U.S. Investment Project in Texas Faces Commercial Viability Scrutiny

The South Korean government is moving forward with its first major investment project in the United States, a gas combined cycle power plant in Encinada, Texas, as it faces scrutiny over its commercial viability. While the government believes it can recover the principal and interest from the investment, uncertainties remain regarding the construction of a key data center, which is still in the development phase, raising concerns about potential cost overruns and delays.


According to reports from the National Assembly, approximately $22.3 billion will be invested in the Encinada power plant. The government estimates that it could recover between $43 billion and $45 billion over the next 20 years, which it cites as evidence of the project's commercial viability.

The Encinada plant is expected to supply power to a large data center planned for the area. With the rise of artificial intelligence (AI), local power demand is increasing, leading the government to believe that long-term operation of the plant will secure stable revenue from power sales.

For the government’s projected recovery of principal and interest to be feasible, the data center must be constructed as planned, and the power generated must be sold reliably over the long term. Without securing a long-term power purchase agreement (PPA), predicting sales volume and pricing could become challenging. The construction of the data center, the likelihood of PPA agreements, and the creditworthiness of buyers are all critical factors influencing the project's viability.

Typically, long-term PPAs stabilize a power plant's revenue by pre-defining sales volume, pricing, and contract duration. Even with a contract in place, actual revenue can vary based on minimum purchase quantities, pricing adjustment methods, and early termination conditions. The creditworthiness and performance capabilities of power buyers can also significantly impact actual revenue.

However, profitability is not solely determined by power sales conditions. Since the Encinada plant is still in the development phase, delays in permits and construction, as well as rising costs for materials and labor, could alter the anticipated recovery timeline and amount.

After the plant begins operations, fuel costs and operational efficiency will also be variables. If liquefied natural gas (LNG) procurement prices rise or if the data center's power demand falls short of expectations, revenues could decline. Similarly, low operational efficiency due to maintenance or breakdowns could affect profitability. To validate the government's 20-year recovery forecast, it is essential to examine the assumptions applied to power sales prices, construction costs, fuel costs, and operational efficiency.

A key issue is that the specific investment conditions and calculations reported to the National Assembly have not been made public. The government cited concerns that disclosing details of U.S.-Korea negotiations could impact diplomatic relations and harm the business interests of related companies. Information regarding the status of PPA agreements, the structure of investment recovery, and the burden of losses due to project delays has also not been disclosed.


During discussions in the National Assembly, there were calls for additional verification of the projected recovery amounts through actual contracts and objective data. Baek Jun-young, a member of the opposition party on the National Assembly's Finance and Economy Planning Committee, stated, "Commercial viability hinges on the fundamental principle of recovering the principal. There are many concerns about whether the contracts are adequately prepared and whether there is documentation to prove this."

O Gi-hyung, a member of the Democratic Party, emphasized, "Given that the public's valuable taxes and assets are at stake, the government's report must be convincing to the National Assembly." Both parties in the National Assembly expressed their intention to further examine the basis on which the government claims commercial viability.

Concerns were also raised regarding the project's development stage within the National Assembly's Industry, Trade, and Small and Medium Enterprises Committee. Koo Ja-geun, a member of the ruling party, noted, "There are worries about what variables may arise during this development phase, and we conveyed the need for caution regarding commercial viability."

The government maintains that it has reviewed the U.S.-proposed project according to principles of commercial viability. In addition to recovering the investment, the potential for domestic companies to expand into the U.S. market and establish a foothold in the global market were also considered in the project selection process.

Minister of Trade, Industry and Energy Kim Jeong-kwan stated, "The government will continue to closely monitor U.S. investments with national interests as the top priority and will ensure that necessary follow-up procedures are carried out without delay."