Can TSMC & Taiwan Manage Water To Save Global Electronics?
By Dharisha Mirando 23 April, 2021
Significant clustered risk in Taiwan for the electronics sector - CWR's Mirando expands
It’s not often that a drought is covered by the financial media – but Taiwan’s drought is in Bloomberg and the Financial Times, as well as more mainstream outlets like the New York Times and BBC. Why are they suddenly so worried about a drought?
Well, Taiwan is currently going through one of the worst droughts in its history and Taiwan also happens to be a major player in the electronics sector.
Taiwan is a key player in the electronics sector…
…accounting for 22% of global semiconductor wafer production & 60% of global foundry revenue
All electronics require semiconductor chips, and manufacturing these chips is water intensive. Taiwan is a key player in the electronics sector because it has the largest global capacity for semiconductor wafer production at 22% plus has the largest market for outsourced semiconductor manufacturing (foundries) – in 2020 Taiwanese companies accounted for 60% of global foundry revenue. And since the more advanced chips are more important, Taiwan also has over 90% of the world’s manufacturing capacity for that.
So, Taiwan’s drought is a big problem. It could affect major companies like Apple, Tesla, Roblox and Toyota, which means your next iPhone, EV or game purchase comes into question.
Is TSMC at risk?
Water risks in the semiconductor sector is not a new topic – even before this drought we were being asked about it.
TSMC has been going to great lengths to ensure water security
And we usually talked about Taiwan Semiconductor Manufacturing Co. (TSMC), which is headquartered in Taiwan and happens to be one of the biggest foundry’s globally – last year it accounted for 54% of total foundry revenue globally. But more importantly, it has been going to great lengths to ensure its operations are resilient as it believed “the risk of water shortage and flooding has increased in recent years due to global climate change”.
These include the following to reduce water use and ensure uninterrupted water supply:
- Improving water intensity (water used per product) by 30%;
- Increased water conservation by 30%;
- High water recycling rates – now at 87%;
- Active monitoring of public reservoirs that supply its operations;
- Maintaining water storage facilities in each fab with 2 days water usage capacity; and
- Water tankers that can provide 20% of water supplies during maximum water restrictions
As well as the following to protect against flood risks:
- Raising the building base of new fabs;
- Installing flood doors on existing fabs; and
- Assisting external public facilities and major suppliers to mitigate against flood risks.
However, as TSMC has four of its Gigafabs (largest capacity with >100k pieces monthly) as well as five of its eight other fabs located in Taiwan, it is facing a clustered risk in Taiwan.
To ensure water supply, the government has been seeding clouds above reservoirs, has built desalination plants and has even halted irrigation affecting ~20% of Taiwan’s irrigated agricultural land. But it has still had to reduce the water supply by 15% for two science parks in Taichung where one of TSMC’s Gigafabs is located.
So far TSMC does not see this affecting its current production rate.
But there are three reasons why the sector could be affected in the future…
1. Growth in semiconductor demand and supply = increased water use
According to TSMC’s 2019 CSR report, it conserved 8 million metric tons of water and recycled 87% of the water from its manufacturing processes in 2019.
However, as the below chart shows its water intensity (water consumption per wafer-layer) increased in 2019 to 59.3 litres from a stable 47 litres over the previous few years – according to TSMC this was as a results of test production in new fabs so should revert to previous figures but this is something to keep an eye on.
TSMC’s water intensity increased from 47L to 59L…
…overall water being bought from municipal also increased by a CAGR 15% from 2015-18
The bigger problem is that even if water intensity returns to previous rates or even lower, overall water being bought from municipal sources in Taiwan has been increasing. Even ignoring 2019, it increased from 37.5 million tons to 56.75 million tons from 2015 to 2018 (CAGR=15%) as wafer shipments increased from 8.8mn to 10.8mn (CAGR=7%) in the same time period.
Clearly increasing production to meet rising demand will lead to an increase in water needed – efficiency can only help to a certain extent. Due to increasing chip demand, “TSMC expects to invest USD$100b over the next three years to increase capacity to support the manufacturing and R&D of advanced semiconductor technologies”.
Where this expansion happens is important – even a small increase of capacity in Taiwan could lead to more operational pressures
Where this expansion happens is important – even a small increase of capacity in Taiwan could lead to more operational pressures as TSMC already holds over 2/3rd of Taiwan’s semiconductor manufacturing capacity. TSMC is starting to build a new fab in Arizona in the USA this year, which will reduce its Taiwan clustering risk, but Arizona is also a water stressed region.
2. Long term impact of climate change on water resources
Rising temperatures means that the number of typhoons that Taiwan experiences each year, which are important for replenishing its reservoirs, has fallen from three/four to 2.5 per year on average since 2010. In 2020, no typhoon made landfall. However, various studies also show that their intensity is expected to increase, which could lead to floods. This will only get worse as temperatures are likely to pass 1.5°C by 2100 despite the US’s recent pledges to nearly double its previous Paris commitment targets.
Taiwan could see a 40-60% reduction on average in annual rainfall by the end of the century
According to a climate researcher, Taiwan could in fact see a 40-60% reduction on average in annual rainfall by the end of the century if warming continues. Already warming has had an impact as the government’s National Science and Technology Center for Disaster Reduction, says that over the past 50 years, the frequency of droughts has stayed the same but their severity has gradually increased.
This means that in the future Taiwan will have to contend with more intense droughts plus more intense typhoons that could result in flooding. The government’s as well as TSMC’s water management measures will have to improve to adapt for this.
3. Clustering of risks
With over 1/5th of semiconductor manufacturing capacity and 90% of the world’s manufacturing capacity for advanced chips located in Taiwan there is significant clustered risk for the electronics sector as Taiwan is vulnerable to water risks.
The government is acting on current water shortages, but it needs to plan for the long-term changes as this is going to happen more frequently. Continuous cuts to irrigation and water supplies to science parks are not a permanent solution – it will need to take a waternomic view so that it has a more holistic approach to managing its water and economic growth in the future.
Taipei was one of the worst performers in the CWR APACCT 20 Index…
…main driver was the govt’s lacklustre adaptation efforts
We are currently not confident in the government’s planning and actions as Taipei was one of the worst performers in the CWR APACCT 20 Index which benchmarked 20 APAC capitals and economic hubs against coastal threats plus government adaptation action – and the main driver was the Taipei government’s lacklustre adaptation efforts compared to the other 19 cities. This is despite the significant typhoon and sea level rise risks facing its economy including trade infrastructure, which is key for the semiconductor industry – its two ports and one of its airports were affected in the 1.5°C index.
In 2019, TSMC achieved the highest score ever recorded by the Alliance for Water Stewardship (AWS) and became the first semiconductor company to receive platinum certification. But even with this its operations could be at risk in the future due to climate change, growing demand and if the government does not do enough to manage water risks.
If TSMC could be at risk, what does that mean for the rest of the electronics sector?
So, if TSMC with all its plans and procedures in place could be at risk, what does that mean for the rest of the electronics sector? According to AWS on top of water scarcity, 80% of ICT supply chain locations face flood risks and 68% face quality issues.
Have the individual companies in the supply chain and their facilities been mapped against these various water risks? And do they all have comprehensive plans in place?
If none of this has been done – what does that mean for our high-tech future?
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