Taiwan produces 60% of the world's chips, but the manufacturing process consumes significant energy. TSMC consumed 6.4% of Taipower's electricity in 2021. The digital economy's energy demand continues to rise, with the IEA predicting that data centers will consume 4% of global electricity by 2026. With rising supply chain emissions, companies like Microsoft are pushing for low-carbon chip production. However, semiconductor companies' net-zero goals are plagued by geographical constraints and regulatory challenges. Nuclear power is an option being promoted by Taiwan, as well as companies like Microsoft and Amazon.
The Hsinchu Science Park, located in northwestern Taiwan, is home to several companies that manufacture chips that may have remained largely unknown until now, but play a vital role in the global economy. These tiny chips power a wide range of electronic devices, and through a combination of luck, good timing, technology, and hard work, Taiwan has become a major pioneer in semiconductor manufacturing since the 1980s, producing approximately 60% of the world's chips, including about 90% of advanced designs.
Chip manufacturing consumes a significant amount of electricity. TSMC alone consumed 6.4% of Taiwan's total energy supply in 2021. As artificial intelligence (AI) chips demand even more power, the industry's demand for electricity will continue to grow. The semiconductor industry is a form of digitalization, an economy often imagined as existing in a ethereal cyberspace, but it actually has real-world impacts on energy and the environment. The International Energy Agency (IEA) estimates that semiconductors in data centers will account for 2% of global electricity demand in 2022 and is expected to double by 2026.
Low-carbon chips aren't currently a priority for semiconductor manufacturers and other tech industry clients, but some tech giants have recognized the energy demands of AI. For example, Microsoft's latest sustainability report shows a 6.3% decrease in direct and indirect emissions in 2023 compared to 2020. However, due to the expansion of data centers to support the AI industry, emissions from its supply chain increased by 30.9%. Chia-Wei Zhao, research director of the Taiwan Climate Action Network (TCAN), noted that Foxconn, the first company to announce a net-zero goal in 2020, manufactures semiconductors and other electronic products for global brands like Apple. Zhao attributed this to "pressure from Apple and some institutional investors."
TSMC announced its own net-zero commitment in 2021, pledging to be powered by 100% renewable energy by 2040. According to data collected by TCAN, the semiconductor giant is currently Taiwan's third-largest emitter. Setting a goal is one thing, but achieving it is another. Taiwanese semiconductor companies need to procure large quantities of renewable energy at affordable prices, which is the challenge!
Taiwan's semiconductor manufacturing plants are concentrated in government-run science parks, which draw more than 80 percent of their grid energy from coal and natural gas.
A spokesperson for United Microelectronics Corporation (UMC), another large semiconductor manufacturer, told Ethisphere that the company gets about 10% of its electricity from rooftop solar at its manufacturing facilities and, like TSMC, is committed to achieving net-zero emissions by 2050.
But Taiwan’s solar potential is limited by available land. The island is mostly mountainous, with dense populations on the coastal plains. Fortunately, another option is wind power. Taiwan already has 2.25 GW of offshore wind capacity, more than any other country in the Asia-Pacific region except China.
TSMC signed one such agreement in 2020 with Danish wind power developer Orsted, which at the time was the largest corporate power purchase agreement (PPA) ever signed for renewable energy. However, the agreement was reached despite the government effectively subsidizing the wind energy industry. TSMC agreed to pay a premium over the electricity price Orsted had already determined from a government auction. Under the new auction process, developers do not receive a minimum "floor price" but are instead required to enter into commercial agreements with users.
Even if the wind industry's woes are resolved, as an intermittent energy source, it alone cannot meet the chip industry's energy needs.
The government hopes geothermal energy will provide 6GW of electricity by 2050, and development work is currently underway at more than 20 sites across the country. Much like wind power, semiconductor manufacturers could, in theory, sign corporate power purchase agreements with geothermal developers.
One company seeking to capitalize on Taiwan's geothermal potential is Baseload Power Taiwan, a subsidiary of a Swedish investment entity. Its CEO, Van Hoang, said he is "very optimistic" about Taiwan's geothermal potential. However, regulations specifically for geothermal exploration and development will not take effect until May, and the government and other stakeholders need to be educated on the benefits of the technology.
The fact is that Taiwan, like many countries, pledged to achieve net-zero emissions by 2050 before fully developing a methodology for achieving the goal. Zhao Jiawei stated that the government's hesitation in setting a 2030 emissions reduction target was due in part to the continued growth of the semiconductor industry, and the government's continued hesitation to conduct a strategic environmental assessment of the industry, which could have led to tighter planning of future semiconductor production capacity. Taiwan also lacks the option of importing electricity via submarine transmission cables to supply its semiconductor industry. Amidst rising tensions with mainland China, the idea of importing and exporting electricity across the Taiwan Strait is clearly unrealistic!
For some, this makes nuclear power the only viable zero-carbon energy option. An-Chi Weng, founder of the Clean Energy Transition Alliance, a Taiwanese nonprofit, said: “We support all forms of renewable energy. We want to see geothermal energy take off in Taiwan and we want a healthier development framework for offshore wind power, but fundamentally, we believe Taiwan cannot truly decarbonize without relying on nuclear power.” It is a sensitive issue. The 2011 Fukushima nuclear disaster in Japan caused a major reaction on the island, prompting the government to resolve to phase out nuclear power by 2025. Currently, only one nuclear power plant is still generating electricity.
Weng Anqi pointed out that to date, all the solar energy capacity installed in Taiwan is equivalent to the power generation of only one nuclear power plant. She called on the country's new president, Lai Ching-te, to extend the life of existing and recently decommissioned nuclear power plants. What Taiwan really needs now is a strong dose of reality in its energy policy. In addition to traditional large nuclear facilities, Weng Anqi suggested that Taiwan could also benefit from small modular reactors, a new nuclear technology that is just beginning to be commercialized. She pointed out that these reactors can operate independently of the power grid to serve high-energy-consuming industries, including semiconductor manufacturing plants.
Nuclear energy is also becoming increasingly attractive to the world's largest digital operators. In March, Amazon announced the purchase of a data center campus in Pennsylvania that is powered by a nearby private nuclear power plant. Microsoft is also exploring the use of small modular reactors in its data centers. Duncan Stewart of Deloitte is convinced that other companies will also be forced to consider nuclear energy as an option to meet their industry's energy needs. He believes that nuclear energy will play a larger role in future discussions than in the past.
Taiwan's semiconductor companies have shown no signs of seriously considering nuclear power. However, Taiwan is one of many highly industrialized countries with limited local capacity to produce renewable energy, facing increasingly difficult choices as pressure to decarbonize grows. Where does this leave Taiwan as a global semiconductor powerhouse? It's worth noting that some countries, particularly the United States, are offering massive subsidies to persuade companies like TSMC to manufacture chips locally.
While the primary motivation for this is to shorten supply chains and achieve greater resilience and self-sufficiency, the availability of renewable energy and other key resources—particularly water, which is also heavily used in semiconductor manufacturing—will undoubtedly influence the specific location of new facilities. It's important to remember that the growth of highly concentrated chip production on this resource-limited island has already put pressure on energy and water supplies.
Places like Arizona, where TSMC is currently building two large semiconductor factories, benefit from ample solar energy potential, but even these resources are limited. If multiple high-energy-consuming facilities are clustered in the same location, there may be a risk of "oversaturating regional renewable capacity." Companies will face trade-offs when balancing the availability of electricity and water resources.
Sources:
Reuters（2024.6.5）How Taiwan’s green power deficit threatens tech industry’s bid for net zero
