Taiwan’s energy crunch could throw a wrench into global chip industry

A chip made by Taiwan Semiconductor Manufacturing Company


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.

Electricity squeeze

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.

Implications for the chip sector

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…

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Taiwan’s energy crunch could throw a wrench into global chip industry

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