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Home»Finance»How Water Scarcity Threatens Taiwan’s Semiconductor Industry
Finance

How Water Scarcity Threatens Taiwan’s Semiconductor Industry

September 20, 2024No Comments6 Mins Read
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How Water Scarcity Threatens Taiwan’s Semiconductor Industry
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Taiwan has emerged as the world’s leading chip manufacturer, home to the most advanced fabrication facilities on the planet. The island produces over 60 percent of the world’s semiconductors and just under 90 percent of its most sophisticated chips. Yet, despite its global dominance, the industry has its kryptonite: water. 

Chip manufacturing is an incredibly water-intensive process. Just consider Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, whose Southern Taiwan Science Park facilities alone consume up to 99,000 tonnes of water daily. And that’s not counting the water used by its other facilities spread across Taiwan as well.

Semiconductor foundries rely on water for two key purposes: cooling systems and cleaning residue from silicon wafers. The cleaning process, in particular, requires “ultrapure” water, which is thousands of times cleaner than drinking water and free from any minerals, pollutants, or other contaminants that might damage chips. 

This dependence on water exposes a major vulnerability within the global semiconductor industry, especially considering 21st century climate trends. By 2030 and 2040, 40 percent of chip plants currently in operation, 24 to 40 percent of those under construction, and 40 to 49 percent of those announced since early 2021 will be located in areas of high to extremely high water stress risk. For Taiwan especially, seasonal droughts could jeopardize the chip industry’s long-term strength and future expansion, with the island’s already exhausted water supply only exacerbating the issue. 

Numbers-wise, Taiwan receives enough rainfall to meet current demand. However, irregular precipitation distribution ​​and the island’s steep terrain and swift currents make collecting and storing rainwater challenging. In 2005, Taiwan was classified as having the 18th lowest freshwater availability per capita among 146 countries.

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In early 2021, Taiwan faced its worst drought since 1964. After a rare summer without typhoons and months of little rainfall, many of the island’s central and southern reservoirs fell below 20 percent capacity. Water scarcity was so extreme that it disrupted chip manufacturers just as the United States, Germany, and Japan were depending on Taiwan to supply automotive chips during a global chip shortage. 

In major chip manufacturing hubs across Taiwan – including Taoyuan, Taichung, Hsinchu, and Miaoli – plants were ordered to reduce water consumption by upwards of 15 percent. In response, manufacturers including TSMC, Vanguard International Semiconductor Corp., and United Microelectronics Corp. resorted to buying truckloads of water and drilling drought-resistant wells to maintain operations. Unfortunately, these were only temporary solutions, and the problem of water scarcity remains a pressing concern.  

Early last year, as Taiwan entered the second half of another major dry season, chip manufacturing hubs in Kaohsiung and Tainan – located at the southern end of the island, where droughts are most severe – once again reduced night-time public water pressure in anticipation of another dire water shortage.

The impact of water stress on Taiwan’s chip manufacturers is drastic. Inefficient water supply management could result in a 10 percent decline in TSMC’s output compared to its 2030 projection. As production capabilities expand and more complex processes are required to produce advanced chips, chipmakers will only become even more thirsty for this precious resource. 

From 2015 to 2019, TSMC’s total water consumption surged by an astonishing 70 percent. By 2036, Taiwan’s overall water consumption is projected to be 7.3 percent higher than in 2021, creating a daily supply deficit of 680,000 cubic meters. Even during the typhoon season, Taiwan will struggle to supply its chip industry with its most valued natural resource. And during dry periods, the shortage will be even more intense. 

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To make matters even more alarming, climate change threatens to bring longer and more frequent droughts. Taiwan’s reservoirs are heavily dependent on summer typhoons to replenish depleted water levels. With fewer typhoons passing through and longer periods without substantial rain, reservoirs across the entire island – not just in the south – will come under increasing pressure.

According to the Water Resources Agency, the volume of rainwater collected by Taiwan’s reservoirs thus far this year has only been 30 to 60 percent of the typical average. Experts predict that by the end of the century, the number of days without rainfall in central and southern Taiwan could increase to 50 percent, while rainfall in northern reservoirs may decrease by as much as 25 percent.

To address this looming concern, Taiwan’s chip manufacturers have taken numerous steps to mitigate the devastating effects of water shortages. TSMC, for instance, has pledged to reduce water consumption by 30 percent from 2010 levels by 2030 and has significantly increased wastewater recycling at its facilities. In September 2022, the manufacturer even launched its own water recycling plant in the Southern Taiwan Science Park, which supports its nearby chip facilities with 10,000 tonnes of water daily – a figure that is expected to increase to 36,000 by 2026.

Taiwan’s government has also ramped up its efforts, beyond basic supply restrictions on agriculture and industry. They have supported the construction of new water recycling and desalination plants, intensified reservoir dredging and reinforced the water pipe network, which was used to divert water from water-sufficient regions to chip manufacturing science parks during the 2021 crisis. 

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However, experts argue these efforts are insufficient and suggest Taiwan needs a fundamental shift in its strategy. Rather than continually exploiting supply to meet the rising demand of the chip industry, Taiwan should set demand limits based on its actual water availability. Additionally, Taiwan must promote drought-tolerant practices and diversify its water sources, especially in the agricultural sector, which claims responsibility for 70 percent of the island’s water consumption. 

It is also in Taiwan’s best interests to employ stricter water pricing policies to crack down on excessive water usage. This approach has already seen success. Starting in January, Taiwan added a surcharge on all water used beyond 9,000 cubic meters per month, which led to significant reductions in consumption at the Southern Taiwan Science Park.

Currently, Taiwan’s reservoir levels stand at near full capacity thanks to the typhoon season. However, Taiwan must not be lulled into a false sense of security. The Taiwanese government, agencies, and people must continue to implement comprehensive, integrated measures to prepare for prolonged dry seasons and combat insufficient water supply. Only then can Taiwan’s semiconductor industry continue to maintain its celebrated dominance well into the future. 

Ensuring the prosperity of Taiwan’s semiconductor industry is crucial. Its pivotal role in the global value chain gives the island unparalleled strategic leverage on the international stage, acting as a deterrent against a potential Chinese invasion. Taiwan must coordinate new water management strategies throughout the entire island and do so quickly if it wants to save its “silicon shield” from crumbling. 

Industry Scarcity Semiconductor Taiwans Threatens Water
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