A new round of chip costs? Electricity is becoming more expensive in Taiwan – what will this bring to the industry?

The production of semiconductor components is a very energy-intensive area. And the more expensive the kWh, the higher the cost of the chips themselves. The dependence there is nonlinear, but the influence is still quite strong. And we will find out what it will be in the near future. The fact is that in Taiwan are going to raise electricity tariffs. But this is where the world's largest contract chip manufacturer, TSMC, is located. About what can happen is under the cut.

What about electricity tariffs?

It is becoming more expensive all over the world. Gradually, energy is becoming more and more valuable, and not only ordinary consumers, but also entire corporations (especially they) feel this. The fact is that business and industry consume the most energy – the leaders here are not only data centers, about which they talk and write a lot.

In Taiwan, they are going to raise tariffs next month, and the increase will be approximately 20-30%, depending on the volume of consumption and other factors. This means that production facilities located in this region will be affected – most likely, the selling price of chips will increase. This means that buyers of products with them will also purchase devices at an increased price.

Many countries use a so-called “progressive scale” of energy tariffs – the more the client consumes, the more he pays per kWh. Owners of large industrial facilities belong to the category of super-consumers – these are those who consume more than 5 billion kWh per year. Just for them, “light” will rise in price by 30%. Ordinary companies, and especially individuals, will be minimally affected.

Industry will be divided into three levelseach of which will have its own percentage increase in the cost of electricity relative to previous indicators.

Okay, but what about the chips?

Taiwan is home to not only TSMC, but also Micron, and there are other, less significant manufacturers of electronics and components. The first two corporations are gradually expanding their capacity, which means, despite all their efforts to become “green,” they are forced to consume more and more energy. They will pay a lot for it.

But how much? At the end of 2023, the average tariff throughout Taiwan was around $0.10 per kWh. This is a lot, but in other countries the cost of electricity is even higher – in the UK, for example, it is $0.32. So for now, the cost of producing chips in Taiwan is lower than in other regions.

In addition, the Taiwanese authorities are going to provide subsidies to the energy industry, which may reduce the “blow” on tariffs for super users. Experts believe that the cost of microcircuits will most likely increase, but not too high. In particular, also because TSMC factories are built using new technologies, including reduced energy consumption.

It is worth noting that Taiwan has already increased electricity prices twice in 2023, albeit for corporations and production owners. The first time tariffs were increased by 17% about a year ago, the second – by 15% in the middle of last year. As a result, the cost of chips increased only slightly, and even then, most likely, other reasons influenced it. Of course, a one-time increase in tariffs by a third will lead to an increase in the cost of chips, but most market players believe that not by much, literally by percentages.

How is TSMC doing?

At the moment it’s just great. The company's only serious competitor is the South Korean corporation Samsung. China continues to develop its own chip production systems, but the Chinese are many years behind TSMC.

Accordingly, TSMC has a huge number of customers. There are so many of them that the company is going to expand. In particular, increase the volume of chip packaging using modern CoWoS (Chip-on-Wafer-on-Substrate) technology. The company plans to increase production from 11 thousand silicon wafers per month to 16.5 thousand wafers, that is, more than doubling.

There is now a huge demand for AI chips all over the world, so TSMC is actively supplying these products – in particular, to Nvidia, which places almost all of its orders from its Taiwanese partner.

In addition, in Taiwan, the company plans to build enterprises that work with the latest technologies – the 2nm technical process. The construction of two plants has now begun, and another one will be deployed after receiving permission from the Taiwanese government.

The company's chief executive, Mark Liu, announced plans to set up multiple production sites in Hsinchu and Kaohsiung Science Parks to meet growing demand. The first factory will be located near Baoshan in Hsinchu, next to the R1 research center, where the 2nm process was developed. Most likely, the enterprise will begin operations in 2025. The second facility is planned to be launched in 2026.

The company said it will soon begin mass production of chips using the 2nm process, which includes nanosheet all-round gate (GAA) transistors. These are plans for 2025; as for 2026, TSMC is going to begin introducing an improved version of the technical process – as far as we know, it provides for power supply from the reverse side of the crystal.

In general, an increase in prices for chips is unlikely to have any impact on TSMC’s business – in any case, the end user, that is, you and me, will have to pay.