A vital part of the economies of both Taiwan and the world at large, the semiconductor industry is closely intertwined with the energy sector. An energy crisis in Taiwan thus could have enormous global economic repercussions. The island’s considerable reliance on imported energy resources and the role that energy plays in sustaining a variety of other industries puts it at risk of shocks in the global energy market.
Additionally, geopolitical tensions between the United States and China make Taiwan’s energy security a major worry. Most of Taiwan’s energy imports from the Middle East and Southeast Asia transit through the South China Sea and Taiwan Strait, key chokepoints that are increasingly subject to geopolitical competition among a multitude of entities. China’s assertiveness and its notable military presence in the South China Sea increase the possibility of supply route disruptions. China has increasingly used its political might to compel other nations to curtail trade and diplomatic links with Taiwan, which has increased its energy supply chain uncertainty and vulnerability.
The effects of geopolitical events, supply chain disruptions, or political conflicts on Taiwan’s energy supply increase the risks to its semiconductor industry and the global economy. Taiwan must focus on diversifying energy sources, promoting energy efficiency and conservation, investing in renewable energy infrastructure, and fostering energy cooperation and partnerships with other countries to address these potential impacts and mitigate the consequential effects of an energy crisis. The implementation of these measures has the potential to enhance energy security, reduce dependency on imports, and strengthen the resilience of the national economy in the face of challenges associated with energy and geopolitical crises, while at the same time enhancing stability in the global semiconductor supply chain.
Semiconductors and Energy
Semiconductor manufacturing is an energy-intensive process with large power requirements. A substantial portion of Taiwan’s electrical power production is allocated to operating semiconductor facilities. Electricity was the primary source of the nearly 25,000 gigawatt-hours (GWh) of energy consumed by the Taiwanese semiconductor giant TSMC in 2023. Therefore, the reliability, availability, and affordability of energy directly affects the competitiveness and operational expenses of Taiwan’s semiconductor sector.
The semiconductor industry in Taiwan faces operational risks related to concerns about power shortages and the degradation of power quality and reliability. Even a relatively slight disruption could result in production losses and other problems. Over the last seven years, Taiwan has experienced three sizable outages, with a number of lesser disruptions occurring in the past year. Although the state of its aging power grid contributed to those outages, Taiwan’s power constraints are chiefly caused by underpriced electricity, which boosts demand, producing supply shortages. Taiwan’s semiconductor companies could be affected if low supply compels more frequent electricity rationing. This makes a dependable power supply, grid stability, and emergency power measures or backup power generation systems absolutely necessary to ensure the semiconductor sector will continue to function without interruption.
In 2023, Taiwanese energy imports equaled about 7.4% of its nominal gross domestic product. About 97% of the country’s total energy supply (oil, liquified natural gas (LNG), coal, and uranium) is imported. Electricity generation using renewable and local resources (solar, wind, biomass, hydro and geothermal) accounts for the remainder. In 2023, Australia, Qatar, and the United States, exported the most LNG to Taiwan, accounting for 40.21%, 27.88%, and 9.83% of its total imports, respectively. Australia, Indonesia, and Russia were the biggest sources of coal imports, at 50.62%, 25.47%, and 12.19% of supply, correspondingly. Saudi Arabia, the United States, and Kuwait were its top three oil suppliers, contributing 31.22%, 26.96%, and 17.82% of imports, respectively. From a geopolitical point of view, the primary international exporters of these energy sources each have quite distinct relationships with Taiwan, each of which is associated with its own set of potential vulnerabilities.
State of Electricity Generation and Consumption in Taiwan
The production of semiconductors has always been energy-intensive, but as design continues to evolve toward more powerful and smaller chips, increasingly more energy will be required. In Taiwan, government statistics show that imported fuel sources accounted for 89% of its electricity generation. The rest was derived from local and renewable resources. In 2023, coal was responsible for the largest share of generation, 42%, followed by LNG (40%), renewables (10%), nuclear (6%), and other sources (oil and pumped hydro energy storage). The reliance on coal and LNG generation makes its power sector heavily dependent on imported fossil fuels.
Taiwan is making efforts to decrease the amount of electricity generated from coal and oil while concurrently increasing the supply from LNG and renewable generation. Taiwan is progressing on its energy transition agenda but not supply chain security because it still requires a heavy import of LNG. Between 2003 and 2023, government statistics show, the percentage of power that was generated from coal decreased from 53.7% to 42%, and that from oil dropped from 9.3% to 1%. From 2003 to 2023, the percentage of power generated by renewable sources rose from 3.0% to 10% and that of LNG from 13.6% to 40%. The share of nuclear-powered generation in Taiwan decreased from 18.6% to 6% between 2003 and 2023, following the country’s shift in energy policies and initiatives.
The amount of power that Taiwan consumed in 2023 is equivalent to 276,519 gigawatt-hours. Taiwan’s 2023 power usage per capita was about 11,860 kilowatt-hours (kWh), three times the regional average and enough to power two typical houses in that country a year, assuming an energy consumption of 20 kWh a day. From 2012 to 2021, Taiwan’s energy consumption has increased practically every year, from 211,710 GWh to 248,810 GWh. The power sector’s support of Taiwan’s industrial sector — which includes semiconductor production — is crucial to the country’s economy. Several factors, such as the transition to energy sources that are more environmentally friendly and cost-effective, and the availability of a reliable and consistent energy supply, all influence Taiwan’s semiconductor industry in terms of its competitiveness, sustainability, and expansion. Together, the semiconductor and energy sectors have the potential to propel further technological developments and strengthen Taiwan’s position as a global leader in semiconductors. Taiwan moves to boost collaboration and innovation (quantum computing, artificial intelligence and green industries) by developing chip design hubs to promote talent and collaboration and engaging in chip diplomacy with U.S., Germany, Canada, and France in an effort to improve its standing in the world.
The semiconductor industry as a whole is likewise working toward decreasing the consumption of fossil fuels, with a considerable number of companies seeking to increase their use of electricity from renewable sources. For instance, by 2030, Intel plans to use only renewable energy, and TSMC has set a goal of obtaining 25% of its power from green sources by the same year. The use of solar and wind power is helping them reduce carbon emissions while also providing power for their activities.
Key Energy-Consuming Processes in Semiconductor Manufacturing
In 2023, the industrial sector accounted for more than half (55.3%) of Taiwan’s total electricity consumption (276,519 GWh). The semiconductor industry and other electrical products and electronic machinery businesses account for 63,242.4 GWh or 41.3% of the industrial sector’s total electricity consumption (about 153,000 GWh). And its energy needs are only expected to increase. By 2030, electricity usage by Taiwan’s semiconductor sector is projected to be 236% greater than 2021 levels..
Businesses in the semiconductor industry are among the many consumers that rely on consistent and uninterrupted power supplies. If electricity rationing becomes more common in the future as a result of lower supplies, Taiwan’s semiconductor companies will be hit hard. An unforeseen power outage during a storm in early August, for instance, reportedly disrupted production at plans run by several chipmakers in the regions of Linkou, Taishan, and Xinzhuang in New Taipei City. An energy crisis of greater proportions that caused major disruptions to Taiwan’s semiconductor industry would cause ripple effects in the global semiconductor markets. It is noted that TSMC held 61.7 percent of the global semiconductor foundry market in the first quarter of 2024, while Samsung held 11%. As semiconductors are vital components of various technologies including smartphones, energy network equipment, and missile systems, the U.S. economy and national security might be severely affected by a semiconductor supply chain disruption.
Semiconductor fabrication requires a lot of energy. Electricity consumption, the greatest source of greenhouse gas emissions in the chip production process, varies by chip type, manufacturing methods, and lithography technology. Advanced manufacturing techniques like intense ultraviolet lithography demand more energy. Semiconductor wafer processing tools account for about 40% of a fab’s electrical consumption. Thermal, patterning, dry etch, and thin films require considerable energy. Facility systems, including chillers, recirculating air units, makeup air, exhaust air, gases, compressed dry air, process cooling water, vacuum, and ultra-pure water systems account for about 56.6% of a fab’s power consumption.
A number of factors can influence the energy consumption of semiconductor manufacturing, including the dimensions of the fabrication plant, the intricacy of the production procedures, and the technology nodes in use. Complex production and demand for technology items that improve user experience have driven the industry’s increasing energy use. Semiconductor businesses are actively working to improve energy efficiency, optimize processes, and expand the use of renewable energy sources to address the growth in energy consumption and its subsequent environmental impact. Given that energy generation accounts for 83% of semiconductor device emissions, semiconductor businesses are taking main steps to reduce emissions. Chipmakers collaborate with suppliers and users to find energy-efficient equipment, materials, and devices. Chipmakers also invest in energy-efficient manufacturing facilities to lower their carbon footprint.
Semiconductor Sustainability
A number of factors influence the operational expense and environmental imprint of the semiconductor sector, including energy costs, efficiency, reliability, and sustainability. When it comes to maintaining a stable and secure supply chain for semiconductors, the availability of raw materials, cost, and sustainability are all key. The semiconductor industry, energy sector, and raw materials suppliers must work together to innovate and optimize costs to ensure long-term sustainability. This involves activities by the semiconductor industry to promote greater environmental stewardship, resource management, and social responsibility. Improving energy efficiency in data centers, manufacturing processes, and equipment is a primary priority. This includes creating more efficient designs for semiconductor devices, finding ways to maximize power utilization, and implementing better cooling strategies.
The semiconductor industry is also working toward lowering the emission of greenhouse gases and other air pollutants that manufacturing processes emit. Using cleaner energy sources, improving manufacturing processes, and implementing emissions control systems are all ways to accomplish this goal. The semiconductor industry is committed to reducing the number of natural resources that it uses as much as possible. Reducing water use, recycling and reusing materials, and implementing waste management programs are all necessary steps in this direction. Processing methods such as recycling and reclamation are utilized to retrieve valuable materials from waste generated during semiconductor fabrication. With respect to chemical management, the safe handling and disposal of chemicals that are essential to semiconductor manufacturing processes is a top priority for producers. In addition to adhering to stringent laws, they try to reduce the number of dangerous compounds in use. Development of eco-friendly alternatives to environmentally harmful substances is also under way.
In another sustainability practice, semiconductor companies are taking into consideration the full lifecycle of consumer products and the manufacturing processes needed to make them, beginning with the design phase and ending with the disposal of a device at the end of its useful life. Products that have longer lifespans, use less energy, and could potentially be recycled are among the aims of these initiatives. To cut down on the amount of electronic trash, disposal and recycling programs have been put into place.
Social responsibility efforts in the industry include ensuring fair labor practices, fostering diversity and inclusion, and supporting local communities through philanthropic initiatives. They strive to create a safe and inclusive work environment for their employees. Government agencies, industry associations, and stakeholders collaborate with manufacturers to develop and adhere to sustainability standards and best practices. This includes participating in initiatives focused on environmental sustainability, responsible sourcing, and ethical manufacturing. Sustainability is a strategic objective in semiconductor manufacturing’s dynamic landscape. With a focus on carbon emissions and environmental effects, semiconductor supply chain sustainability efforts are growing.
The pursuit of sustainability in the semiconductor business is an ongoing process, with companies looking for ways to enhance their practices and solve the ever-evolving issues that they face. In its constant quest for innovation, the semiconductor industry balances advancement with accountability. Every step toward a green supply chain helps create a more sustainable and environmentally friendly future. As semiconductor businesses adopt these techniques, a greener and carbon-neutral supply chain becomes more likely.
The semiconductor industry in Taiwan is an essential component of the worldwide technology supply chain, and the United States plays a vital role in providing support to and collaborating with this section of the economy. Many components are involved in the interaction between the semiconductor sector in Taiwan and the United States. U.S. companies have funded Taiwan’s semiconductor industry and formed joint ventures to improve technology. The U.S., a major market for Taiwanese semiconductor products, provides Taiwanese manufacturers with vital equipment and materials, while Taiwanese enterprises supply crucial components to American technology companies. Taiwan’s semiconductor sector’s advances in artificial intelligence, 5G, and advanced manufacturing depend on U.S. technologies and intellectual property. The United States wants to protect its semiconductor component supply chain to reduce dependence on other regions and ensure a stable chip supply for its defense and technology sectors. Taiwan receives diplomatic backing from the U.S. to operate autonomously and preserve semiconductor industry leadership despite geopolitical concerns. The U.S. military presence in Asia-Pacific helps Taiwan’s semiconductor sector run smoothly.
Policy Recommendations
Taiwan is confronted with several obstacles as it tries to guarantee its energy, economic, and environmental security:
- Energy Security: Almost all of Taiwan’s energy requirements are met by imported energy resources, primarily fossil fuels. This is a matter of significant concern. Because of its dependence on imports, energy availability faces risks from price fluctuations, supply disruptions, and geopolitical threats. To increase its energy security, Taiwan must develop new policies and strategies to address the short- and long-term goals of reducing reliance on fossil fuels, diversifying energy sources, and reducing energy consumption. Some of the initiatives that the government needs to adopt in order to guarantee a more stable and sustainable energy supply include increasing the percentage of renewable sources in its energy mix, improving the efficiency of energy systems, developing new alternative and greener fuels, and exploring more collaborations to increase the penetration of innovative clean energy technologies. Taiwan’s National Development Fund and local banks promised $3.4 billion in financial guarantees to encourage investment in offshore wind and other key renewable energy infrastructure projects. A 20-year power purchase agreement and favorable feed-in tariffs have enticed foreign renewable energy businesses to build offshore wind farms to serve Taiwan since 2018.
- Critical Raw Materials Security: It is necessary to preserve the stability of the supply chain and fulfill the growing demand for electronic devices, and one of the ways to do this is to ensure the security of critical raw materials (CRM) used in the production of semiconductors. Semiconductor manufacturing requires silicon wafers, photomasks, photoresists, and chemicals. The United States, Germany, Japan, Taiwan, South Korea, and China dominated the $40 billion fabrication materials industry in 2021. Taiwan dominated the global materials market by sales in 2021, with 25%. European (9%) and Chinese (15%) market shares are the lowest.
Europe is vital to the materials supply chain, especially for chemicals, despite its smaller sales volume. China is stronger in raw materials, especially low-grade gallium, tungsten, and magnesium. China also dominates in the processing and refining of raw materials, such as silicon, gallium, germanium, and scandium. Countries such as Germany, the United States, Russia, Japan, Malaysia, and France are also important suppliers of raw materials for the semiconductor industry. In the Taiwanese semiconductor business, the security of the flow of CRMs is tied to supply chain diversification, which is necessary to mitigate risks from disruptions caused by political instability or natural disasters. Improving recycling operation could also help reduce the demand for imported CRMs by allowing manufacturers to secure reclaimed materials from products that have reached the end of their useful lives.
- Environmental Security: Taiwan faces challenges related to pollution, natural resource management, climate change, and natural disasters. Taiwan has actively worked toward improving air and water quality, reducing carbon emissions, and transitioning to a low-carbon economy. Taiwan’s National Development Council unveiled its 2050 net-zero roadmap in March 2022, aiming to install 40-80 GW of solar photovoltaic (PV) production capacity and 40-55 GW of offshore wind. By 2025, the government plans to have developed 20 GW of solar PV and 5.7 GW of offshore wind. Taiwan had 12 GW of solar capacity in November 2023, meaning it must average nearly four additional GW per year to meet the 20 GW goal . This task is difficult because ideal rooftop sites for solar panel installation have almost been fully developed and many land resources for utility-scale solar PV are inaccessible. In addition, project cancellations and environmental approval delays will cause Taiwan to miss the 5.7 GW offshore wind target under the current engineering timeline.
There is a high probability that Taiwan will not fulfill its renewable energy goals for 2025. It is expected to continue pursuing the 2025 targets, but with great pressure. The government must set targets to implement energy-saving measures to reduce consumption and promote green technologies. Additionally, Taiwan is required to take part in international accords and efforts that are aimed at tackling the issue of energy security, energy transition, and climate change. Taiwan should prioritize forward-looking collaborations, especially with the United States, to address these difficulties by increasing use of high-tech energy solutions, boosting trade and direct investment, and fostering commercial energy partnerships between U.S. and Taiwanese companies.
- Semiconductor Security: The semiconductor industry must actively work to improve energy-efficiency measures and process optimization, and increase the use of renewable energy sources in order to reduce the harm it causes to the environment and the amount of energy that it consumes. By using renewable energy sources, such as wind or solar power, companies can lessen their impact on the environment, especially the amount of carbon emissions produced during the semiconductor manufacturing process. It is important to develop highly efficient chips that lower the amount of energy consumed by the products in which they are used. A significant number of semiconductor companies are already moving in this direction. In addition, the reduction of waste and the effective utilization of resources are both essential components of the sustainable development of semiconductors. Reducing the quantity of materials required can be achieved through increased efficiency, as well as the creation of new materials that are either recyclable or biodegradable. Renewable plant-based polymers are used to make biodegradable products, lowering dependence on silicon and rare earth metals. This improves supply networks and minimizes the industry’s use of nonrenewable resources. Reusing end-of-life electronics components with biodegradable materials supports a circular economy, cutting waste and raw material use. The use of biodegradable materials can spur semiconductor design innovation, creating flexible, lightweight, and ecofriendly electronic devices. Furthermore, chemical improvements have the potential to reduce the number of hazardous materials that are used and produced in the manufacturing process. The adoption of a circular economy strategy that places an emphasis on recycling, reusing, and repurposing resources and goods is recommended.
- Economic Security: Taiwan’s economic security is intricately linked to its trade relations, global competitiveness, and technological innovation. The country is known for its high-tech manufacturing sector, and maintaining economic stability is vital for its overall security. Taiwan needs to diversify its trade partners to reduce overreliance on any single market. It also must promote innovation, research, and development, and nurturing a skilled workforce to maintain competitiveness in the global economy. Moreover, Taiwan has to seek economic cooperation and partnerships with like-minded countries to ensure economic resilience and mitigate risks.
- Geopolitical and International Security: Taiwan’s energy supply may be threatened if China pressures energy exporters. Taiwan needs to diversify energy import sources and invest in renewable energy production to reduce these risks and improve energy security. By 2025, the government wants to phase out nuclear power and enhance renewable energy. Taiwan’s offshore wind farms and solar power installations have advanced due to plentiful wind and solar resources, but they will fall short of 2025 targets. Taiwan must address energy security and supply-chain resiliency issues in its national security plans amid escalating geopolitical tensions. It needs to increase the import of LNG and seek long-term contracts with suppliers in Qatar and the U.S. In addition, Taiwan needs to increase its LNG storage capacity. Taiwan needs to increase energy self-sufficiency and reduce its vulnerability to supply disruptions by diversifying its energy sources. Taiwan also needs to strengthen energy cooperation with like-minded nations and seek international support to ensure energy security. It should promote energy cooperation, share best practices, and ensure reliable energy supplies through dialogue and collaboration with Japan, the United States, and EU members.
Taiwan needs to acknowledge, as a whole, the interconnection of economic security, environmental security, semiconductor security, and energy security. By diversifying its energy sources, adopting sustainable practices, promoting green technologies, and strengthening economic ties throughout the world, Taiwan aspires to solve these problems and ensure a secure, sustainable, and prosperous future.
Prof. Chaouki Ghenai is a Non-Resident Senior Fellow for Energy Strategy and Policy at the New Lines Institute. He oversees new energy initiatives for New Lines Institute, including: Future and Innovative Energy Technologies, Geopolitics of Energy Transformation, Clean Energy Financing, New Energy Policies, and Sustainable Energy and Society. He has more than 25 years of research experience in the energy field and management of Clean Energy Research Programs and Research Funding.
Eugene Chausovsky is the Senior Director for Analytical Development and Training. He oversees the institute’s publication and content production process, manages institutional training efforts, and guides the development of analytical products. Chausovsky previously served as Senior Eurasia Analyst at the geopolitical intelligence firm Stratfor for more than 10 years. His analytical work has focused on political, economic and security issues pertaining to Russia, Eurasia, and China, as well as global connectivity issues related to energy and climate change.
The views expressed in this article are those of the author and not an official policy or position of the New Lines Institute.
