Our Portfolio Highlight: H-Energy and the Growth of Renewable Energy
Among our portfolio, the solar energy investment platform "MoHaet" and the solar power plant SaaS services operated by H-Energy have recently completed a Pre-IPO round. In this round, we also participated with a small follow-on investment.
We've previously discussed the growth of industries related to climate in other articles (Open-source and the environment ecosystem, Innovative energy production and consumption - H Energy & Gentle Energy). Recently, the European Commission began implementing CBAM (Carbon Border Adjustment Mechanism), initially proposed in July 2021, for six categories: steel, aluminum, cement, fertilizers, electricity, and hydrogen. Starting October 2023, companies exporting these products to EU member states must calculate and report carbon emissions generated during production and pay corresponding carbon costs as tariffs. Additionally, the SEC's proposed climate disclosure regulation for publicly listed companies in March 2022 passed its final version in March 2024. Now, U.S.-listed companies are required to disclose significant climate-related information, such as greenhouse gas emissions under Scope 1 and 2.
These changes necessitate adaptation from Korean companies as well. As of recently, 36 large corporations in South Korea, including POSCO, SK, Samsung, Hyundai, LG, and Naver, have joined the RE100 campaign, committing to procure 100% of their electricity needs from renewable energy sources. However, renewable energy procurement is no easy task. These companies consume over 60,000 GWh annually, yet less than 10% of this energy comes from solar or wind power. This highlights significant supply issues.
The challenges surrounding climate and renewable energy are intensifying, further complicated by the rapid growth and fierce competition in the AI industry. As AI data centers expand, the electricity procurement issue becomes increasingly difficult to resolve. Operating AI servers requires not only GPUs but also infrastructure like interposers packaging these GPUs with HBM and advanced cooling systems, all of which consume far more power than traditional computing resources. Global AI competitors like Microsoft, OpenAI, and Google are proactively investing in solar, nuclear fusion, SMR (small modular reactors), and geothermal energy to prepare for these challenges. Microsoft's recent move to secure exclusive rights to electricity from the Three Mile Island nuclear power plant, previously associated with a 1979 nuclear accident, illustrates the urgency of AI-related energy demand.
In South Korea, corporations such as KT, SK, and Naver are also investing heavily in AI technology companies and building data centers to offer AI cloud services. However, operating these domestic data centers requires immense electricity, adding to the energy procurement challenge.
Beyond these widely reported issues, South Korea faces another major obstacle: a lack of transmission and distribution networks. To supply increasing electricity demands and renewable energy, robust infrastructure is essential to deliver power where it is needed. However, most renewable energy facilities, such as solar and wind farms, are concentrated in areas with abundant sunlight and wind resources, like Gangwon-do, Gyeongsang-do, Jeolla-do, and Jeju. In contrast, the major users of this electricity, such as companies and workers, are predominantly located in the densely populated metropolitan area around Seoul. This geographic imbalance exacerbates supply challenges.
Addressing this requires expanding the transmission and distribution networks, which act as highways for electricity. However, this is easier said than done. Korea Electric Power Corporation (KEPCO), responsible for managing the country's electricity, faces significant budget constraints due to heavy losses, making it difficult to allocate sufficient funds for infrastructure. Even more challenging is the strong opposition from residents in areas designated for substations and transmission networks. For instance, plans to complete the East Coast-Seoul high-voltage direct current (HVDC) transmission line connecting Uljin, Gyeongbuk, to the Dongseoul substation by 2026 have been indefinitely delayed due to resistance from residents in Hanam City over health concerns related to electromagnetic waves.
Such delays in power grid construction also impact major projects like the planned Yongin Semiconductor Mega Cluster. Similar delays are seen in projects like the North Dangjin-Shin Tangjeong transmission line, the Southwest Offshore Wind Farm-Shin Jangseong substation transmission line, and the Dangjin Thermal Power-Shin Songsan transmission line, all of which have been postponed by over five years.
While these issues are difficult to resolve in a democratic nation like South Korea, the recently implemented "Distributed Energy Act" offers a meaningful solution. Historically, centralized power systems and long-distance transmission networks were essential for large-scale power plants. However, in the renewable energy era, such structures cause economic inefficiencies and social conflicts. The new approach encourages localized energy production and consumption, promoting self-reliance in power generation.
H-Energy operates on this "local energy production" mindset, offering comprehensive solutions for small-scale solar power projects. Their services include "MoHaet," an investment platform for small solar power plants; "SolarONCare," a SaaS platform for plant operations and diagnostics; and "SolarBank," which installs solar power facilities on idle spaces like building rooftops.
In an era marked by abnormal weather patterns like October typhoons in Taiwan and prolonged warm temperatures, we extend our respect to H-Energy's dedicated team for their efforts in tackling these challenges and achieving remarkable growth. We also thank Stick Investment, Korea Development Bank, and POSCO Technology Investment for their participation in this round: Ascend together!