## Taiwan’s Rising Electricity Prices Pose a Threat to TSMC’s Dominance
Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest chipmaker, is facing a growing challenge: Taiwan’s surging electricity prices. This shift could have significant ramifications for the semiconductor industry, potentially impacting TSMC’s production capacity and its ability to remain competitive.
Once a key advantage, Taiwan’s historically low-cost energy is becoming increasingly difficult to maintain. This is leading to rising costs for major industrial consumers, including TSMC. The Financial Times reports that TSMC anticipates its electricity expenses in Taiwan will soon exceed those in its other major locations, including the U.S., Japan, and Germany.
This development comes at a crucial time for TSMC, as the company is planning to double its advanced packaging capacity by 2025. This expansion is largely driven by the soaring demand for AI chips from tech giants like Nvidia Corp and Microsoft Corp. TSMC’s CoWoS packaging technology is highly sought-after, with Nvidia expected to utilize more than half of the expanded capacity.
The financial implications are substantial. TSMC CFO Wendell Huang recently revealed to investors that power costs in Taiwan have effectively doubled over the past few years and are projected to become the highest globally for the company by 2024.
Taiwan’s government has taken steps to address the energy crisis, raising electricity prices four times since 2022. These increases primarily affect industrial users like TSMC. The government is committed to increasing renewable energy sources to supply up to 30% of its power by 2030 as part of a broader energy transition. However, a recent push to reduce coal and nuclear power has made it challenging to meet the growing industrial demands.
According to the Financial Times, Taiwan relies on coal and liquefied natural gas for over 80% of its energy supply, with renewable sources accounting for only 9.5%. While the rising electricity rates may not significantly hinder TSMC’s operations in the short term, as power costs represent a small portion of its total expenses, consistent supply disruptions could threaten TSMC’s ability to expand its production capacity in Taiwan.
This situation presents a complex challenge for TSMC. Despite the company’s strong performance – its stock has gained 89% year-to-date – the rising electricity prices are a significant factor to consider. Investors can gain exposure to TSMC through the iShares Semiconductor ETF (SOXX) and the First Trust NASDAQ Technology Dividend Index Fund (TDIV). The future of TSMC’s production and its ability to maintain its leading position in the semiconductor industry will be closely tied to the resolution of Taiwan’s energy challenges.
