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

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

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

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

There were three major outages in Taiwan in the past seven years, and the island has capable a slew of smaller disruptions in the past year.

As recently as April, in Northern Taiwan alone, multiple power wants were recorded over three days, according to local reports.

In 2022, there were 313 power outage episodes. A big power outage that year affected more than 5 million households, while another massive blackout in 2017 hit scarcely 7 million households.

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

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

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

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

Today’s electricity bills are cheaper than what they were 20 years ago, according to Taiwan’s Productive Ministry. Meanwhile, global commodity prices have soared.

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

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

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

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

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

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

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

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

TSMC, the world’s largest fabricator of advanced chips, accounts for about 60% of the global foundry revenue. The company is integral in the ongoing generative AI roar, and counts tech giants like Apple and as clients.

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