Gas plant, not chips, to lead Korea's US investment push

Ministry of Trade briefs ruling party on first project

Texas Encinal gas power plant confirmed at $22.3 billion

Amount exceeds original $19.8 billion figure

First I-SPV operating contract also approved, setting precedent

A gas-fired combined-cycle power plant project in Encinal, Texas, valued at approximately $22.3 billion has been confirmed as the first initiative under the $350 billion US investment package agreed upon by South Korea and the United States.

Washington had initially sought to raise the project's total cost from $19.8 billion to $25 billion — an increase of roughly 25 percent — but the two sides ultimately settled on $22.3 billion, according to sources familiar with the matter.

By contrast, investments in US-based memory chip fabrication facilities by Samsung Electronics and SK hynix — which US Commerce Secretary Howard Lutnick has been pushing for — will not be included in the government-led US investment projects, sources said.

The Ministry of Trade, Industry and Energy briefed ruling party lawmakers on these developments Monday at a party-government consultation held at the National Assembly in Yeouido, Yeongdeungpo-gu, Seoul. The ministry also presented an operating contract proposal for the project-specific special purpose companies, known as I-SPVs, that will carry out the actual investments.

The Encinal project — the first designated under the framework — involves building a gas-fired combined-cycle power plant to meet electricity demand from AI data centers. The plant will have a total installed capacity of 6.3 GW, roughly equivalent to six nuclear reactors. Under the phased development plan, 1.4 GW of gas turbine generation will be built first, followed by a sequential expansion to 4.9 GW of higher-efficiency combined-cycle capacity. The structure is designed to reduce the risks of large upfront investment by first bringing the initial plant online to verify power demand and project viability before adding further capacity. US energy company Lewis Energy Group will serve as the project developer.

Power generated at the plant may be sold through ERCOT, the Texas power grid, or supplied directly to nearby AI data centers. If a long-term power purchase agreement is signed with a data center, or if an off-grid direct connection bypassing the grid is established, the project could secure stable cash flow while reducing exposure to electricity price fluctuations.

Concerns about the project's financial viability have emerged as costs have grown well beyond initial estimates. The Encinal project's budget rose from an original $16.8 billion to $20 billion, and has since climbed further to $22.3 billion — a $5.5 billion increase, or about 33 percent, from the first figure considered.

The projected rate of return will depend on whether additional infrastructure such as transmission lines and gas supply networks has been factored in, and how much has been set aside for rising raw material and labor costs as well as contingency reserves. Whether project costs could increase further during construction, and who would bear that burden, also remains undecided.

An I-SPV is a special purpose company established to carry out actual investment in an individual project. The approval of the first project determines the initial investment target for the US investment fund; the approval of the I-SPV operating contract establishes the legal and operational framework through which that investment will be executed. The specific terms of the operating contract have not been disclosed.

The operating structure of the first I-SPV draws attention as it could in effect set the precedent for subsequent US investments. It may serve as the starting point for designing the funding and operational framework for each project as additional nuclear power, energy and infrastructure initiatives are selected after Encinal. How costs and risks are allocated in the first contract could affect not only the profitability of the first project but also the overall structure of Korea's US investment program.

Domestic companies' direct investments in the United States will also not be counted as part of the government-led US investment projects. "Semiconductor investments by Korean companies in the US are not included in the US investment projects," an official said. "These are taking place in the form of foreign direct investment."

oskymoon@heraldcorp.com