Samsung Electronics and SK Hynix have decided not to accept Korea Electric Power Corporation's (KEPCO) proposal for a 25 trillion won prepayment for electricity. Despite a significant boost in performance due to the AI memory boom, the semiconductor companies believe that prepaying five years' worth of electricity fees would impose a heavy burden as they need to respond to future equipment investments and market changes.
According to industry sources on September 14, both companies have communicated their stance after reviewing KEPCO's prepayment proposal.
KEPCO's suggested amounts were 20 trillion won for Samsung and 5 trillion won for SK Hynix, based on the approximately 4.1 trillion won and 900 billion won in electricity fees paid by the two companies last year. KEPCO planned to use these funds primarily for building transmission and substation networks to supply power to the Yongin and Honam semiconductor clusters.
Incentives were also offered to the companies. The prepayment would earn interest higher than that of two-year government bonds, which would be deducted from their electricity bills every six months. This structure aimed to enhance the timely establishment of the power network while providing interest income.
However, semiconductor firms appear to view securing the power network and financial management as separate issues. Although the AI semiconductor boom continues, the memory industry is subject to significant market fluctuations, and both companies need to invest heavily in expanding domestic production facilities.
SK Hynix anticipates its capital expenditures to reach the upper 40 trillion won range this year, with an additional investment of about 21.6 trillion won planned for its Yongin fab. The company has repeatedly emphasized the principle of considering both investment efficiency and financial soundness, which likely contributed to its difficulty in prepaying five years' worth of fixed costs all at once.
With the failure of the prepayment proposal, the task of securing funding for the semiconductor cluster's power network now falls back to KEPCO and the government. KEPCO plans to invest 72.8 trillion won in transmission and substation networks by 2038 to meet the increasing power demand from semiconductors and AI data centers. However, as of the end of June this year, its debt stood at 210.7 trillion won, with daily interest payments amounting to approximately 11.5 billion won.
The supply of electricity is directly linked to the domestic investment schedules of Samsung and SK Hynix. The Yongin semiconductor cluster is expected to require around 10 GW of large-scale power in the long term. The government has also established a basis for national support for infrastructure, including power networks, through the Semiconductor Special Act.
Notably, last month, the government, along with Samsung, SK Hynix, and KEPCO, agreed to share the initial costs of power supply facilities for the Honam semiconductor cluster between the public and private sectors. This indicates that the semiconductor companies are not outright rejecting the sharing of power infrastructure costs. However, this decision marks a clear distinction from the proposal to prepay 25 trillion won in future operating costs for electricity.
* This article has been translated by AI.
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