Samsung and SK Hynix refused to prepay $19 billion in electricity fees to Korea Electric Power.

Samsung Electronics and SK Hynix rejected a 25 trillion won (approximately US$18.6 billion) prepayment electricity bill from the Korea Electric Power Corporation, adding further uncertainty to the power supply security issues behind South Korea's semiconductor expansion plans.

On September 14, Reuters reported, citing documents provided by the office of South Korean National Assembly member Lee Chul-gyu, that Samsung Electronics and SK Hynix, after completing their internal reviews, had formally informed Korea Electric Power Corporation that they found the prepaid electricity bill scheme unacceptable.

According to previous reports from South Korean media, the Korea Electric Power Corporation proposed this plan, hoping that the two companies would pay for electricity in advance based on the expected electricity consumption of the new wafer fab, and use the funds to invest in supporting infrastructure such as the power grid to ensure the power supply needs of future new production capacity.

This proposal is directly related to the South Korean government's semiconductor industry cluster plan. According to the plan, Samsung Electronics and SK Hynix will build large-scale chip manufacturing bases in South Korea. As the wafer fabs gradually come online, the increased electricity demand is expected to put significant pressure on the local power grid. Therefore, the Korea Electric Power Corporation (KEPCO) needs to raise funds in advance to expand the relevant power infrastructure.

However, both companies have reservations about the necessity of making such a large-scale prepayment for electricity. The report, citing sources familiar with the matter, stated that the uncertainty surrounding the long-term sustainability of semiconductor demand is a key reason why the two companies rejected the proposal. Bearing large-scale electricity costs in advance, while capacity utilization and future demand remain uncertain, also means that companies would need to lock up a substantial amount of capital upfront.

Following the rejection of this prepayment proposal, the financing of the power infrastructure needed for South Korea's semiconductor capacity expansion and whether the construction progress can match the wafer fab expansion plan remain to be further resolved.

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