[November 5, 2024] – Taiwan’s ambitious energy transition is creating significant challenges for its industries, particularly the semiconductor sector. Recent sharp increases in electricity prices and growing risks of power outages are impacting major companies, including Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chipmaker.
TSMC’s Chief Financial Officer, Wendell Huang, recently revealed that the company anticipates paying the highest electricity prices in Taiwan next year, exceeding costs in all other regions where it operates. This marks a significant shift from a past competitive advantage of some of the world’s cheapest power.
The surge in global fossil fuel prices following the war in Ukraine, coupled with a lack of sufficient alternative energy sources, has forced the state-owned Taiwan Power Company into mounting losses. In response, the government has implemented four electricity price increases since 2022, disproportionately impacting large industrial users. While households and certain industries have received price freezes, major industrial players in growing sectors have faced increases as high as 25 percent.
This policy shift, aimed at controlling inflation and protecting vulnerable sectors, has reversed the traditional pricing model where household electricity was more expensive than industrial power. Government researchers project that industrial electricity costs in Taiwan will soon surpass those in Japan and South Korea, key competitors in export markets.
While Taiwan is investing heavily in renewable energy sources like offshore wind power, its late start and planned phase-out of nuclear power leave it heavily reliant on imported coal and liquefied natural gas, accounting for over 80 percent of its energy supply. This dependence, combined with a declining electricity operating reserve, increases the risk of outages.
Although the price increases represent a minimal impact on TSMC’s overall profitability, the broader energy challenges pose a significant long-term risk to Taiwan’s industrial competitiveness. The increasing energy demands of advanced semiconductor production and the growth of data centers further exacerbate the situation.
Experts from the Chung-Hua Institution for Economic Research and the American Chamber of Commerce in Taiwan emphasize the need for a stable and predictable electricity pricing system to attract and retain global investment. They argue that consistent, reasonable pricing is more crucial than simply low prices for maintaining Taiwan’s industrial competitiveness. The current situation presents a “pressing challenge” to Taiwan’s economic future.
