Invest1 publisher2 min readPublished
HD Hyundai Heavy builds 3 gigawatts of engine capacity in Ulsan for AI data centers
The Ulsan memorandum splits more than 1 trillion won between a HiMSEN power engine plant sized at 3 gigawatts and a line for small modular reactor components. The city's contribution is faster permits.
The Investor · Invest desk
What happened
- HD Hyundai Heavy Industries is investing more than 1 trillion won, reported as $720 million, in new production facilities in Ulsan to take a position in the future energy market.
- The company and the Ulsan city government are signing the investment memorandum at Ulsan City Hall on the 22nd, with chief executive Lee Sang-kyun and Mayor Kim Sang-wook attending.
- The HiMSEN power generation engine facility, built on the company's own engine technology, goes on a site in Onsan-eup, Ulju-gun, with a total capacity of 3 gigawatts.
- A second plant, dedicated to main components for small modular reactors, will be located inside the company's existing main plant in Dong-gu.
- Construction on both facilities begins in the first half of next year.
Compiled by The InvestorSomething wrong?How this is made
Why it matters
- decision The build proceeds on the company's own demand forecast, with no disclosed order behind either line, so HD Hyundai Heavy carries the timing risk on both plants itself.
- precedent Ulsan took a plant the company had considered putting elsewhere by cutting permit processing time. Other Korean cities now have a non-cash bid to make for the next factory.
- exposure Utilisation of the Dong-gu component line depends on reactor orders placed by parties outside the company, and the growth in the global small reactor market is the company's own premise.
- constraint Capacity is fixed at 3 gigawatts before any of it is contracted, so orders that come in small or late leave the fixed cost on HD Hyundai Heavy's books.
More than 1 trillion won goes into two plants, and the announcement does not say how the money divides between them, or name a customer for either line [17]. The only capacity figure given is the engine plant's 3 gigawatts [4]. Divide the full sum by that and the capacity costs about 333,000 won per kilowatt [15]; the engine half comes in under that number, because the reactor component plant takes part of the same 1 trillion won [2].
Ulsan competed on permitting speed. HD Hyundai Heavy had considered another region for the engine plant and settled on Ulsan, citing the city's sharp reduction in permit processing times and its ability to resolve regulatory issues on the ground [8]. The city's side of the deal is administrative support across the board, including a fast-track permit process and eased investment rules [9]. Mayor Kim Sang-wook said: "We will join forces and do our utmost so that Ulsan can grow into a world-class production base for the energy industry." [13]
The line runs on HiMSEN, the company's own engine technology [4], and the market it is aimed at is emergency generators and multipurpose distributed power equipment as AI data centers expand [7]. Lee Sang-kyun, the chief executive, said the company will "respond preemptively to surging power demand and take an early lead in the global AI infrastructure market" [12].
The two halves do not carry the same risk. HD Hyundai Heavy describes the Dong-gu line as a central hub for the stable production and supply of high-quality main components as the global small reactor market grows [14], and the growth in question is other people ordering reactors. The engines have a buyer the company can describe today, even if it has not named one [7].
If data center developers place generator orders in volume before the Onsan line is finished, then the 3 gigawatts is behind demand and this reading of the timing is wrong. The reactor side is the cheaper of the two mistakes: that line goes inside the existing main plant in Dong-gu [5] while the engines need a new site in Onsan-eup, Ulju-gun [4]. The company also promised hiring priority to Ulsan residents and active use of local suppliers in construction orders, equipment procurement and service contracts [10].
What to watch
- The split of the more than 1 trillion won between the Onsan engine line and the Dong-gu component line, once budgets are itemised.
- Whether HD Hyundai Heavy names a small modular reactor developer or a component order before the Dong-gu line starts construction.
- Whether Ulsan's fast-track permitting holds to schedule, since the siting decision was made on permit processing time.