Evaluation from Establishment to Employment and Finance... "Virtually a Ban Law" [Data Center Power Regulation]

Increased Burden on Businesses Without Knowing Electricity Supply Status
New 'Agent' System Entrusting Evaluation to Outsiders Introduced
Ministry of Industry "Considering Plan to Designate Areas Excluded from Evaluation"

The Ministry of Trade, Industry and Energy is currently promoting the introduction of a power system impact assessment to disperse large-scale power demand facilities, which are currently concentrated in the metropolitan area, to local regions. Originally, this should have already been implemented under a special law, but due to industry concerns that it would stifle the data center industry, the related notice (regulation) was revised and re-announced for administrative comments last month. The power system refers to the electrical facilities required throughout the entire process from electricity generation to consumption.

What is the impact assessment... Evaluating employment and contributions to local finances

The power system impact assessment is broadly divided into technical, non-technical, and policy categories. The technical category, which carries the highest score of 60 points, evaluates factors such as power supply margin, the possibility of maintaining appropriate voltage, and measures to minimize the impact on power supply. The non-technical category assesses business stability and value-added effects, including support projects for the relevant region, which are included as bonus points. Policy-related evaluations include power self-sufficiency, alignment with power policies, and the effect of power demand dispersion. The non-technical and policy categories are each allocated 20 points. [Related article = ‘AI Core Infrastructure’ but... Power System Assessment Holding It Back]

The data center industry argues that among these, the ▲contribution to local finances ▲value-added effect ▲direct employment effect impose excessive demands on the private sector. Most data centers operate unmanned and automated with a small number of personnel, but the assessment awards full marks of 5 points if a direct employment effect of more than 300 people is expected, and also full marks if the data center pays local taxes exceeding 0.1% of the average local tax revenue of the relevant local government for the next 20 years.

Kang Seung-hoon, team leader of the Korea Data Center Association, stated, "Since the announcement of the system, there has not been a single reported case of overseas investors investing in Korean data centers." He added, "If it becomes difficult to establish data centers domestically, the competitiveness of AI startups that operate based on advanced technology and digital content could also decline."

Industry Strongly Opposes Power System Impact Assessment

For these reasons, the data center industry is strongly opposed to the introduction of the power system impact assessment despite several revisions to the notice. The industry claims that their opinions were barely reflected in the re-announced notice. In particular, although the purpose of the system is to prevent concentration in the metropolitan area, the fact that it is applied nationwide is also a reason for opposition. If the entire country is designated as the target area, incentives for local dispersion will inevitably weaken.

The Ministry of Trade, Industry and Energy responded, "Since individual substations may not coincide with administrative districts, the entire country will be designated as the target area, but we will consider excluding specific zones such as dispersed special zones and data center clusters from the target area according to policy needs."

The industry also views the additional costs incurred because the evaluation report must be prepared by experts (agents) in the power system field as a burden. Kim Su-hyun, senior researcher at the Korea Data Center Association, said, "Side effects are already appearing, such as performance fees and demands for high agency fees," adding, "There have been cases demanding more than 100 million KRW per 10MW." The industry has also requested the Ministry of Trade, Industry and Energy to provide guidelines because agency fees vary widely and there are no restrictions.

There is also criticism that the narrow scope of mandatory qualifications and experience requirements for agents effectively grants preferential treatment to former Korea Electric Power Corporation (KEPCO) personnel. Agents must hold a professional engineer license in the electrical field or a doctoral degree related to electricity, have more than three years of experience in system planning, operation, and evaluation, and at least two years of combined experience in transmission and substation fields. However, the industry consensus is that these experience requirements realistically only allow former KEPCO or Korea Power Exchange personnel. Additionally, the mandatory training course for agents is stipulated to be commissioned and conducted by KEPCO Human Resources Development Institute.

The Ministry of Trade, Industry and Energy predicted about 190 power system impact assessments annually, but currently only 15 to 20 companies are waiting to be designated as agents. Han Nam-hyun, president of the Korea Society of Architectural Electrical Equipment Technology, expressed concern, saying, "The fewer the number of agents, the weaker the competition and the greater the possibility of collusion," adding, "Then market prices will not decrease."

The related industry views this as a regulation targeting only data centers. Industries designated and protected under the national advanced strategic industry law, such as semiconductors, secondary batteries, displays, and bio, which consume large amounts of electricity, are excluded from this assessment.

Moreover, many data center development projects are financed through project financing (PF), and it is practically impossible to recruit investors and prepare evaluation reports without knowing whether power supply is feasible.

Team leader Kang said, "The industry views the power system impact assessment as a de facto ‘Data Center Prohibition Act’," adding, "Instead of arbitrarily blocking electricity use, it should be guided to use it efficiently." He emphasized, "It is time to completely abolish the introduction of the power system impact assessment and establish growth policies rather than regulations for data centers."

The Government Pushes Ahead with New Regulation

The government has no change in its stance to formally introduce the power system impact assessment. The aim is to relocate data centers, currently concentrated in the metropolitan area, to local regions and to eradicate the so-called ‘electricity reservation’ practice. Electricity reservation refers to the practice of notifying planned electricity use for building data centers but not actually operating them, profiting solely from real estate development. It is also true that the concentration of private data centers in the metropolitan area is much higher compared to public ones. According to the association, as of last year, 72.9% of private data centers and 41.2% of public data centers are located in the metropolitan area including Seoul, Incheon, and Gyeonggi.

Choi Sung-jun, head of the Power System Innovation Division at the Ministry of Trade, Industry and Energy, explained, "The power system impact assessment is a system to ensure stable power supply and to induce the establishment of large-scale power demand facilities in local areas." He added, "It was introduced to prevent cases of electricity reservation by data centers in the metropolitan area that apply for electricity use without concrete business plans, aiming to profit from land price increases, and to supply power primarily to actual users." He stated, "Agency fees will naturally be formed by the market, but we will definitely prevent profiteering that burdens the private sector by exploiting the system."