The Special Act on the Promotion of the Artificial Intelligence Data Center (AIDC) industry passed the National Assembly on May 7, drawing attention to Article 20, which allows direct transactions for renewable energy. This provision enables AIDC operators to enter power purchase agreements (PPAs) directly with renewable energy producers, bypassing Korea Electric Power Corporation (KEPCO). The government views this as a signal to address the chronic issue of power procurement for AIDCs through renewable energy. However, industry reactions have been lukewarm.
Interviews with multiple stakeholders from domestic AIDC operators and construction firms on May 14 revealed a prevailing sentiment that "direct transactions for renewable energy are merely a clause that institutionalizes losses under the current structure." Critics argue that the legislation does not consider the cost of power procurement, which is crucial for the profitability of AIDC operations.
AIDCs are extremely power-intensive facilities, consuming dozens of times more electricity than typical office buildings. Hyper-scale data centers require over 100MW of continuous power supply around the clock. Electricity costs account for 40-50% of total operating expenses, and the high power density of AIDCs exacerbates this burden.
Operators calculate their break-even points differently based on size, but on average, small to medium-sized AIDCs under 40MW find that a price of around 150 won per kWh is their minimum profitability threshold. For 100MW hyper-scale AIDCs, losses begin when prices exceed 220 won per kWh.
The problem is that the current market price for renewable energy in South Korea far exceeds these break-even points. According to industry sources, the current direct transaction price for renewable energy, including solar power, is around 250 won per kWh, while offshore wind energy can exceed 300 won per kWh. In direct transactions, the price negotiated between suppliers and consumers is reportedly more than 100 won higher than the generation cost.
The Korea Energy Economics Institute estimates that the levelized cost of electricity (LCOE) for solar power in South Korea will be around 122 won per kWh in 2024, while offshore wind will be about 238 won. The actual supply prices are higher than the LCOE due to additional costs such as renewable energy certificates (RECs), grid connection fees, and backup power costs to address intermittency.
South Korea's solar LCOE is reported to be 2.1 to 2.5 times higher than the global average, while onshore wind is about three times higher, and offshore wind is 1.3 to 2.4 times higher than in major countries.
An official from an AIDC construction company stated, "The moment we sign a renewable energy PPA, we are guaranteed to operate at a loss due to electricity costs. Even if global tech giants like Google and Microsoft enter South Korea, they cannot achieve profitability under the current renewable energy supply prices."
In the current landscape, AIDC operators consider nuclear power as a realistic alternative. The current cost of nuclear power is around 60 to 80 won per kWh, significantly lower than renewable energy prices, at about one-third to one-fourth of those costs.
However, Article 20 of the AIDC Act only specifies direct transactions for renewable energy. There is no provision for AIDC operators to purchase nuclear power directly, nor is there any law facilitating the supply of nuclear electricity. Nuclear power can only be supplied through KEPCO, which applies its industrial electricity pricing system. According to estimates from the Korea Energy Economics Institute, renewable energy may not reach the break-even point for AIDCs until after 2050.
An industry insider remarked, "The most suitable power source for AIDCs is stable nuclear energy supplied 24/7, yet the law only opens the door for renewable energy direct transactions. This provision is disconnected from reality for both global tech giants needing to meet RE100 requirements and domestic AIDC operators."
* This article has been translated by AI.
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