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Could Taiwan’s Energy Crisis Derail the AI Boom?

Taiwan's energy sector is in trouble. And that means that the global tech sector could soon be in trouble too. The island nation is home to just 0.3 percent of the world's population, but hosts about 18 percent global semiconductor manufacturing capacity and a whopping 92 percent of the world's most advanced computer chip manufacturing capacity, according to figures from the United States International Trade Commission.

These figures come from a recent report on the nation's high degree of vulnerability to any shocks in the Taiwanese superconductor supply chain, which finds that "any disruptions to Taiwan semiconductor manufacturing-whether caused by pandemics, natural disasters such as typhoons or earthquakes, power or water shortages, factory shutdowns, or international conflict-would potentially have large impacts on global semiconductor supply." 

And it looks like we're about to see that hypothesis be tested. Taiwan's energy sector has been in crisis for a while now, with three major power outages over the past seven years, and many smaller disruptions more recently, which have caused much hand-wringing in the global tech sector. "Concerns over potential power shortages and the deterioration of power quality and reliability could pose operational risks for the semiconductor industry," says Chen Jong-Shun of Chung-Hua Institution for Economic Research.

Taiwan's power woes are twofold: "Taiwan has both an energy crunch and, even more importantly, an electricity crunch," Joseph Webster, senior fellow at the Atlantic Council's Global Energy Center, was recently quoted by CNBC. Oh, and then there's also the looming threat of a maritime blockade from neighboring China. 

The energy crunch is due to Taiwan's outsized reliance on energy imports to keep the lights on. Taiwan imports nearly 100% of its energy supplies, principally in the form of oil and gas. This means that the slightest disruption to global energy supply chains could be a devastating blow to the Taiwanese grid, which has virtually zero domestic fallbacks. And discontent between Beijing and Taipei is a constant threat to such supply chains, meaning that depending on which way the political winds blow, Taiwan's energy security could be hanging by a thread.

The electricity crunch is primarily a symptom of years of underpriced electricity bills, which have swept the legs out from under the Taiwan Power Company, commonly known as Taipower. Indeed, Taiwanese electricity bills are currently lower than they were 20 years ago, which is quite counterintuitive considering that energy prices have soared over the same period. As a result, Taipower reported a pre-tax loss of $6.3 billion last year, which - amazingly - was a shade better than their devastating 2022 losses.

This extended trend means it's frighteningly likely that Taiwan will have to ramp up energy rations in the future, a move which would have far-reaching consequences for semiconductor markets around the world. The impact of such a market shock is difficult to overstate - superconductors provide the computing power to every electronic device there is. We can no longer imagine any kind of life - or any kind of economic growth - without them. 

Not only would the price of computer chips soar in the instance of an interruption to Taiwan's energy supply, there would also be many fewer of them to go around. And to make it all even more dire, this is occuring at a time when demand is through the roof and projected to keep growing at a rapid clip, thanks in large part to the gangbusters expansion of Artificial Intelligence. 

Modeling from the U.S. International Trade Commission finds that, in the United States, the biggest impact of a disruption of Taiwanese superconductor manufacturing capacity would be on the logic chip segment of the market, resulting in up to a 59 percent increase in prices for end users. They also find that the country would be largely helpless to fill the supply gap, as the country can only increase its own logic chip production capacity by a maximum of 5%. 

By Haley Zaremba for 

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Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the… More