Taiwan’s energy crunch could ‘throw a wrench’ into the global semiconductor industry

Taiwan,
the
world’s
semiconductor
powerhouse,
is
facing
a
power
crunch
—
and
this
could
spell
trouble
for
chipmakers.

Manufacturing
chips
requires
a
lot
of
energy
and
electricity,
and
the
government
is
struggling
to
meet
the
island’s
energy
needs.

“Concerns
over
potential
power
shortages
and
the
deterioration
of
power
quality
and
reliability
could
pose
operational
risks
for
the
semiconductor
industry,”
Chen
Jong-Shun,
assistant
research
fellow
at
Chung-Hua
Institution
for
Economic Research,
told
CNBC.

There
were

three
major
outages
in
Taiwan
in
the
past
seven
years,
and
the
island
has
experienced
a

slew
of
smaller
disruptions
in
the
past
year.

As
recently
as
April,
in
Northern
Taiwan
alone,

multiple
power
shortages
were
recorded
over
three
days,
according
to
local
reports.

In
2022,

there
were
313
power
outage
incidents.
A
big

power
outage
that
year
affected
more
than
5
million
households,
while

another
massive
blackout
in
2017
hit
almost
7
million
households.

“Taiwan
has
both
an
energy
crunch
and,
even
more
importantly,
an
electricity
crunch,”
said
Joseph
Webster,
senior
fellow
at
the
Atlantic
Council’s
Global
Energy
Center.

More
than
97%
of
Taiwan’s
energy
needs
are
imported,
and
come
primarily
from
coal
and
gas.
The
heavy
reliance
on
other
countries
renders
the
island
vulnerable
to
energy
supply
disruptions,
experts
told
CNBC.

While
the
outages
are
partly
due
to
an
aging
grid,
the
electricity
crunch
is
largely
the
result
of
Taiwan’s
underpriced
electricity
bills,
which
drives
up
demand
and
leads
to
supply
shortfalls,
Webster
added.

While

Taiwan
recently
hiked
electricity
rates
by
15%
for
large
industrial
users,
the
rates
for
residential
consumption
remain
unchanged.

Today’s
electricity
bills
are

cheaper
than
what
they
were
20
years
ago,
according
to
Taiwan’s
Economic
Ministry.
Meanwhile,
global
commodity
prices
have
soared.

As
a
result,

Taiwan
Power
Company,
or
Taipower,
has
been
racking
up
losses.
The
state-owned
company
reported
a
pre-tax
loss
of
$6.3
billion
in
2023,
after
an
even
bigger
loss
was
recorded
in
2022.

“Taipower
has
been
losing
money,
which
also
raises
concerns
about
potential
power
disruptions
for
both
the
semiconductor
industry
and
the
overall
Taiwanese
economy,”
Michelle
Brophy,
director
of
research
at
market
intelligence
platform
AlphaSense.

For
one,
with
electricity
prices
rising
for
semiconductor
firms,
the
higher
costs
are
expected
to
be
passed
on
to
consumers,
according
to
Brophy.

Chip
giant


Taiwan
Semiconductor
Manufacturing
Company
has
disclosed
it
will
will
pass
on
cost
increases
to
customers,
in
order
to
protect
the
company’s
profit
margin.

Taiwan’s
industrial
consumers
accounted
for
over
55%
of
its
electricity
consumption
in
2023,
according
to
the
Atlantic
Council’s
Webster.
These
consumers,
including
semiconductor
firms,
often
require
constant
and
reliable
access
to
electricity.

“If
Taiwan
is
forced
to
ration
electricity
more
frequently
in
the
future
due
to
limited
supplies,
its
semiconductor
firms
will
suffer,”
he
added.

Any
energy
disruption
will
slow
down
chipmaking
and
raise
global
semiconductor
prices,
Webster
said.

“Taiwan’s
electricity
crunch
could
throw
a
wrench
in
global
semiconductor
markets,”
he
said,
adding
that
interruptions
could
reverberate
across
the
global
industry.

TSMC,
the
world’s
largest
manufacturer
of
advanced
chips,
accounts
for
about

60%
of
the
global
foundry
revenue.
The
company
is
integral
in
the
ongoing generative
AI
boom,
and
counts
tech
giants
like


Apple
and


Nvidia
as
clients.

The
global
semiconductor
manufacturing
industry
is
estimated
to
double
its
market
size
in
revenue
by
2030,
and
is
poised
to
consume
237
terawatt
hours
(TWh)
of
electricity
by
then,

a
Greenpeace
report
said.

Electricity
consumption
from
Taiwan’s
semiconductor
manufacturing
industry
is
set
to
increase
236%
between
2021
and
2030,
the
same
report
found.

“The
global
electricity
industry
has
been
surprised
by
the
pace
and
scale
of
electricity
demand
from
artificial
intelligence’s
data
centers,”
said
Webster,
adding
that
Taiwan’s
future
electricity
consumption
is
subject
to
“considerable
uncertainty.”

Taiwan’s
government
plans
electricity
supply
based
on
the
needs
of
a
few
major
companies,
said
Chen
from
Chung-Hua
Institution.

Still,
meeting
Taiwan’s
energy
needs
is
an
uphill
task.

“Taiwan
has
struggled
to
meet
its
power
infrastructure
goals
due
to
land
constraints,
overly
ambitious
and
rigid
policies,
and
a
lack
of
understanding
and
ability
to
address
power
shortages,”
Chen
added

This
raises
further
concerns
among
businesses
about
the
reliability
of
future
power
supply
commitments
to
major
tech
firms.

“Power
is
an
ongoing
issue
in
the
sector,”
especially
due
to
Taiwan’s
outsized
influence
on
the
semiconductor
industry,
said
Brophy.