Taiwan Makes the Majority of the World’s Computer Chips. Now It’s Running Out of Electricity

Highly dependent on imported fossil fuels, soon to shutter its last nuclear plant, and slow to build out renewables, the world’s largest producer of advanced computer chips is heading toward an energy crunch.

This story originally appeared on Yale Environment 360 and is part of the Climate Desk collaboration.

Some 50 miles southwest of Taipei, Taiwan’s capital, and strategically located close to a cluster of the island’s top universities, the 3,500-acre Hsinchu Science Park is globally celebrated as the incubator of Taiwan’s most successful technology companies. It opened in 1980, the government having acquired the land and cleared the rice fields,with the aim of creating a technology hub that would combine advanced research and industrial production.

Today Taiwan’s science parks house more than 1,100 companies, employ 321,000 people, and generate $127 billion in annual revenue. Along the way, Hsinchu Science Park’s Industrial Technology Research Institute has given birth to startups that have grown into world leaders. One of them, the Taiwan Semiconductor Manufacturing Company (TSMC), produces at least 90 percent of the world’s most advanced computer chips. Collectively, Taiwan’s companies hold a 68 percent market share of all global chip production.

It is a spectacular success. But it has also created a problem that could threaten the future prosperity of both the sector and the island. As the age of energy-hungry artificial intelligence dawns, Taiwan is facing a multifaceted energy crisis: It depends heavily on imported fossil fuels, it has ambitious clean energy targets that it is failing to meet, and it can barely keep up with current demand. Addressing this problem, government critics say, is growing increasingly urgent.

Taiwan’s more than 23 million people consume nearly as much energy per capita as US consumers, but the lion’s share of that consumption—56 percent—goes to Taiwan’s industrial sector for companies like TSMC. In fact, TSMC alone uses around 9 percent of Taiwan’s electricity. One estimate by Greenpeace has suggested that by 2030 Taiwan’s semiconductor manufacturing industry will consume twice as much electricity as did the whole of New Zealand in 2021. The bulk of that enormous energy demand, about 82 percent, the report suggests, will come from TSMC.

Taiwan’s government is banking on the continuing success of its technology sector and wants the island to be a leader in AI. But just one small data center, the Vantage 16-megawatt data center in Taipei, is expected to require as much energy as some 13,000 households. Nicholas Chen, a lawyer who analyzes Taiwan’s climate and energy policies, warns that the collision of Taiwan’s commitments to the clean energy transition and its position in global supply chains as a key partner of multinational companies that have made commitments to net-zero deadlines—along with the explosive growth in demand—has all the makings of a crisis.

“In order to plan and operate AI data centers, an adequate supply of stable, zero-carbon energy is a precondition,” he said. “AI data centers cannot exist without sufficient green energy. Taiwan is the only government talking about AI data center rollout without regard to the lack of green energy.”

It is not just a case of building more capacity. Taiwan’s energy dilemma is a combination of national security, climate, and political challenges. The island depends on imported fossil fuel for around 90 percent of its energy and lives under the growing threat of blockade, quarantine, or invasion from China. In addition, for political reasons, the government has pledged to close its nuclear sector by 2025.

Taiwan regularly attends UN climate meetings, though never as a participant. Excluded at China’s insistence from membership in the United Nations, Taiwan asserts its presence on the margins, convening side events and adopting the Paris Agreement targets of peak emissions before 2030 and achieving net zero by 2050. Its major companies, TSMC included, have signed up to RE100, a corporate renewable-energy initiative, and pledged to achieve net-zero production. But right now, there is a wide gap between aspiration and performance.

Angelica Oung, a journalist and founder of the Clean Energy Transition Alliance, a nonprofit that advocates for a rapid energy transition, has studied Taiwan’s energy sector for years. When we met in a restaurant in Taipei, she cheerfully ordered an implausibly large number of dishes that crowded onto the small table as we talked. Oung described two major blackouts—one in 2021 that affected TSMC and 6.2 million households for five hours, and one in 2022 that affected 5.5 million households. It is a sign, she says, of an energy system running perilously close to the edge.

Nicholas Chen argues that government is failing to keep up even with existing demand. “In the past eight years there have been four major power outages,” he said, and “brownouts are commonplace.”

The operating margin on the grid—the buffer between supply and demand—ought to be 25 percent in a secure system. In Taiwan, Oung explained, there have been several occasions this year when the margin was down to 5 percent. “It shows that the system is fragile,” she said.

Taiwan’s current energy mix illustrates the scale of the challenge: Last year, Taiwan’s power sector was 83 percent dependent on fossil fuel: Coal accounted for around 42 percent of generation, natural gas 40 percent, and oil 1 percent. Nuclear supplied 6 percent, and solar, wind, hydro, and biomass together nearly 10 percent, according to the Ministry of Economic Affairs.

Taiwan’s fossil fuels are imported by sea, which leaves the island at the mercy both of international price fluctuations and potential blockade by China. The government has sought to shield consumers from rising global prices, but that has resulted in growing debt for the Taiwan Electric Power Company (Taipower), the national provider. In the event of a naval blockade by China, Taiwan could count on about six weeks reserves of coal but not much more than a week of liquefied natural gas (LNG). Given that LNG supplies more than a third of electricity generation, the impact would be severe.

The government has announced ambitious energy targets. The 2050 net-zero road map released by Taiwan’s National Development Council in 2022 promised to shut down its nuclear sector by 2025. By the same year, the share of coal would have to come down to 30 percent, gas would have to rise to 50 percent, and renewables would have to leap to 20 percent. None of those targets is on track.

Progress on renewables has been slow for a number of reasons, according to Oung. “The problem with solar in Taiwan is that we don’t have a big area. We have the same population as Australia and use the same amount of electricity, but we are only half the size of Tasmania, and 79 percent of Taiwan is mountainous, so land acquisition is difficult.” Rooftop solar is expensive, and roof space is sometimes needed for other things, such as helicopter pads, public utilities, or water tanks.

According to Peter Kurz, a consultant to the technology sector and a long-term resident of Taiwan, there is one renewable resource that the nation has in abundance. “The Taiwan Strait has a huge wind resource,” he said. “It is the most wind power anywhere in the world available close to a population.”

Offshore wind is under development, but the government is criticized for imposing burdensome requirements to use Taiwanese products and workers that the country is not well equipped to meet. They reflect the government’s ambition to build a native industry at the same time as addressing its energy problem. But critics point out that Taiwan lacks the specialist industrial skills that producing turbines demands, and the requirements lead to higher costs and delays.

Despite the attraction of Taiwan’s west coast with its relatively shallow waters, there are other constraints, such as limited harbor space. There is also another concern that is unique to Taiwan’s geography: The west side of the island faces China, and there are continuing incursions into Taiwan’s territorial waters from China’s coast guard and navy vessels. Offshore wind turbines are within easy rocket and missile range from China, and undersea energy cables are highly vulnerable.

Government critics regard one current policy as needless self-harm: the pledge to shut down Taiwan’s remaining nuclear reactor by next year and achieve a “nuclear free homeland.” It is a pledge made by the current ruling party, the Democratic People’s Party (DPP), and as the deadline approaches, it is a policy increasingly being questioned. Taiwan’s civil nuclear program was started under the military dictatorship of Chiang Kai-shek’s KMT party with half an eye on developing a nuclear weapons program. Taiwan built its first experimental facility in the 1950s and opened its first power plant in 1978. The DPP came into existence in 1986, the year of the Chernobyl disaster, and its decision to adopt a no-nuclear policy was reinforced by the Fukushima disaster in neighboring Japan in 2011.

“I think the DPP see nuclear energy as a symbol of authoritarianism,” said Oung, “so they oppose it.”

Of Taiwan’s six nuclear reactors, three are now shut down, two have not been brought online, and the one functioning unit is due to close next year. The shuttered reactors have not yet been decommissioned, possibly because, in addition to its other difficulties, Taiwan has run out of waste storage capacity: The fuel rods remain in place because there is nowhere else to put them. As some observers see it, politics have got in the way of common sense: In 2018, a majority opposed the nuclear shutdown in a referendum, but the government continues to insist that its policy will not change. Voters added to the confusion in 2021 when they opposed the completion of the two uncommissioned plants.

On the 13th floor of the Ministry of Economic Affairs in Taipei, the deputy director general of Taiwan’s energy administration, Stephen Wu, chose his words carefully. “There is a debate going on in our parliament,” he said, “because the public has demanded a reduction of nuclear power and also a reduction in carbon emissions. So there is some discussion about whether the [shuttered] nuclear plants will somehow function again when conditions are ready.”

Wu acknowledged that Taiwan was nudging against the limits of its current supply and that new entrants to Taiwan’s science and technology parks have to be carefully screened for their energy needs. But he took an optimistic view of Taiwan’s capacity to sustain AI development. “We assess energy consumption of companies to ensure the development of these companies complies with environmental protection,” he said. “In Singapore, data centers are highly efficient. We will learn from Singapore.”

Critics of the government’s energy policy are not reassured. Chen has an alarming message: If Taiwan does not radically accelerate its clean energy development, he warns, companies will be obliged to leave the island. They will seek zero-carbon operating environments to comply with the net-zero requirements of partners such as Amazon, Meta, and Google, and to avoid carbon-based trade barriers such as the European Union’s Carbon Border Adjustment Mechanism.

“Wind and solar are not scalable sources of zero-carbon energy,” he said. “Nuclear energy is the only scalable, zero-carbon source of energy. But the current laws state that foreign investment in nuclear energy must be capped at 50 percent, with the remaining 50 percent owned by Taipower. Given that Taipower is broke, how could a private investor want to partner with them and invest in Taiwan?”

Chen argues that Taiwan should encourage private nuclear development and avoid the burdensome regulation that, he says, is hampering wind development.

For Kurz, Taiwan’s energy security dilemma requires an imaginative leap. “Cables [carrying offshore wind energy] are vulnerable but replaceable,” he says. “Centralized nuclear is vulnerable to other risks, such as earthquakes.” One solution, he believes, lies in small modular nuclear reactors that could even be moored offshore and linked with undersea cables. It is a solution that he believes the Taiwan’s ruling party might come around to.

There is a further security question to add to Taiwan’s complex challenges. The island’s circumstances are unique: It is a functioning democracy, a technological powerhouse, and a de facto independent country that China regards as a breakaway province to be recovered—if necessary, by force. The fact that its technology industry is essential for global production of everything from electric vehicles to ballistic missiles has counted as a security plus for Taiwan in its increasingly tense standoff with China. It is not in the interest of China or the United States to see semiconductor manufacturers damaged or destroyed. Such companies, in security jargon, are collectively labelled Taiwan’s “silicon shield,” a shield the government is keen to maintain. That the sector depends inescapably on Taiwan’s energy security renders the search for a solution all the more urgent.

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