(Bloomberg) — This month, Taiwan will hold a referendum that could have far-reaching effects on the world’s supply of semiconductors.
Taiwan is home to the world’s biggest chipmaker, Taiwan Semiconductor Manufacturing Co., and plays a crucial role in the global electronics supply chain. The logistical snarl caused by the pandemic showed how vital the island is to keeping auto and tech production lines running. Now a longer-term threat is emerging: energy supply.
Energy security and reliance on imported fossil fuels have long been key political issues for Taiwan that have become more inflammatory after the government committed to net-zero emissions by 2050. Only Australia is more dependent on coal power for its electricity among the world’s advanced economies.
Two blackouts earlier this year raised concern about Taiwan’s ability to meet power demand that is rising by 2.5% a year. While the outages were at least partly caused by human error, they highlighted the government’s challenge in trying to decarbonize its grid, reduce dependence on imported energy and solve a long-running debate over nuclear power. For the electronics plants that drive the economy, they were a stark reminder of the need to find new sources of green energy soon to be able to expand production.
Even Taiwan’s aim to increase the share of green energy to 20% by 2025 has a long way to go. Last year, the island imported almost 98% of its energy. About 82% of its electricity came from thermal power stations, with most of the remainder generated by two aging nuclear plants. Renewables generated only 5.5%.
Power usage at TSMC, which is planning a new 2-nanometer wafer foundry near its headquarters in Hsinchu, could double within three years, according to a report by Bloomberg Intelligence analyst Charles Shum. TSMC became the first in its industry to sign up to the RE100 renewable energy initiative last year, pledging to use 100% renewable energy by 2050. Delta Electronics Inc., United Microelectronics Corp. and others followed suit.
The Dec. 18 referendum will ask citizens four questions — two related to power: whether to activate a fourth nuclear plant that was mothballed in 2015, and where to build a new natural gas terminal. The results could extend the island’s reliance on imported coal and make it harder to meet rising demand from factories.
The nuclear issue has been a thorn in government policy for years. The ruling Democratic Progressive Party (DPP) had pledged to end atomic energy by 2025, when the last of the currently operating plants was due to be decommissioned. The opposition Kuomintang (KMT) argues that nuclear is necessary to generate emission-free baseload power and without it Taiwan could face power outages.
“We support nuclear power as it’s free of carbon tax and supplies stable power,” said Tsai Lien-sheng, secretary-general at Taiwan’s Chinese National Federation of Industries.
Nuclear Option
Anti-nuclear groups say renovating the fourth plant would be prohibitively expensive and unnecessary, not to mention concerns about nuclear waste disposal and the safety of operating reactors on an island prone to earthquakes.
“Pro-nuclear advocates have repeatedly used this trick — agitating the fear of energy shortages,” said Paul Jobin, associate research fellow at Taiwan Academia Sinica’s Institute of Sociology. “It is technically impossible to start that ghost of a plant.”
In a poll conducted in November by the Taiwanese Public Opinion Foundation, 43.5% supported activating the fourth nuclear plant, while 45.9% opposed it. A 2018 referendum voted to continue using nuclear power.
A second referendum topic seeks to block CPC Corp.’s construction of a $2 billion LNG terminal on the coast at Taoyuan. Critics say the facility would damage a 7,000-year-old algal reef, while advocates say the terminal is vital to supplant coal imports with less-polluting natural gas. Taiwan’s existing two LNG terminals are already at full capacity.
“If construction of the facility is halted, it will be a huge blow to stable power supply and plans to reduce emissions,” the Bureau of Energy said.
The government has proposed moving the terminal 455 meters offshore to protect the reef. But even this could delay the project by 2.5 years, derailing efforts to raise the share of natural gas to 50% of the power mix by 2025, according to Liang Chi-yuan, chair professor of management at National Central University.
“If nuclear power is to be eliminated, raising the gas power generation to 50% of power mix is not just a goal, but a must,” said BloombergNEF power analyst Wei Hanyang. “Without the third gas-receiving terminal, it’s likely that Taiwan won’t have enough power by 2025.”
In the November opinion poll, 42.3% of respondents said they would vote to protect the reef in Taoyuan, while 36.7% supported construction of the terminal. The two other referendum questions concern the imports of pork and the scheduling of future referendums. Defeat for President Tsai Ing-wen’s DPP on all four issues could harm the ruling party’s prospects in local elections next year.
Longer term, the vote could derail Taiwan’s efforts to fight global warming. Its per capita emissions rank among the world’s highest, said Niven Huang, Managing Director of KPMG Sustainability Consulting Co. in Taiwan. The Energy Bureau forecasts Taiwan’s power usage will grow 2.5% a year on average between 2021 and 2027, almost double the growth rate from 2011 to 2020.
Power Deals
TSMC said it is pursuing “carbon reduction actions including green manufacturing, implementation of energy conservation projects, purchase of renewable energy and carbon credits” to meet its 2050 target. The semiconductor giant is estimated to have consumed about 6% of Taiwan’s electricity in 2019.
While TSMC and other big manufacturers look to buy renewable energy, many of their contractors still rely on state grid operator Taiwan Power.
“Companies in science parks added diesel generators in addition to uninterruptible power supply to contingency plan after blackouts in May,” said Hander Chang, president of the Allied Association for Science Park Industries. “Power shortage is more important than national security.”
Taiwan’s green options include solar, wind, hydro and geothermal power. Back in the 1950s, hydro generated more than 90% of Taiwan’s electricity, but most large conventional hydro sites have already been tapped and output is expected to grow only marginally.
Sitting on the so-called Ring of Fire and dotted with hot springs, Taiwan could potentially generate as much as 32 GW of geothermal power, according to the Taiwan Geothermal Association. But so far, only one plant is operating, a privately built 4.2 MW facility that started in October in Yilan County.
Taiwan’s lack of land and policy of promoting self-sufficiency also create hurdles for solar. While companies like TSMC are adding panels to facilities, large-scale solar farms must compete for space with agriculture.
“I understand that the government is under pressure to meet its renewable energy goal,” said Liu Wan-yu, Distinguished Professor at National Chung Hsing University’s Department of Forestry. But it should “first decide which areas are appropriate for solar,” including the effects of loss of crops, biodiversity, landscape and the irrecoverable loss of arable land.
Taiwan’s best bet is wind. The island is positioned to be the largest offshore wind market in Asia, excluding China, with capacity reaching almost 21 GW by 2035, the Global Wind Energy Council forecasts.
But even if Taiwan can ramp up the share of wind and solar power, both are weather dependent, which could make the supply unstable without more traditional sources. “This is a universal problem,” Citigroup said in a July report. To meet rapidly rising demand, “more baseload capacity and delays in the decommissioning of power plants may be required,” the bank said.
“The referendum offers the government an opportunity to visit Taiwan’s energy policy, which needs fundamental change,” said National Central University’s Liang. “In the long term, we should consider whether it’s right to phase out nuclear, and whether there is a better and safer technology.”
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