Much of the world’s semiconductor production takes place in Taiwan. But the island is experiencing energy supply problems, such as electricity shortages. They could intensify in the future, and cause headaches throughout the downstream sector: the production of electronic devices.
We remember it, from the time of the pandemic: a hiccup in the supply chain (in this case, confinements and health measures) of electronic chips and semiconductors, and everything that is production of Electronic devices, from dishwashers to cars to smartphones, are suddenly clogged.
Taiwan, in particular, is a hot spot for the production of these chips. The world number one, TSMC (Taiwan Semiconductor Manufacturing Company) is for example on the island. But Taiwan has a problem: its energy situation. The country must import almost all (97%) of its needs (gas and coal), and the aging network and power plants cannot always keep up with demand. Which means that there can regularly be power outages, more or less significant. Or a double vulnerability.
Risk for the sector
This is a risk for the chip sector. Production is very electricity intensive. And with the new demand for chips created by AI, the demand for energy will only increase. “Concerns about potential power shortages and deteriorating power quality and reliability could pose operational risks for the semiconductor industry,” says Chen Jong-Shun of the Chung-Hua Institution for Economic Research at CNBC.
“If Taiwan is forced to ration electricity more frequently in the future due to limited supplies, its semiconductor companies will suffer,” also adds Joseph Webster of the Global Energy Center at the Atlantic Council (a think tank). “Taiwan’s power shortage could disrupt global semiconductor markets.”
The world would therefore not be safe from new crises on the supply chains of electronic chips, if the availability of electricity does not improve.
What to do ?
One of the concerns is that electricity would be too cheap, which means that consumption is high and that consumers, both private and industrial, will not necessarily want to save money. But the public company which supplies electricity is continually making losses, as the prices of raw materials (coal and gas) are rising. Which takes away funds to invest in infrastructure.
It has also recently increased prices by 15% for industrial customers. But it is also a risk for the chip sector… or rather their customers. Because TSMC has already announced that it will transfer the increase in the price of electricity to its sales prices.
Developing renewable energy could, for example, be a way to produce more electricity and gain autonomy. But according to experts, developing energy infrastructure is not that simple. “Taiwan has struggled to meet its electricity infrastructure goals due to terrain constraints, overly ambitious and inflexible policies, and a lack of understanding and capacity to deal with electricity shortages.”
