a stronger power system that can reliably absorb and manage rising demand.

Renewables Put Grid Flexibility in Focus

The 11th Basic Plan for Electricity Supply and Demand, finalized in 2025, signals a decisive shift in Korea’s energy mix — away from fossil fuels and toward carbon-free and renewable energy sources. According to the plan, the government aims to increase the share of renewables in total power generation to 33% by 2038, while reducing the shares of coal and LNG to approximately 10.1% and 10.6%, respectively.

As the share of renewable energy increases, so too does supply-side volatility and the operational burden on the power grid. Output variability from solar and wind, driven by weather conditions, the regional concentration of generation assets, and the resulting curtailment and grid congestion are among the most pressing challenges facing the system. Against this backdrop, power grid infrastructure and flexible grid resources are rapidly gaining strategic importance.

In this context, the role of energy storage systems (ESS) is evolving from ancillary equipment into core grid infrastructure. The government’s announced plans to expand long-duration ESS¹⁾ capacity reflect a deliberate policy response to the increasing complexity of power system operations.
1) Long-duration ESS: Large-scale energy storage systems capable of discharging electricity for extended periods, typically four to eight hours or longer.

Contract-Based Visibility for ESS

Scaling long-duration ESS deployment requires an institutional framework that can support the stable recovery of large upfront investments by private capital. The ESS Centralized Contracting Market was designed to address this need as a long-term, contract-based market, providing a framework that may enhance the predictability of project revenue structures.

Under contracts between the Korea Power Exchange and successful bidders, a compensation structure is expected to be established upon facility completion in accordance with the terms of the contract. This framework may allow operators to recover capital investments, operating costs, and an appropriate return over the long term. In this respect, the market can be viewed as an important institutional mechanism that helps position ESS not merely as a conventional power facility, but as a long-term, contract-backed infrastructure investment asset.

Availability Becomes the New Revenue Logic

This new institutional framework is also reshaping the ESS revenue model in fundamental ways. Under the legacy model, solar-linked ESS operated as a supplementary facility attached to individual generation sites, with earnings tied directly to the volume of electricity charged and discharged, as well as to operational performance. Long-duration ESS, by contrast, functions as an independent, grid-connected infrastructure asset that directly supports system operations.

The most consequential difference lies in the basis of compensation. Long-duration ESS is remunerated primarily based on pre-contracted capacity and asset availability, rather than the frequency or volume of charge/discharge cycles. Accordingly, the key competitive differentiator in the ESS business is shifting from maximizing throughput to demonstrating the operational reliability and system availability required to respond consistently to dispatch instructions from the Korea Power Exchange.

Long-Duration ESS Moves From Policy to Execution

The long-duration ESS market is now moving from policy framework to active project execution. Jeju Island — where high renewable penetration first gave rise to curtailment challenges — hosted Korea’s inaugural long-duration BESS centralized contracting tender in 2023, with a combined capacity of 65MW / 260MWh announced across two zones: 35MW in the east and 30MW in the west. A consortium including IGIS Asset Management was among the successful bidders, and these projects are currently underway.

The inaugural mainland tender under the 2025 First ESS Centralized Contracting Round has further accelerated market development. An additional 500MW / 3,000MWh for the mainland — including the grid-congested Honam region — and 40MW / 240MWh for Jeju were brought to market, marking a clear inflection point in the scale of long-duration ESS deployment.

Future procurement rounds are expected to place increasing weight on non-price factors, including grid interconnection stability, economic and industrial contribution, fire safety, equipment integrity, and technical capability, alongside price competitiveness. This trajectory points to the emergence of a new infrastructure investment ecosystem centered on operators that combine advanced operational expertise with reliable access to capital.

Hydrogen Power Gains Contract-Based Momentum

Alongside the ESS market, the hydrogen power tender market is maturing into another contract-based, institutionally anchored investment category. Established in 2023, the market now operates across two distinct segments — general hydrogen and clean hydrogen — and has become a key mechanism for supporting long-term offtake in hydrogen power generation.

The general hydrogen market, which encompasses conventional fuel cells and distributed generation assets, operates under 20-year contract terms. A pricing structure that separates fixed costs from fuel costs, combined with settlement provisions that reflect fuel cost variability, provides a meaningful degree of revenue visibility for project sponsors.

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In the clean hydrogen market, evaluation criteria extend well beyond price to include hydrogen utilization grade, fuel supply security, economic and industrial contribution, and project credibility. This positions the clean hydrogen market as one in which qualitative excellence and execution capability — not price alone — determine competitive outcomes.

From Power Assets to an Integrated Energy Value Chain

The ESS and hydrogen power markets are distinct investment areas, but together they serve as complementary pillars of a more resilient power system. Both contribute to the stability and flexibility needed to manage an increasingly complex grid.

In Korea’s energy market, the focus is shifting from expanding generation capacity to strengthening system-wide reliability and operational flexibility. As renewable energy penetration rises, grid management is becoming more complex.

This shift is creating new investment opportunities across interconnected infrastructure assets, including storage, hydrogen, distributed generation, electric vehicles, and data centers.

IGIS Asset Management is committed to executing disciplined, long-horizon investment strategies that position the firm as a responsible partner in the energy transition, growing alongside the market it helps to shape.

Written by Soyeong Park, Brand Communications Manager

Materials provided and reviewed by Infrastructure Strategy Part 1

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