Encinal power plant eyes W60tr in returns, but key question remains: who will buy the electricity?

The South Korean government estimates that its first major US investment project — a gas combined-cycle power plant in Encinal, Texas — will generate up to $45.43 billion over 20 years against a total outlay of $22.3 billion.

But the critical prerequisite for realizing those returns — securing long-term power buyers on the American side — has not been guaranteed. For the revenue-sharing arrangement to cover the investment, the plant must sell enough electricity to meet projected earnings. Energy industry officials also say the government still needs to negotiate whether Korean companies, including Doosan Enerbility, can supply gas turbines to the Encinal plant — a key condition for the project to deliver tangible industrial benefits at home.

South Korea's Ministry of Trade, Industry and Energy and the Ministry of Economy and Finance briefed the National Assembly in a closed session on Tuesday on the progress and outcomes of negotiations over the US investment project, according to political and government sources.

The Encinal gas combined-cycle plant — the first project under the US investment initiative — will have a total capacity of 6.4 GW. The plan calls for building an initial 1.4 GW gas turbine facility first, then adding the remaining capacity after verifying actual demand and economic viability. On the contentious question of Korean corporate participation, discussions are reportedly under way to give South Korea a right to recommend suppliers.

The government presented a feasibility assessment concluding that the project's total cost of $22.3 billion can be fully recovered, with projected revenues of $43.29 billion to $45.43 billion over 20 years.

The sticking point is securing power buyers — the very foundation of the projected 60 trillion won ($44.1 billion) in revenue — and ensuring Korean firms can participate. No long-term power purchase agreements, or PPAs, are yet in place.

The energy industry expects electricity demand to materialize as AI data center investment expands in Texas. With major tech companies including Google, Meta and Microsoft continuing to pour money into the state, power demand is forecast to rise rapidly. The Electric Reliability Council of Texas, or ERCOT, released a preliminary projection in April estimating that electricity demand in its service territory could reach approximately 367.8 GW by 2032 — more than four times the record peak demand of 85.5 GW set in 2023.

But in the power generation business, profitability depends not just on how much electricity a plant produces, but on the price and reliability of sales. ERCOT itself cautioned at the time that the projection could exceed actual demand growth and did not mean all proposed projects would be built — a signal that power supply applications may not translate into real demand.

Without a PPA, selling electricity at market prices exposes the project to fluctuations in power prices and utilization rates, which could push actual returns below the government's projections. Power plants must operate for at least 20 years, but some observers note that even if the AI boom continues for now, the IT industry's business cycles typically last only a few years — making it difficult for major tech companies to commit to 10- or 20-year contracts.

In the United States, data center operators have been reported to file for power supply in multiple candidate locations simultaneously, or to seek to lock in electricity before a project has moved beyond the conceptual stage. Demand from data centers that may ultimately be built at only one site — or not at all — could be double- or over-counted. Industry observers call this "phantom demand." Expanding power plants and transmission infrastructure without filtering out such inflated figures risks overinvestment.

It also remains unclear whether Korean companies are guaranteed entry into the US market, one of the world's major power generation markets. South Korea became the fifth country to domestically develop gas turbines — components that account for roughly half the total construction cost of a gas-fired plant — and wants to supply Korean-made turbines. But the US is reportedly pressing for the use of products from domestic manufacturer General Electric.

Local opposition and tightening regulation add further uncertainty. Concerns are growing in Texas over data centers' electricity and water consumption, noise, and the potential for rising electricity bills. Texas Governor Greg Abbott on Monday directed the state's environmental agency to halt the issuance of new permits for data centers while their impact on the power grid and other infrastructure is under review.

If data center construction is delayed or some projects are scrapped as a result, projected power demand could shrink. The Encinal plant could then face difficulties recovering its investment if sales volumes or prices fall short of initial forecasts — underscoring why securing power buyers is so critical.

The government, for its part, argues that electricity demand and power prices in Texas are on an upward trend, making it advantageous to hold off on signing PPAs for now. It has also set a target of identifying companies willing to enter into power purchase agreements and signing contracts by 2027.

Within the energy industry, the project is generally viewed as commercially viable, in part because Korea Southern Power already operates a gas combined-cycle plant in the United States and is posting operating profits.

Korea Southern Power became the first Korean state-owned power company to operate a liquefied natural gas combined-cycle plant in the United States, running the Niles facility in Cass County, Michigan. By securing cheap local shale gas, the company generates annual sales of 200 billion won and operating profit of 100 billion won. Korea Southern Power also formalized the procurement of Korean-made equipment during construction of the Niles plant, enabling domestic small and medium-sized enterprises to supply 29 billion won worth of materials and components over the past three years.