Taiwan’s drought is exposing just how much water chipmakers like TSMC use (and reuse)

June 12, 2021, 4:00 AM UTC

As Taiwan experiences its worst drought in over 50 years, the world’s largest third-party semiconductor manufacturer, Taiwan Semiconductor Manufacturing Co. (TSMC), has resorted to trucking in tanks of water from the island’s greener south side to maintain production.

“So far there is no impact on production, and we are monitoring the water supply situation closely,” the company said in various statements, from February through May. Taiwan’s government began rationing water late last year, as the island experienced zero monsoons for the first time since the 1950s.

Monsoon rains normally replenish the reservoirs that TSMC dips into to cool its systems and rinse away industrial chemicals, a standard practice in the industry. TSMC isn’t alone in dealing with the drought’s disruption. According to TrendForce, Taiwanese chipmakers occupy 63% of the global market, with TSMC taking the lion’s share of that.

This concentration has increased the entire sector’s exposure to a single black swan event—such as drought. Chipmakers, recognizing their dependence on a scarce resource, are at pains to save every drop of water they can.

How much water does it take to make computer chips?

The chipmaking industry is water-intensive. According to nonprofit China Water Risk (CWR), an average semiconductor factory consumes roughly 20,000 tons of water a day, equivalent to the daily water use of a city of 58,000. Yet despite its high water consumption, the chip industry—in Taiwan, at least—is not normally a noticeable drain on communal resources.

“We don’t see sufficient data saying semiconductor firms have a material net effect on municipal water supplies,” says Phelix Lee, a technology analyst at Morningstar.

According to Lee, Taiwan’s entire semiconductor industry consumes 10% of the island’s water; 20% goes to residential purposes and 70% to agriculture. Lee says that semiconductor manufacturers “aren’t likely to shape water policy.”

TSMC does have its own water policy, which is focused on conservation. According to the company’s latest corporate social responsibility report, TSMC recycled 87% of the water it used in manufacturing in 2019—meaning it used most of its water intake for more than one purpose.

Water for hosing down semiconductors needs to be beyond pristine, to avoid introducing contaminants that could damage the microscopic transistors. Water used in cooling towers can be less pure, providing opportunity to reuse each gallon. TSMC says it aims to use “each drop” around 3.5 times.

Brady Wang, an analyst at Counterpoint Research, says that in a normal year, flush with typhoons, “no one would notice the chip industry’s water usage.”

However, rising demand for chipsets has increased TSMC’s water consumption even as the company cuts down on the volume of water it uses per chip produced. TSMC’s purchase of municipal water supplies increased 71% between 2015 and 2019, and when a drought comes, there’s simply less water to go around.

Desert disc

Rising demand is also responsible for the crushing chip shortage currently plaguing the world’s tech and auto industries. The chip shortage has prompted Washington to push harder for onshore chip manufacturing, with Congress set to approve $50 billion in funding for the domestic industry this week.

And even in the U.S., the chip industry has a habit of clustering in water-scarce regions. The clustering is mostly the result of legacy. Decades ago chipmakers were lured to these regions by tax breaks and cheap land, but over time a vibrant industry ecosystem developed around those pioneering manufacturers. A mature ecosystem lowers both risk and costs for newcomers.

South Korea’s Samsung, the Netherlands’ NXP, and local Texas Instruments are among the hive of chip manufacturers centered in Texas—a state that fell into widespread drought last September and was only relieved by heavy rains last week.

Meanwhile Intel’s largest manufacturing site is in the desert of Arizona—the fourth driest state in the U.S. In March, Intel announced it will build two more plants in the state, while rival TSMC inked a deal to build a fab in Arizona last year. According to the Arizona Department of Water Resources, some 99% of the state was experiencing severe drought as of last week.

Yet industry advocates argue that the semiconductor industry can actually bring more water to the state’s parched cities.

Recycle, reuse

Arizona pipes 36% of its water supply from the Colorado River, which carves through the Grand Canyon. The state allocates water quotas to cities according to need. The upshot, advocates say, is that semiconductor manufacturers can unlock more water for nearby population centers. Factory wastewater—water that is no longer pure enough for treating semiconductors—can be cleaned and released for other municipal uses.

Intel says that, in 2019, the company returned 80% of its fresh water uptake to local governments as treated wastewater, which is used for flushing toilets, watering parks, and refilling underground aquifers that provide a city’s drinking water.

Intel plans to be “water neutral” by 2025 as well, by funding upstream conservation projects to “rehabilitate” polluted water, increasing overall supply. (TSMC hasn’t set a specific target but is engaged in water and ecosystem rehabilitation, too.)

But the mighty Colorado is shrinking, as global warming reduces the region’s snowfall. The river’s flow could decrease 31% by 2050. With hundreds of billions of dollars tied up in the global semiconductor industry, manufacturers have a good incentive to invest in water conservation.

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