The Success of US Chip Manufacturing Hinges on Our Electric Grid

The U.S. imports most of its advanced semiconductor chips from Taiwan, a trend the Biden Administration is trying to reverse as Chinese aggression towards the island grows. Just over 100 miles from mainland China, headquartered in the Hsinchu Science Park, is the Taiwan Semiconductor Manufacturing Company (TSMC), the world’s leading semiconductor manufacturer. 

Controlling more than 90% of the global market for the most advanced processors, TSMC has a stranglehold over the chips found in everything from consumer electronics to military technology. The prevalence of semiconductors in modern life leaves the U.S. in a dire position if exports from Taiwan become disrupted—a predicament that has prompted efforts to reshore manufacturing. 

Electricity Demands Increase Exponentially

TSMC has already begun construction on a 1,000-acre facility north of Phoenix, touted by President Biden as a crucial step towards creating a “vibrant domestic semiconductor ecosystem.” However, producing these small chips stateside presents one large challenge: The amount of electricity it takes to make them.

While manufacturing semiconductors has always been energy-intensive, the process is becoming even more so as chips are developed to be smaller and more powerful. The most advanced semiconductors require extreme ultraviolet (EUV) lithography machines, which use ultraviolet light produced by rapid-fired lasers to burn fine details on silicon wafers. 

The Dutch company ASML, the only company producing these machines, just tripled its orders from manufacturers last quarter, indicating that the semiconductor industry is trending towards chips that use this technology. However, these machines consume 10 times as much power as earlier generations of equipment. Due to the vast amount of power needed to run EUVs, TSMC now consumes more electricity than some U.S. states. 

An ‘Eyewatering’ Surge

Taiwan already faces its own electricity challenges because of semiconductor manufacturing. Experts predict the island’s reserve capacity may dip below the recommended 10% emergency margin the government says is necessary. Like with data centers, semiconductor manufacturing creates large pockets of demand in the areas where fabrication plants are located. A rapid increase in load presents challenges for grid operators who maintain the delicate balance between electricity supply and demand, preventing curtailments or worse, blackouts. 

Just the first phase of TSMC’s Phoenix facility will create 200 megawatts of demand, the equivalent of powering nearly 30,000 households. The manufacturing giant plans to build up to five additional fabs on the same site. Information from the Arizona Public Service Company (APS) places the final demand from plant operations at an eyewatering 1,200 megawatts. With TSMC saying production will begin in a few short years, APS has little time to accommodate this surge in demand. This facility is just one out of dozens scheduled to open over the next few years, with a total of 21 fabrication plants planned for construction nationwide. 

Slow Replacement Factor

The vast amount of electricity needed to onshore this new manufacturing comes at a time when America’s power grid is increasingly unreliable as the country undergoes rapid changes. In the past decade, natural gas plants started displacing pricier coal-fired ones as fracking reached previously inaccessible gas sources. The fracking revolution lowered the price of natural gas by nearly 50% in the mid-2010s, leading to a proliferation of gas plants. Now, wind and solar farms are increasingly replacing coal, nuclear and even gas plants. However, many regulators are raising alarms that power plants are being retired faster than they are replaced, leaving the country at risk of electricity shortages. 

These mass retirements are also happening while electricity demand nationwide is increasing from data center growth, expansions in manufacturing and intensifying weather conditions. Over the past year, the five-year load growth forecast nearly doubled, jumping from 2.6% to 4.7%. While this increase may seem modest, it represents a stark departure from the 1% annual growth that decision-makers have come to expect over the past 20 years. Many utilities are already scrambling to update their integrated resource plans, with some expecting loads 17 times greater than forecasted just a year ago. Without expanding the high-capacity transmission system, our grid will struggle to meet this demand.

More Pressure on Taiwan

Taiwan's election in January demonstrates the vulnerability of semiconductor supply chains. Shortly before the election, China's Taiwan Affairs Office called the vote a choice between “war” and “peace,” describing the now president-elect, William Lai, from the Democratic People’s Party, as an “instigator.” After Lai’s victory, China sent additional warships to patrol waters near Taiwan, with Beijing expected to continue ratcheting up the pressure. Chinese Premier Li Qiang recently unveiled a report with tougher language around reunification, dropping the word “peaceful” found in previous state documents. While an actual invasion is not imminent, concerns around Taiwan’s future persist, demonstrating the desperate need to manufacture more semiconductors domestically and the urgency of generating more power to support this onshoring. 

The Biden Administration says it would like to make semiconductors in America again. While the shift towards reshoring production will inevitably be long and gradual, electricity shortages may hamper this effort. Taiwan’s recent election should be a wake-up call—we need a grid that can power American manufacturing, or we risk facing cataclysmic supply chain disruptions.

Sarah Shinton is a research associate at Americans for a Clean Energy Grid. She was previously a program associate at the International Tax and Investment Center’s Energy, Growth and Security program, where she researched and wrote on energy trade and security issues in Eurasia. Sarah began her career assisting public utilities and rural cooperatives with rate cases at FERC.