Agrivoltaics Permitted for 23 Years: Could This Be a Game-Changer for Energy Transition in Korean Rural Areas?

An intriguing wave of change is sweeping through Korea’s rural areas. According to the regulatory innovation tasks announced by the Ministry of Agriculture, Food and Rural Affairs on November 13, the usage period for agrivoltaic farmland will be significantly extended from the existing 8 years to a maximum of 23 years. Personally, I believe this is more than just a regulatory relaxation; it could have a substantial impact on Korea’s agriculture and renewable energy industries.

To briefly explain what agrivoltaics is, it involves installing solar panels on farmland while continuing to cultivate crops underneath. Japan has been actively implementing this model since 2013, with around 3,000 facilities currently in operation, and Germany began commercial projects in 2020. Korea has been relatively late to the game, but this regulatory improvement shows a move to catch up.

The main issue with the previous 8-year allowance was that it was considered too short when taking into account the investment recovery period for solar power facilities. The economic lifespan of a solar power plant is generally viewed as 20-25 years. With only 8 years, it was difficult to even recover the initial investment costs. According to data from the Korea Energy Agency, the investment recovery period for a 100kW solar power facility typically takes about 7-10 years.

The implications of this 23-year extension are significant. For farmers, the period during which they can earn both agricultural income and electricity sales income is extended, greatly increasing the attractiveness of investment. Research from the Rural Development Administration indicates that farms adopting agrivoltaics can achieve an additional income of 30-50% compared to traditional agricultural income.

Sunlight Income Villages and Changes in the Local Financial Ecosystem

The concept of ‘Sunlight Income Villages’ is particularly fascinating. This policy aims to realize President Lee Jae-myung’s pledge of a ‘Sunlight Pension,’ where solar projects are pursued at the village level and profits are distributed to residents in the form of a basic income. Personally, I think this could be an innovative model that breathes new life into rural areas facing the threat of depopulation.

Notably, the expansion of financial support institutions from primary financial institutions to secondary financial institutions like local agricultural cooperatives and credit unions is a significant change. This is crucial because secondary financial institutions are much more accessible in rural areas. According to data from the National Agricultural Cooperative Federation, there are about 1,100 agricultural cooperative branches and 900 credit unions nationwide, while branches of commercial banks in rural areas are continuously decreasing.

This improvement in financial accessibility is likely to benefit small-scale farms and elderly farmers in particular. Previously, many found it difficult to enter the solar business due to complicated loan procedures or collateral requirements, but now they can more easily secure funds through local financial institutions.

Looking at international cases, in Germany, regional cooperative banks (Genossenschaftsbank) play a crucial role in financing renewable energy projects. As of 2024, about 40% of Germany’s renewable energy project financing is conducted through local financial institutions. It seems Korea is moving in a similar direction.

Permitting in Agricultural Promotion Areas and Market Impact

Another noteworthy aspect of this regulatory improvement is the allowance of agrivoltaic projects in agricultural promotion areas designated as renewable energy zones. Previously, the use of agricultural promotion areas for non-agricultural purposes was strictly limited, so this represents a significant regulatory relaxation.

Agricultural promotion areas account for about 54% of the nation’s farmland, approximately 1.05 million hectares. It remains to be seen how much of this area will be available for solar installation. According to an analysis by the Korea Institute of Energy Technology, utilizing just 5% of the total farmland for agrivoltaics could secure about 20GW of generation capacity. This is considerable compared to Korea’s current total solar power capacity of 25.8GW (as of 2024).

From a market perspective, this regulatory relaxation is expected to significantly increase business opportunities for solar-related companies. It could provide new growth momentum for companies developing specialized solutions that combine agriculture and solar power. Companies like Japan’s Next Energy & Resources and Germany’s BayWa r.e. are already leading in the agrivoltaics field, and now Korean companies can enter the competition in earnest.

Opportunities will open up not only for large solar companies like Hanwha Solutions and Hyundai Energy Solutions but also for small and medium-sized construction firms. Unlike general ground-mounted installations, agrivoltaics requires specialized technology, such as adjusting the height and spacing to suit crop growth and designing for the operation of agricultural machinery.

Changes are also expected in the agricultural sector. According to data from the Korea Rural Economic Institute, crop yields under agrivoltaic systems generally decrease by about 10-20%, but the overall income increases due to electricity sales. In particular, for leafy vegetables and some fruit vegetables that are vulnerable to high temperatures, the quality may actually improve.

However, not all crops are suitable for agrivoltaics. Rice farming may experience significant yield reductions due to insufficient sunlight, and orchards may find installation challenging due to tree height. These areas will require further research and demonstration.

Looking more specifically at the economic impact, the Ministry of Agriculture, Food and Rural Affairs estimates that installing 1MW of agrivoltaics involves an investment of about 1.5 billion won and can generate annual electricity sales revenue of 200-300 million won. If 1GW of agrivoltaics is installed over the next decade, it would result in 1.5 trillion won in investment and annual sales of 200-300 billion won.

Realistically, however, there are still many challenges to address. The initial investment cost is substantial, making it difficult for individual farms to bear. Even a 100kW facility costs around 150 million won. While the government is proposing joint business models like Sunlight Income Villages, conflicts may arise in actual operation regarding profit distribution or decision-making processes.

Additionally, the issue of grid connectivity must be considered. Rural power grids often have limited capacity compared to urban areas, so improving transmission and distribution infrastructure may be necessary to accommodate large-scale solar generation. Korea Electric Power Corporation is reportedly planning to strengthen rural power grids in anticipation of this, but the actual pace of implementation remains to be seen.

From an environmental perspective, the evaluation is generally positive. Agrivoltaics maintains farmland while producing renewable energy, increasing land use efficiency. In Japan, agrivoltaics reportedly reduces CO2 emissions by about 1,000 tons annually per 1MW. It seems likely to contribute to Korea’s goal of achieving its Nationally Determined Contribution (NDC) for greenhouse gas reduction by 2030.

Finally, in the international context, this policy change reflects Korea aligning with global trends. China has already surpassed 2GW of agrivoltaic installations, and India has set a target of 10GW by 2030. The United States Department of Agriculture is also investing $70 million in agrivoltaic research.

Ultimately, for this regulatory improvement to succeed, comprehensive efforts in technology development, financial support, farmer education, and infrastructure construction are necessary. Personally, I believe this policy has significant potential, but careful management will be required during implementation. Particularly, the policy’s sustainability will depend on delivering tangible income increases that farmers can actually feel.

This article was written after reading a Seoul Economic Daily article and adding personal opinions and analysis.

Disclaimer: This blog is not a news outlet, and the content reflects the author’s personal views. The responsibility for investment decisions lies with the investor, and no liability is accepted for investment losses based on the content of this article.