Encinal, the First U.S. Investment, Bets on 'Development-Stage Investment'... U.S. to Help Secure Power Offtakers

[Financial News]  
The Encinal gas combined-cycle power project in Texas, selected by the government as its first strategic investment in the United States, will be pursued through a 'development-stage investment' model, with participation beginning at the development phase rather than securing a power purchase agreement (PPA) in advance. The strategy is to boost profitability by joining the project from its early development stages. The U.S. government also agreed to support efforts to secure power offtakers, such as data centers, and facilitate the participation of Korean companies.
According to the Ministry of Trade and Industry on the 1st, the government is pursuing Project Star as the first project under the South Korea-U.S. strategic investment memorandum of understanding (MOU). The project involves building a 6472 MW gas combined-cycle power plant in the Encinal area of Texas. With a total project cost of $22.3 billion, it is scheduled to begin commercial operations for Phase 1 in 2029 and bring the entire facility online in 2032.
The electricity generated by the plant will be supplied directly to nearby artificial intelligence (AI) data centers. The structure directly connects the plant with the offtakers, while a long-term PPA provides a fixed rate for the contracted generation capacity. The PPA is scheduled to be signed next year.
The data centers that will purchase the electricity have not yet been determined. Rather than rushing to finalize a long-term supply price amid rising power prices, the government plans to negotiate with multiple data centers and select the offtaker offering more favorable prices and terms.
Kim Jung-kwan, minister of the Ministry of Trade and Industry, said, "A difference of $1 to $2 now becomes very large over 40 years," adding, "We will sign a contract that allows us to position this project at the appropriate time." To reduce the uncertainty arising from the absence of a signed PPA, the U.S. government also agreed to actively support efforts to secure offtakers, including data centers.
The risk from variable costs such as gas prices will be reduced through a 'tolling' arrangement. Under this structure, electricity offtakers such as data centers bear variable costs required for generation, including gas and water expenses, while the power producer receives a fixed fee based on the contracted facility capacity rather than the actual amount of electricity generated. The South Korean government explained that this can reduce the risk of deteriorating investor profitability caused by fluctuations in fuel prices.
The participation of Korean companies will also be pursued. South Korea and the United States agreed to expand Korean companies' involvement across the entire project, including power-generation equipment, engineering and construction, and long-term operations and maintenance. However, the delivery schedule for gas turbines remains a variable in meeting the 2029 start-up timeline. Kim explained that if participation in Encinal proves difficult, the U.S. side has agreed to consider Korean companies for other projects. Korean companies are expected to participate in the auxiliary equipment sector.
The government verified the possibility of recovering principal and interest through stress tests based on various scenarios, including falling power prices, rising project costs, and changes in project participants. Kim emphasized, "We concluded that we would not undertake a project where there is no power demand or where the possibility of recovering principal and interest becomes low," adding, "We confirmed that principal and interest could be recovered even after incorporating various variables."
The $22.3 billion investment will not be disbursed all at once. It will be injected in stages according to the project's progress and funding needs. Regarding the remittance of part of the funds that took place that day, Kim confirmed, "This means that the investment has been executed." The government plans to decide whether to use borrowing in the future or invest primarily through equity after comparing financing costs with the possibility of recovering principal and interest.
[email protected] Park Ji-young Reporter