Proposed incentives for local power consumption
Legislation is being pursued to link grid impact assessments, electricity rates, and tax and equipment support to encourage data centers and other large electricity-consuming facilities concentrated in the Seoul metropolitan area to locate in power-producing regions. Its central provision would establish a legal category for facilities that consume locally generated electricity, including data centers using power produced in the same region, and provide incentives. Distributed energy policy is expected to expand from using regulation to discourage locations in the Seoul metropolitan area toward providing economic incentives to choose regional locations.
Han Jeoung-ae, a Democratic Party of Korea lawmaker representing Seoul's Gangseo C constituency and a member of the National Assembly's Foreign Affairs and Unification Committee, introduced a partial amendment bill to the Special Act on the Promotion of Distributed Energy on October 30. A total of 12 lawmakers, including Han, joined the bill.
The amendment addresses the concentration of large electricity-consuming facilities, including data centers, in the Seoul metropolitan area and the geographical mismatch between power generation facilities and electricity-consuming facilities.
When facilities using large amounts of electricity are concentrated in the Seoul metropolitan area while generating facilities are located elsewhere, the electricity produced must be delivered to demand centers through long-distance transmission networks. The concern underlying the amendment is that this could increase the burden of expanding transmission and substation infrastructure and exacerbate regional imbalances in electricity supply and demand.
The current Special Act on the Promotion of Distributed Energy allows power grid impact assessments for large electricity-consuming facilities and the designation of distributed energy special zones. However, the bill's rationale is that there are insufficient separate facility designation criteria or legal grounds for supporting a model that encourages large local demand facilities to consume electricity generated within the same region.
The amendment would therefore establish a new legal basis for designating facilities that consume locally generated electricity.
The central provision is to offer both regulatory relief and economic support to large demand facilities that connect electricity production and consumption within a region.
Designation as a facility consuming locally generated electricity would allow some elements of the power grid impact assessment to be omitted and establish grounds for financial support for the installation of electrical equipment. The bill would also allow tax reductions and exemptions, along with support for the costs of projects supplying waste heat from these facilities to other users.
In particular, it includes a provision allowing consideration of whether electricity is generated and consumed locally when setting regional electricity rates.
The article interprets this as an attempt to make distance from power-producing regions an economic factor in decisions on where to locate large electricity-consuming facilities such as data centers. It would establish a legal basis for electricity pricing to reflect the potential reduction in grid burdens when locally generated power is consumed nearby.
Potential effects on regional investment
If enacted, the amendment could change the nature of policies intended to disperse large electricity-consuming facilities.
While the current power grid impact assessment reviews in advance how new large electricity demand would affect the grid, the amendment would add an incentive policy offering assessment, cost and tax benefits to facilities using local electricity, encouraging companies to choose locations outside the Seoul metropolitan area themselves.
Such efforts to influence location choices are expected to become more important as the spread of AI increases data center electricity demand. Concentrating large data centers in a particular region requires the expansion of local substations and transmission lines, while delays in grid connections could affect new investment.
For regions, the policy could become a new means of attracting industry.
If large electricity-consuming facilities such as data centers locate in regions with abundant renewable energy or generating facilities, more electricity could be consumed locally rather than transmitted over long distances. Related industries and investment associated with data centers could also be attracted.
The waste heat support provisions also warrant attention. Data centers generate considerable heat while cooling servers, and using this heat for nearby buildings or industrial processes could integrate electricity-consuming facilities into regional energy systems.
Models connecting regional generation sources, data centers and waste heat users within a single energy ecosystem are therefore expected to be considered, extending beyond simply attracting data centers to a region.
Designation criteria and implementation challenges
However, the effectiveness of the system is expected to depend heavily on the criteria used to determine whether power is generated and consumed locally.
Policy effects could differ depending on whether using electricity generated within the same administrative area qualifies as local production and consumption, or whether actual proximity within the power grid and electricity flows are also considered. How to assess the hourly mismatch between renewable electricity generation and data centers' round-the-clock electricity demand will also require consideration when designing the detailed rules.
Criteria for omitting parts of the power grid impact assessment are also expected to require clarification to ensure grid stability is not compromised. Local electricity generation does not eliminate the impact of large demand on the grid, so criteria are needed to verify actual reductions in grid burdens.
Linking the policy to regional electricity rates could have even broader effects. Reflecting the regional balance between electricity production and consumption in rates could influence companies' location decisions over the long term, but regional rate differences, industrial competitiveness and fairness to existing electricity users would also need to be considered.
The article views the amendment's significance as addressing the concentration of data centers in the Seoul metropolitan area not simply as a facility location issue, but as a power system issue involving the coordinated relocation of power plants, grids and large demand centers.
If designation criteria for facilities consuming locally generated electricity, the scope of grid impact assessment relief, the degree of electricity rate differentiation, and equipment and tax support arrangements are specified, the amendment could become a new policy instrument encouraging large electricity-consuming facilities, including data centers, to move outside the Seoul metropolitan area and linking regional electricity production with consumption.
However, electricity incentives alone are expected to have limited ability to ease concentration in the Seoul metropolitan area if the support does not offset actual differences in companies' location costs, or if communications networks, labor, water and other infrastructure needed for data center operations are not secured alongside it.
If the bill is enacted, its future effectiveness is therefore expected to depend on whether it leads to a comprehensive location policy for facilities consuming locally generated electricity that considers not only regional power resources but also available grid capacity, communications and water infrastructure, and waste heat users.
Original Korean article: energydaily.co.kr
English brief by Korea Wind Intelligence, koreawindintel.com
