[AI Era Electric Power is National Power]⑭ AI Electricity Consumption Increased Sixfold in 4 Years, Asking the Path of Future Energy

2038 Data Center Power Consumption Projected at 30 TWh
Experts: Power Grid Construction is the Most Urgent Task
"Need to Harmoniously Manage Nuclear and Renewable Energy"
LNG Power Generation as a Bridge Until SMR Deployment
Sufficient Incentives Needed for Regional Dispersion of Data Centers

According to the 11th Basic Plan for Electricity Supply and Demand, finalized and announced by the Ministry of Trade, Industry and Energy on the 19th, domestic data center electricity consumption is expected to reach 30 TWh (terawatt-hours) by 2038. This represents a 265% increase compared to the projected consumption of 8.2 TWh in 2025. The 30 TWh corresponds to 5.5% of the total domestic electricity consumption in 2023 (546 TWh). This indicates that electricity demand is expected to grow exponentially in the future.

Experts identified the expansion of the power grid as the top priority to prepare for the surging electricity demand. They also emphasized the need to promote regional dispersion of data centers by providing appropriate incentives to companies while balancing the supply of nuclear and renewable energy. Additionally, they suggested that gas-fired power plants should play a certain role as a 'bridge' power source.

"Nationwide Power Grid Construction is the Top Priority"

A significant portion of the increase in domestic electricity demand is attributed to artificial intelligence (AI) data centers. As of August 2023, the cumulative number of data centers that applied for electricity use from Korea Electric Power Corporation (KEPCO) reached 117 by 2027. Based on contracted power, this amounts to 7,343 MW. Of these, KEPCO estimates that it can actually supply electricity to 76 cases (4,718 MW). The contracted capacity for data centers in 2023 was 776 MW. According to this plan, data center consumption could increase up to sixfold in four years. The 11th Basic Plan for Electricity Supply and Demand predicts the maximum electricity demand of data centers to be 6.2 GW by 2038.

The stable operation of data centers depends on the expansion of the power grid. This means that efficiently distributing electricity produced nationwide will be crucial going forward. Electricity demand in South Korea is concentrated in the metropolitan area, while production occurs in regions such as Yeongnam, Honam, Chungcheong, and Gangwon. As a result, electricity is sometimes produced but not supplied timely to where it is needed, and power plants are built but remain idle.

The solar power plants in the Honam region and thermal power plants in Gangwon are typical examples. Fortunately, in February, the National Assembly passed three energy-related laws?the Power Grid Expansion Act, the Offshore Wind Power Special Act, and the High-Level Radioactive Waste Disposal Act?through bipartisan agreement. Experts believe that among these, power grid expansion should be prioritized.

Professor Son Yang-hoon of the Department of Economics at Incheon National University (former president of the Korea Energy Economics Institute) said, "A National Power Grid Expansion Committee should be formed, and a system that can adequately compensate residents near transmission lines should be established. Follow-up measures for the Power Grid Expansion Act must also be prepared promptly."

Securing funding for power grid expansion is also urgent. Professor Jeong Dong-wook of the Department of Systems Engineering at Chung-Ang University stated, "According to KEPCO's 10th Long-Term Transmission and Transformation Facility Plan established in 2023, 56 trillion won will be required by 2036."

"Balance Nuclear and Renewable Energy"

Experts emphasized that balanced development of nuclear and renewable energy is crucial to respond to the rapidly increasing electricity demand expected with the spread of AI.

Professor Lee Deok-hwan of the Department of Chemistry at Sogang University said, "Since carbon neutrality is an international task, we cannot abandon renewable energy, but rationally speaking, the best technology we have is nuclear power." Professor Son added, "Nuclear power is obviously necessary, but in the long term, to respond to climate change, we need to balance it with renewable energy." Professor Jeong said, "We must harmoniously manage nuclear and renewable energy. Currently, this is the only way."

However, expanding renewable energy inevitably leads to higher electricity rates because the generation costs of solar and wind power are high domestically. According to BloombergNEF, as of the second half of 2023, South Korea's levelized cost of electricity (LCOE) for solar power was $111 per MWh, significantly higher than India ($47), China ($57), and Australia ($88). The LCOE for onshore wind was $120 per MWh, the second highest among surveyed countries.

These costs are passed on to KEPCO and ultimately borne by the public. This means there is no way to enjoy cheap electricity rates while expanding renewable energy. Professor Jeong explained, "To supply renewable energy, backup power capacity close to 50% of the installed capacity is required," adding, "This will make costs more expensive."

LNG Power Generation as a 'Bridge'

Liquefied natural gas (LNG) combined heat and power plants are gaining renewed attention as an alternative to address insufficient power supply in the metropolitan area. Globally, small modular reactors (SMRs) are spotlighted as next-generation power sources for AI data centers, but commercial deployment is expected around the mid-2030s.

At the initial stage of SMR introduction, generation costs are expected to be higher than those of large nuclear power plants. Although SMRs are considered safer than existing large nuclear plants, securing local acceptance is expected to take considerable time. Experts believe LNG power plants can fill this gap.

Professor Yoo Seung-hoon of the Department of Future Energy Convergence at Seoul National University of Science and Technology said, "Companies want to build data centers in the metropolitan area, but government regulations such as power grid shortages and power system impact assessments make it difficult. Building LNG combined heat and power plants in the metropolitan area to supply electricity linked to data centers could be a practical alternative." An advantage is that new transmission lines do not need to be installed to bring power from distant locations.

LNG combined heat and power generates electricity using LNG as fuel and utilizes the heat produced for heating and hot water. Compared to existing coal-fired power plants, carbon emissions are only half, and since heat and hot water are supplied locally, residents' opposition is relatively less.

Professor Son also said, "If gas power plants can be built in areas like the metropolitan region where data centers are needed, power issues can be resolved," adding, "Since it is more environmentally friendly than coal power plants, it can be considered a 'bridge fuel.'"

Incentives for Regional Dispersion of Data Centers

There are also calls for active government incentives to promote the regional dispersion of AI electricity demand.

To increase the share of eco-friendly energy and prevent power congestion in the metropolitan area, the government has been implementing the Distributed Energy Activation Special Act since June last year. Distributed energy refers to a system where electricity is produced and consumed independently in each region rather than transmitting electricity produced at large-scale power plants to the metropolitan area. It applies the principle of 'local production for local consumption' (jisan jiso).

As part of this, the government plans to designate Distributed Energy Specialized Zones (Distributed Special Zones) starting in June. If designated as a Distributed Special Zone, distributed energy operators such as solar, wind, and hydrogen fuel cells can supply electricity directly to users like data centers without going through the power market. Businesses using more than 10 MW of electricity will receive preferential treatment in power system impact assessments.

Experts agree that more incentives are needed to encourage the relocation of large power-consuming facilities, including data centers, to regional areas. Professor Cho Hong-jong of the Department of Economics at Dankook University said, "Most IT companies are concentrated in the metropolitan area, so to move data centers to regional areas, clear incentives are necessary," adding, "Incentives such as cheaper electricity rates, tax benefits, and improved living conditions should be increased."

Professor Lee Kyung-moo, Distinguished Professor at the Department of Electrical and Computer Engineering at Seoul National University, said, "The government should comprehensively consider issues such as residents' opposition to data centers and land costs and strive to reduce social conflict costs," adding, "It should not be viewed simply from the perspective of regional dispersion and balanced development of data centers but also consider whether it negatively affects corporate competitiveness."

Experts pointed out that in the long term, energy policies led by the government should shift to a market-oriented approach. Professor Jeong said, "Currently, electricity rates and settlement prices are regulated by the government, but they should be entrusted to an independent Electricity Commission," adding, "Introducing a free competition system and expanding competitive markets among power sources will allow the energy market to develop in a balanced way."

Professor Son emphasized, "Currently, politics overwhelms energy policy, causing a significant increase in overall power costs," adding, "There needs to be a mechanism for the energy market to operate based on scientific facts and economic efficiency, not politics."