The South Korean government has announced its intention to offer incentives for newly established data centers situated in regions beyond the Seoul metropolitan area, Incheon, and Gyeonggi Province. This step aligns with Korea’s broader initiatives to encourage the dispersion of data centers, which have been predominantly concentrated in the capital region.
According to the Ministry of Trade, Industry and Energy(MOTIE) and Korea Electric Power Corporation(KEPCO), data centers in non-capital areas, supplied with 22.9-kilovolt power, will be eligible for a 50% discount of the electric facility levy until May 2026.
This would be a major relief to the local industry currently burdened by the electrical facility levy, the construction cost of bringing electricity from a substation facility to the data center. The levy amounts to around KRW 4.5 billion won (US$3.4 million) to connect to an average length of three kilometers. But with the newly enforced regulation, companies building new data centers in non-capital areas can save an estimated US$1.5 million on average.
In addition, larger data centers that require 154-kilovolt power are exempt from reserved power fees imposed by KEPCO, which amount to 2-6% of the base electricity rate. With this, industry experts say companies can save monthly electricity costs of over KRW 10 million won (US$7,630) with the exemption.
MOTIE says around 60% of Korea’s data centers are currently built in the capital area, with around 86% of new data centers planned to be built by 2029, are concentrated in the metropolitan area.
The Korean government says it plans to actively support data center candidates in non-metropolitan areas where electricity is abundant and are equipped with sufficient infrastructure such as transmission grids and substations. This comes as expected growth in demand from global investment firms is expected to intensify the competition in the South Korean market for data center colocation and construction.
According to the latest report by Research and Markets, the presence of several local and global data center operators could drive up the growth potential of the Korean market, currently dominated by local companies. LG Uplus, KT Corp and LG CNS contribute over 70% of the rack capacity in Korea’s data center market.
The report identifies trends of overseas funds showing interest in investing in ultra-large data centers in Korea. Among the overseas investors and operators in the report include The Canada Pension Plan Investment Board(CPP Investments) and Pacific Investment Management Company. They’ve announced in May, a KRW 200 billion won (US$164.4 million) joint venture to develop a hypescale data center in Jukjeon, east of Seoul.
Last month, the US$ 525 million joint venture between Equinix, Inc. and Singapore’s sovereign wealth fund, GIC, was announced aimed at developing two xScale data centers in Seoul. The xScale data center portfolio is expected to generate greater 720 MW of power capacity after completion of construction.
Meanwhile, UK-based Actis private equity company has secured three sites in Seoul and Anyang for the development of data centers, worth around KRW 1.2 trillion won (US$923.4 million.)
The report projected the South Korea data center market size to surpass US$6.74 billion by 2028, climbing at a CAGR of 9.89% from 2022 to 2028.