Electricity prices up 17%! What is the impact on TSMC, UMC, etc.?

Abstract: On March 17, according to Taiwan media reports, the Ministry of Economic Affairs of Taiwan held a power price review meeting on the afternoon of the 17th, announcing a comprehensive increase in electricity prices for three types of users: industry, small businesses, and people's livelihood, with an average increase of 11%. Among them, the large high-voltage and ultra-high-voltage power users increased by 17%, which may significantly push up the electricity costs of wafer manufacturers such as TSMC.

On March 17, according to Taiwanese media reports, China's Ministry of Economic Affairs held a power price review meeting on the afternoon of the 17th, announcing a comprehensive increase in electricity prices for three types of users: industry, small businesses, and people's livelihood, with an average increase of 11%. Among them, the large high-voltage and ultra-high-voltage power users increased by 17%, which may significantly push up the electricity costs of wafer manufacturers such as TSMC.

Taiwan's electricity prices have risen across the board, with an average increase of 11%

Due to the relatively developed industries represented by semiconductor and panel manufacturing on the island of Taiwan, the local demand for electricity is also very strong. However, Taiwan's main sources of electricity are gas-fired and coal-fired power generation (37.2% of gas and electricity in 2021, 44.3% of coal power, 9.6% of nuclear power, and 6% of green power), while the island lacks resources such as natural gas and coal, so it mainly relies on imports. As a result, the cost of electricity generation on Taiwan Island is mainly affected by the price of imported natural gas and coal and other fuels.

According to Taipower's latest fuel price report, international fuel prices soared last year, and Taipower's fuel costs alone increased by more than 300 billion yuan, which is why Taipower lost NT$267.5 billion last year. Fuel spending is expected to increase by about NT$80 billion this year. If electricity prices are not raised, the total loss last year and this year will reach NT$540 billion.

Lin Quanneng, deputy director of Taiwan's Ministry of Economic Affairs, said that considering that international fuel prices remain high-grade, causing great operating pressure on Taipower, the deliberation will decide to raise electricity prices across the board, with the average electricity price increasing by 11% to NT$3.1154 per kWh, and the new electricity price will be implemented from April 1.

Taipower said that the overall average electricity price increase of 11% is expected to reduce the loss of NT$60 billion this year. This time, the government also finalized to take out NT$40.433 billion of the electricity price stabilization reserve fund to fully replenish Taipower.

From the perspective of the specific electricity price increase plan, it will increase by 17% for large high-voltage and UHV electricity users; For low-voltage electricity users represented by small and medium-sized enterprises, electricity prices increased by 10%; People's livelihood electricity consumption increased by 3% from above 700 kWh, and large households above 1,000 kWh increased by 10%, and about 13.16 million households were not affected; Small businesses with a monthly use of less than 1500 degrees will not increase the price, 1501~3000 degrees will increase by 3%, 3000 degrees to increase by 5%. It is expected that after the implementation of the electricity price increase on April 1, the average price per kWh will reach NT$3.1154, the average residential electricity price will change from NT$2.61 per kWh to NT$2.65, and the average electricity price of industrial electricity will change from NT$2.91 to NT$3.38 per kWh. Taipower pointed out that the average increase in people's livelihood electricity prices was 2.6%, and the overall average increase in industrial electricity prices was 14.2%.

Lin Quanneng pointed out that considering the economic prosperity, there are also supporting preferential programs. For example, for the low-voltage and high-voltage electricity consumption industries that are vulnerable to the impact of the economic downturn, as long as the electricity consumption in the second half of 2022 is reduced by 10% compared with the previous year, the increase will be halved to reduce the impact. According to the inventory, there are about 19,000 households in 19 industries, including non-alcoholic beverage manufacturing and textiles, which are in line with the halving measure, while for agriculture, fisheries, and schools, electricity prices can not be increased.

How much impact will it have on fabs such as TSMC?

As a global semiconductor manufacturing center, TSMC, UMC and other wafer foundries are large consumers of electricity, and electricity costs are also an important cost for wafer manufacturers. Due to the huge power consumption of semiconductor manufacturing, fabs are large consumers of high voltage and ultra-high voltage, and the corresponding electricity price increase of 17% means that the manufacturing costs of these fabs will rise, and the gross margin will also be negatively affected.

For chip manufacturing, each chip needs to go through thousands of processes to complete, and this requires the use of a large number of semiconductor equipment, and has been maintaining a constant temperature, humidity, air cleanliness and other complex environments, all of which require electricity, the more chips are manufactured, the more advanced the semiconductor manufacturing process, the more electricity is required.

According to statistics, TSMC's electricity consumption in 2020 reached 16 billion kWh, accounting for 5.9% of Taiwan's total electricity consumption. In 2021, TSMC's actual electricity consumption reached 19.19 billion kWh, accounting for about 7.2% of Taiwan's total electricity consumption. Among them, the power consumption of advanced process machines accounts for more than 50% of TSMC's energy use, and considering that the number of advanced process machines is increasing year by year, TSMC's consumption of electric energy will further grow rapidly.

Due to the advanced process below 7nm, EUV lithography machine must be used. The data shows that an EUV lithography machine consumes up to 30,000 degrees of electricity a day. With the increasing advancement of process technology, the number of EUV lithography machines required will continue to increase. The annual power consumption of one of TSMC's 3nm fabs is expected to reach 7 billion kWh, and TSMC's more advanced 2nm and 1nm fabs may consume tens of billions of kWh in the future.

Last year, Bloomberg reported that it is expected that a quarter of Taiwan's wafer foundry chip manufacturing will use EUV equipment within 3 years, and it is expected that in 2025, TSMC's electricity consumption will account for 12.5% of Taiwan's overall energy consumption.

According to the latest reports from Taiwanese media, in the next five years, TSMC will also build 10 wafer fabs on the island of Taiwan, most of which are fabs producing 3nm and 2nm advanced processes. Since these cutting-edge process fabs must use a large number of EUV lithography machines, power consumption will further increase significantly. It is expected that by 2028, TSMC's annual electricity consumption will exceed 15% of Taiwan's total electricity consumption.

Obviously, for Taiwanese wafer manufacturers such as TSMC, a 17% increase in electricity prices means that their overall electricity costs will also directly rise by 17%. Especially for TSMC, which has a higher proportion of advanced processes and greater power consumption, the impact of rising electricity prices may be slightly greater than that of mature process fabs such as UMC.

Based on TSMC's electricity consumption of 25 billion kWh in 2023, the electricity price increase of 17% is expected to increase the cost of electricity by about NT$12 billion. However, from the perspective of TSMC's total cost, it mainly comes from the cost of equipment and materials, and the proportion of electricity cost is very low, and it is expected that the proportion of the total cost is only a low-single-digit percentage. So the actual impact on TSMC is small.

Compared with the rising cost of electricity in Taiwan, TSMC may be more worried about Taiwan's lack of electricity. According to the data, since Tsai Ing-wen came to power, Taiwan has begun to implement the "2025 non-nuclear homeland" plan, that is, to completely stop nuclear power generation by 2025, natural gas power generation accounts for 50% of total power generation, coal burning 30%, green energy 20%. However, due to the lack of natural gas and coal resources on the island of Taiwan, the degree of external dependence is extremely high, coupled with the rapid development of Taiwan's semiconductor industry in recent years, driving the continuous surge in electricity consumption, so that Taiwan's electricity gap began to become larger and larger, especially in the summer, there will be frequent power outages on the island.

For wafer manufacturing, factories are 24-hour uninterrupted production, a sudden power outage, serious cases will lead to equipment failure, wafer damage on the production line, it will take days or even weeks to resume production, heavy losses. Although fabs have backup power sources, in the face of the increasing amount of power required by production lines, backup power will not last long in the event of a major power outage.

TSMC founder Zhang Zhongmou once said: "One of Taiwan's biggest hidden worries is the lack of electricity", "TSMC cannot lack electricity for a minute", and the impact of power outages on TSMC is "almost incalculable".

At present, TSMC has not responded to the increase in electricity prices. However, in recent years, TSMC has also continued to take energy-saving measures for factories and production machines. In addition to improving efficiency, energy-saving measures were taken in lighting, air-conditioning and standby. In terms of production machines, TSMC not only manages electricity consumption, but also eliminates old units and modifies machines. Considering that the electricity consumption of advanced process machines accounts for more than 50% of the company's energy use, and the number of advanced machines is increasing year by year, TSMC has also launched a new generation of equipment energy-saving action project to seek energy-saving solutions and incorporate energy-saving specifications into the procurement standard specifications of new machines.

UMC said that it would cooperate with the increase in electricity prices. UMC said that the increase in electricity prices will cause costs to rise, which will have some impact on gross margins, but the impact is not large, and it will continue to promote energy conservation and power saving response.

In addition to continuously improving energy efficiency, UMC also plans to diversify energy use, actively set up renewable energy in the plant, and listed solar energy systems as standard design and construction projects for new plants. According to UMC's sustainability report, the power saving plan plans to fully introduce energy-efficient production machines, inverter equipment, non-online UPS and high-performance water cooling systems.

Editor: Xinzhixun - Ronin Sword