Taiwan Semiconductor Manufacturing Co. (TSMC) is currently facing escalating energy costs in Taiwan, a concern that poses significant risks to its production capabilities. Historically, Taiwan’s low electricity prices have provided TSMC with a competitive advantage in the semiconductor industry. However, maintaining these low costs has become increasingly difficult, leading to higher expenses for major industrial consumers. This shift is particularly pronounced for TSMC, which has projected that electricity expenses in Taiwan will soon exceed those in its other key operational regions such as the United States, Japan, and Germany.

In a strategic move aimed at keeping pace with soaring demand for artificial intelligence chips, TSMC plans to double its advanced packaging capacity by 2025. Tech giants like Nvidia Corp. and Microsoft Corp. are among the prime drivers of this demand, with Nvidia expected to consume a significant portion of the expanded CoWoS packaging capacity. However, rising electricity expenses could pose a challenge. TSMC’s CFO, Wendell Huang, has alerted investors that power costs in Taiwan have essentially doubled over recent years and are expected to climb higher by the year 2024, surpassing global averages across TSMC’s operations.

The Taiwanese government has implemented four electricity price hikes since 2022, predominantly affecting industrial sectors like semiconductor manufacturing. As part of its energy policy transformation, Taiwan aims to increase renewable energy sources to provide up to 30% of the national power supply by 2030. Yet, the focus on reducing coal and nuclear power reliance has intensified difficulties in satisfying industrial energy requirements. Currently, over 80% of Taiwan's energy is sourced from coal and liquefied natural gas, with renewables making up a mere 9.5%.

Although the direct impact of higher electricity costs might be minimal as they represent a small fraction of TSMC's total expenses, consistent power supply disruptions pose a significant threat. Such disruptions could impede TSMC’s capacity expansion endeavors within Taiwan. Despite these challenges, TSMC's stock has shown robust performance, appreciating 89% year-to-date, offering investment opportunities through instruments like the iShares Semiconductor ETF and the First Trust NASDAQ Technology Dividend Index Fund. Overall, while rising energy costs and potential power outages present challenges, TSMC remains resolute in its strategy to meet the growing demand in the tech sector, balancing operational risks with market opportunities.