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

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

The production of semiconductor components is a very energy-intensive direction. And the more expensive the kWh, the higher the cost of the chips themselves. The dependence there is non-linear, but the influence is still quite strong. And what it will be, we will find out in the near future. The fact is that Taiwan is going to raise electricity tariffs. After all, it is there that the largest contract manufacturer of chips in the world is located – the company TSMC. About what can happen – under torture.

What about electricity tariffs?

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

Taiwan is set to raise tariffs as early as next month, and the increase will be around 20-30%, depending on consumption and other factors. This means that the productions located in this region will be affected – most likely, the selling price of the chips will increase. Therefore, buyers of products with them will also buy devices at an increased price.

In many countries, the so-called “progressive scale” of energy tariffs is used – the more the customer consumes, the more he pays per kWh. Owners of large industrial facilities belong to the category of super consumers – they are those who spend more than 5 billion kWh per year. It is for them that “light” becomes more expensive by 30%. Ordinary companies, and even more so private individuals, will be minimally affected.

The industry will be divided into three levels, each of which will have its own percentage increase in the cost of electricity compared to past indicators.

Well, what about the chips?

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

But how much? At the end of 2023, the average tariff across Taiwan was about $0.10 per kWh. This is a lot, but at the same time, in other countries the cost of electricity is even higher – in Great Britain, for example, it is $0.32. So for now, the cost of chip production in Taiwan is lower than in other regions.

In addition, the Taiwanese government is going to provide subsidies to the energy industry, which may reduce the “hit” on tariffs for super users. Experts believe that the increase in the cost of chips is likely to be, but not too high. In particular, also because TSMC factories are built according to new technologies, including reduced energy consumption.

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

How is TSMC feeling?

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 manufacturing systems, but the Chinese are years behind TSMC.

Accordingly, TSMC has a huge number of customers. There are so many of them that the company intends 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 11,000 silicon wafers per month to 16,500 wafers, i.e. more than double.

Currently, there is a huge demand for AI chips all over the world, so TSMC actively supplies these products — in particular, to Nvidia, which places almost all of its orders with its Taiwanese partner.

In addition, in Taiwan, the company plans to build enterprises that work with the latest technologies – the 2-nm process. Currently, the construction of two factories has started, and another one will be deployed after obtaining permission from the government of Taiwan.

The company’s CEO, Mark Liu, announced plans to deploy 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 technology was developed. Most likely, the enterprise will begin work in 2025. The second facility is planned to be launched in 2026.

The company’s management said that in the near future it is going to start mass production of chips using the 2nm process, which includes the use of transistors with nanosheets and circular gates (GAA). These are plans for 2025, as for 2026, TSMC is going to start implementing an improved version of the process — it is known to provide power from the back side of the crystal.

In general, the increase in chip prices is unlikely to affect TSMC’s business in any way – the end user, that is, you and me, will have to pay in any case.

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