TSMC’s Energy Demand Drives Taiwan’s Geopolitical Future

The wind blowing in from the Taiwan Strait regularly blasts across Changhua Coastal Industrial Park. On this expanse of reclaimed land outside Taichung, Taiwan's second largest city, 80 wind turbines, a pair of gas-fired power plants, and 4.3 square kilometers of solar farms generate electricity for Taiwan's grid. More than 170 wind turbines installed offshore in the strait send more than a gigawatt of power to a hulking, typhoon-ready substation, its circuits primed for more power coming within months. Shiny new transmission towers strung with steel cables lead to a second massive substation, still under construction, which will absorb 2 gigawatts of additional offshore wind power.

TSMC Chip Fabs and Major Carbon-Free Energy Generation by District in Taiwan

Keeping TSMC's large fleet of chip fabs running on carbon-free energy is an ambitious endeavor. The company aims for 60 percent of its energy to come from renewables by 2030, and 100 percent by 2040. That's a big reason why Taiwan's government is going big on solar and offshore wind power. It expects renewable energy generation to more than double from 9.5 percent of Taiwan's power mix last year to 20 percent in 2026. Chris Philpot

A visitor to Taiwan quickly senses why this shield is needed. Ubiquitous signs for air-defense shelters dot city buildings, Taiwanese fighter jets boom overhead, and the People's Liberation Army frequently flexes its muscle by practicing cross-strait assaults. All of these things serve as reminders that China considers this thriving democracy as belonging to the People's Republic. And China is not alone. Only 11 countries and the Vatican formally recognize Taiwan's independence.

So sustaining TSMC-and the massive, growing amount of electricity that keeps the company running-has become a high-stakes imperative for Taiwan. Power use by TSMC increased by 85 percent between 2017 and 2022-30 times as fast as Taiwan's industrial sector as a whole. Next year TSMC's share of Taiwan's electricity could hit 12.5 percent-twice the fraction it consumed in 2020. At that rate, TSMC will soon use more power than all of Taiwan's homes combined.

Moreover, in a climate-conscious global market, where TSMC gets its energy is as important as how much it's consuming. Tech giants commissioning microchips, such as Apple, Google, and Nvidia, now place carbon-cutting front and center, and they expect suppliers like TSMC to follow suit. Local environmental advocates demand a clean-energy supply too.

In this corner of the Changhua Coastal Industrial Park, a 100-megawatt solar farm and 4 of the park's 80 onshore wind turbines sprawl across the reclaimed land. A control facility under construction will handle energy from 31 9.5-MW wind turbines, also under construction, about 20 kilometers off the coast in the Strait of Taiwan. Peter Fairley

These influences put pressure on TSMC and other Taiwanese chipmakers such as United Microelectronics Corp., which in turn have been pressing their government to deploy more renewables. In response, the Taiwan government is going big on solar power and offshore wind to meet aggressive renewable-energy goals. But it's also sticking to a planned phaseout of nuclear power by 2025. That deadline, plus market forces and sociopolitical head winds against wind and solar installations, means that Taiwanese chipmakers' electrical appetite is outpacing the country's transition to low-carbon power.

This heady brew of commercial and geopolitical pressures is forcing TSMC executives to sign big contracts for wind and solar power, at times eschewing affordability for expedience. The company aims for 60 percent of its energy to come from renewables by 2030, and 100 percent by 2040-up from just 11 percent last year. Says TSMC senior vice president and sustainability lead Lora Ho: Of course we are concerned about cost, but we are even more concerned about supply."

TSMC's Energy Demand Drives Taiwan's Grid

TSMC launched in 1987 when the Taiwanese government invited electrical engineer and former Texas Instruments executive Morris Chang to start a chip-manufacturing firm. Chang, who later received the IEEE Medal of Honor, envisioned a new business model: Customers would design their own chips, and TSMC would fabricate them. That is, it would be a contract chip foundry.

This model worked astonishingly well. And the resulting volume of production gave TSMC unrivaled technical mastery. The more chips TSMC made, the faster it learned how to tweak the process to make them better, with finer features that boosted performance. Working with toolmakers, TSMC has used ever-smaller wavelengths to pattern and etch away silicon, shrinking the features left behind on its wafers.

By the end of next year, the 22 sets of gas-insulated 161-kilovolt switchgear, in a hallway in the Chang-Yi Switching Station, could be receiving 2.5 gigawatts of power from offshore wind farms in the Strait of Taiwan. Peter Fairley

TSMC's energy consumption exploded with the soaring global demand for its chips and the increasing complexity of its processes. Achieving the finest features TSMC delivers requires extreme-ultraviolet light and extra wafer-washing steps, which gobble up more electricity as well as more water per etched wafer. Between 2017 and 2022, TSMC's energy consumption nearly doubled to about 21,000 gigawatt-hours. Over the same five-year period, consumption by all other energy users in Taiwan, including its cities and other industries, barely budged.

That jump caught even TSMC by surprise. In 2019, TSMC's power consumption exceeded its own projection by 30 percent. And because Taiwan generates four-fifths of its power from fossil fuels, TSMC's carbon footprint grew with it. Of the 11.8 million tons of carbon the company emitted in 2023, 86 percent resulted from power consumption-more carbon than 2 million cars produce in a year.

TSMC fabs give this embattled state what security experts call Taiwan's Silicon Shield.

That huge carbon footprint blemishes the reputations of global tech firms such as Google and Apple, which are pressuring suppliers to set high bars for their own environmental, social, and governance (ESG) programs. When Apple began talking about ESG, we started getting nervous," TSMC's former chairman, Mark Liu, told Taiwan's CommonWealth magazine in 2021. Soon after that, Apple asked its major manufacturing partners, including TSMC, to decarbonize their Apple footprint by 2030.

That's not an easy ask for a TSMC-size company. In Taiwan, TSMC operates commercial gigafabs," which process 300-millimeter-diameter wafers at four sites, as well as five older fabs using smaller wafers. Most are in Taichung, Hsinchu, and the southern city of Tainan, and more are under construction. TSMC also operates or is building fabs in China, the United States, Japan, and Germany.

TSMC Engineering Cuts Emissions

TSMC leaders insist that they are doing everything they can to put the company's energy consumption on a sustainable path. During a visit to TSMC earlier this year, IEEE Spectrum got an inside look at the power-saving modifications the company has made at Fab 15, its 510,000-square-meter megafab in Taichung. The clean rooms and their closely guarded intellectual property were off limits, but a 1-kilometer walk-through showcased the facilities that surround and support the wafer-processing action. Even that limited tour required relinquishing all personal electronics, including a forgotten smartwatch that was confiscated at the door.

Over the electrical hum and echo, a young facilities engineer described the giant batteries that can power the entire fab for up to 5 minutes during a blackout while massive backup diesel generators kick in. For decades, TSMC fed all power coming into its clean rooms through rectifiers and inverters upstream and downstream from the batteries, smoothing out any dips or surges in line voltage and guaranteeing uninterrupted power if the grid were to go down. This gear converted grid power to direct current and then converted it back to alternating current-conversions that consumed a full 6 percent of the plant's electricity.

In 2016, TSMC engineers demonstrated that they could send power around the batteries, eschewing the 24/7 conversions. Instead, the engineers found, the converters could kick in only when they sensed trouble. That electrical bypass, an industry first that TSMC has since implemented across its other fabs, saves a whopping 89 GWh of electricity at Fab 15 every year.

A Taipower engineer monitors circuits in the control room of the Chang-Yi Switching Station in the Changhua Coastal Industrial Park. An Rong Xu

Another significant upgrade invented at Fab 15 is a control system to idle the high-frequency vacuum pumps in clean rooms whenever possible-a feature its engineers developed with Santa Clara-based Applied Materials. Cycling the pumps rather than running them nonstop saves 13.4 GWh per year, which will cut an estimated 82 GWh when implemented across TSMC's four biggest plants in Taiwan, says Howard Ting, Fab 15's deputy director.

A more recent patent-pending Fab 15 innovation uses machine learning and AI rather than engineers' best guesses to optimize the operation of the Taichung plant's massive water chillers. That tactic conserves a relatively modest 2.8 GWh per year, but it could top that figure as the system learns to operate even more efficiently.

These measures and hundreds more are doubling the efficiency of each new chip-manufacturing process within five years of its launch, says Ho, who chairs TSMC's ESG committee. Indeed, company data show that it can, in fact, do even better: Fabs operating on TSMC's 7-nanometer generation used 60 percent less energy per wafer five years in.

But such progress is hardly guaranteed. Rapidly increasing efficiency at TSMC's 5-nm fabs, for example, suddenly cratered last year in that process's fourth year of operation, thanks to lower-than-expected fab utilization.

TSMC'S Renewable-Energy Commitment

TSMC's plan also includes sourcing gobs of renewable power. The company's leaders say they hope by 2030 to have cut back emissions to the company's 2020 levels. But given TSMC's surging consumption, only cleaner power can significantly cut carbon emissions, Ho acknowledged in an interview at TSMC's headquarters in Hsinchu. To that end, TSMC is greening its energy supply via long-term contracts for wind and solar power projects. We don't invest, but we are a big customer," she says.

In 2020, TSMC signed a massive renewable-power purchase deal with the Danish power developer Orsted, securing all of the output from a 920-megawatt offshore wind farm. Construction began last year, and the turbines could be feeding clean power to those big transmission circuits in the Changhua Coastal Industrial Park by the end of next year. TSMC has since signed more such contracts and has invited its suppliers to collaborate, pooling resources for bigger power-purchase deals.

TSMC Senior Vice President Lora Ho pauses for a photo at the company's Hsinchu headquarters on 6 March 2024.Peter Fairley

TSMC's power contracts help independent renewable-energy developers secure financing. But ultimately, the burden is on government policies to attract and support those developers, says Ho, including helping them overcome challenges that slow their progress, such as difficulty securing local approval and land for solar projects.

There is a strong will at the highest levels of government to bring green energy to Taiwan. However, at the local level it's still quite challenging," says Leo Seewald, chairman of the Taipei-based solar developer New Green Power. The challenges are forcing developers to get more creative. Many, including NGP, have turned to dual-use projects, such as solar arrays sharing space with aquaculture ponds.

The growth of offshore wind, meanwhile, is bedeviled by a tight supply chain, financing difficulties, and fishing conflicts. Wind developers in Taiwan also face government requirements to use locally made components and China's saber-rattling, which spooks investors.

TSMC is very concerned" about slipping timelines and is pleading for policies that will convince global energy developers to focus their limited resources on Taiwan, Ho says. Policies such as the made-in-Taiwan mandate for offshore wind must be secondary to accelerating clean power, she says.

Taiwan Boosts Offshore Wind for TSMC's Needs

Government officials say they hear TSMC's pleas. We have a very important industry in Taiwan, and we hope that we are able to match the need of that industry," says Wen-Sheng Tseng, chairman of the Taiwan Power Company (Taipower), the state-run grid operator. During Spectrum's visit, Tseng had assembled a group of Taipower executives and aides in his office atop the 27-story Taiwan Power Building, which was once Taipei's tallest.

According to Tseng, Taiwan's energy supply is more secure than the ruling party's political rivals alleged in the run-up to the latest national elections in January. Offshore wind projects sidelined by the COVID-19 pandemic are back on track, he says. By September, Taiwan expects to have 2.4 GW of offshore-wind capacity operating and another 525 MW installed, making it the leader among Asia's democracies, according to Taiwan's Energy Administration. Another 3 GW is under or nearing construction. BloombergNEF projects that Taiwan will host the sixth largest offshore-wind capacity globally by 2040 and the second largest in Asia.

TSMC's Fab 15, in Taichung, is one of four gigafabs in Taiwan. An expansion of the fab in 2027 will make it one of TSMC's most sophisticated.I-Hwa Cheng/Bloomberg/Getty Images

As a result, the government expects renewable generation to more than double from 9.5 percent of Taiwan's power mix last year to 20 percent in 2026. By providing flexibility in how developers meet project requirements, the government prompted more developers to bid for offshore wind sites in a recent auction, Tseng says: The growth curve is very steep."

The government is also placing longer-term renewable-energy bets, such as rapidly expanding geothermal generation-a resource that comes with being on the Pacific Ring of Fire. And this year, officials placed extra emphasis on expanding gas-fired power plants, Tseng says. These compact, quick-to-build plants boost capacity quickly. And they are flexible in output, which will help Taiwan balance supply and demand as renewable generation grows. But the challenge is fuel: Natural gas is scarce in Taiwan, and plans to triple the number of liquefied natural gas (LNG) import terminals are behind schedule.

Taiwan's government is certainly keen to expand both renewable and gas-fired sources of electricity. But at present the island is moving in the opposite direction on nuclear power. Taiwan's previous president, Tsai Ing-wen, vowed in 2016 to phase out nuclear. Since then, decommissioning began for two of Taiwan's three nuclear power plants, when their 40-year operating licenses expired.

The only nuclear station still operating, the Maanshan Nuclear Power Plant on Taiwan's southern tip, shut down one reactor in July and is scheduled to shutter its other reactor in May 2025, when its license expires. Turning both off would cost Taipower NT $37 billion (US $1.1 billion) per year at a time when the utility is losing close to NT $200 billion (US $6.1 billion) per year, says Taipower vice president Ching-Hung (Anthony) Cheng. So extending the Maanshan plant's life would extend its carbon-free power, but cannot close Taipower's financial gap. We're still losing a lot," says Cheng.

It's unclear whether Maanshan's operations will be saved by the new political landscape that came with this year's election of Taiwan's new president, Lai Ching-te. Nuclear power presents a quandary for his party, the Democratic Progressive Party. It has long viewed nuclear reactors as a legacy of Republic of China founder Chiang Kai-Shek's aborted atomic-weapons program, mounted almost two decades after his forces retreated to Taiwan in 1949. The Fukushima reactor meltdowns in similarly quake-prone Japan reinforced the party's antinuclear stance.

It's probably the most difficult public policy issue in Taiwan," says Tze-Luen (Alan) Lin, deputy director of the Taiwanese government's Office of Energy and Carbon Reduction and a political science professor at National Taiwan University, in Taipei. The two opposition parties may, however, force the government's hand. Voters gave them a plurality in Taiwan's parliament, and both parties support keeping Maanshan online.

Taiwan's Energy Crisis Amid TSMC Growth

As Taiwan's leaders struggle to boost alternatives to nuclear power and meet rising energy demand, civic activists and environmentalists continue to press their primary concern with the semiconductor industry: pollution. It's particularly acute in central Taiwan, due to an aging 4,950-MW coal plant in Taichung. The station is Taiwan's biggest coal-fired generator and may be the world's dirtiest because it uses outmoded, low-efficiency equipment.

Lung cancer recently became Taiwan's deadliest form of cancer despite smoking's declining popularity. Medical experts and community activists in Taichung blame the city's power-hungry fabs for air pollution and project that TSMC's Fab 15 will account for at least 38 percent of Taichung's power consumption when an expansion starts up in 2027. Activists fought unsuccessfully to block that expansion, approved earlier this year, because they fear it will extend Taipower's coal habit.

We are not against the semiconductor industry. TSMC is the silicon shield protecting our nation. But we are concerned that they use dirty power," says Chao Hui-lin, a researcher for Air Clean Taiwan, a group of medical practitioners and researchers fighting air pollution from Taichung's power, steel, and chemical plants. They have responsibility because they are innovative and they have money," she says.

TSMC leaders insist that they are doing everything they can to put the company's energy consumption on a sustainable path.

Chi-Yuan Liang, professor of management at Taiwan's National Central University, says the activists' concerns are valid. A former energy minister with the Kuomintang political party and a frequent critic of Taiwan's Democratic Progressive government, Liang agrees that expanding fabs will hinder the retirement of coal plants. Five major blackouts since 2017 and the confluence of energy demands and delays show that Taiwan is in an energy-supply crisis, Liang adds. It's dampening investment in Taiwan at a time when TSMC is expanding abroad and chipmakers are being courted by Malaysia, Thailand, and Vietnam.

Fears of power shortages are misplaced, according to Cheng at Taipower, who says such concerns mask more fundamental challenges around grid design and operation. His company didn't fully recognize this need until the last big grid failure, in 2022, which blacked out most of southern Taiwan for 12 hours. That raised very big questions regarding grid planning," says Cheng. The blackout, which started with human error at a large substation, revealed an overreliance on big plants sending power long distances over Taipower's grid backbone, he says.

To increase reliability as it adds wind and solar power, Taipower has launched a radical reengineering of Taiwan's grid. The NT $564.6 billion, 10-year transmission revamp, announced shortly after the 2022 blackout, will triple the capacity of the trunk lines that feed Taipei and TSMC's concentration of fabs in nearby Hsinchu.

But Taipower also seeks to make regions more independent and resilient to outages by building regional control centers, for example. And it is adding circuits that directly link power generation to industrial zones in a bid to protect Taiwan's fabs from grid disruptions.

One thing's for sure: An independent Taiwan can't afford to get its energy supply wrong. That makes TSMC and Taipower's energy choices over the coming months potentially pivotal, and not only in safeguarding this vulnerable island state. Controlling the supply of chips powering AI may also shape the future of geopolitics.

Special thanks to Yu-Tzu Chiu and Hui-Chen Lin for their assistance with this story.