Taiwan Power Outages Disrupt Some Semiconductor Manufacturing

Article

A blackout caused by a blunder at Taiwan’s biggest gas-fired plant is the latest challenge to an electricity grid recently pushed to its limit and to President Tsai Ing-wen’s efforts to reshape the island’s power mix.

A combination of unusually hot weather, infrastructure damage from typhoons and Tsai’s drive to abandon nuclear power left Taiwan barely able to supply sufficient electricity to residential and business users in the past week. That balance gave way just before 5 p.m. Tuesday when the Tatan power plant, which accounts for almost 9 percent of the island’s generation capacity, stopped after workers accidentally shut off its natural gas supply.

Tsai publicly apologized for the power outage that hit more than 6 million households and disrupted some semiconductor production. Electricity was restored by 10 p.m., but not before Lee Chih-kung, Tsai’s economy minister, offered his resignation. Both the operator and supplier of the plant, Taiwan Power Co. and CPC Corp., are state-run.

“The outages hurt President Tsai’s creditability,” Jeffrey Bor, economics professor at Chinese Culture University in Taipei, said by phone. “The impact on the economy is comprehensive. It’s like sending a signal to companies to escape fast, because of the risks of electricity supply disruption.”

While Tuesday’s outage was caused by human error, the blackouts heightened scrutiny of Tsai’s policies, including a pledge to rid Taiwan of nuclear and cut its use of coal. The island, which plays a critical role in the world’s electronics supply chain, will rely instead under her plan on natural gas, renewables and distributed generation, which entails multiple, smaller power sources that decrease reliance on single plants and can offer greater grid stability.

[Editor’s note: An accompanying opinion piece from Bloomberg’s Gadfly discusses why Taiwan’s power woes should worry investors.]

The disruption Tuesday occurred when engineers replacing power supply equipment for a control system at Tatan’s metering station didn’t switch the system from automated to manual before starting the work, according to CPC Corp., which provides the plant natural gas. That resulted in two valves being automatically closed, one for about six minutes, shutting off gas supplies.

There had been multiple warnings about Taiwan’s electricity reliability before the blackouts. A week earlier, state-run utility Taiwan Power Co. issued a red alert as the operating reserve margin, the amount of maximum capacity available above peak demand on a particular day, fell to the second-lowest on record. Business associations including the Chinese National Federation of Industries had called for slowing the pace of closing nuclear plants.

Tsai’s apology posted on Facebook late Tuesday included a reiteration of her determination to push forward phasing out nuclear in favor of renewable energy.

“The government is promoting distributed green energy to avoid the situation where an incident at a single power station can affect the power supply for the whole country,” Tsai wrote. “We will not change course. Today’s incident only makes us more determined.”

New capacity not being delivered on schedule is compounding Taiwan’s energy woes, according to Kerry Anne Shanks, a Singapore-based analyst at Wood Mackenzie Ltd.

“Commissioning of the new gas-fired units has been delayed again and again,” Shanks said by email Wednesday. “There are now appeals for a review of the nuclear phase-out policy. The government remains committed to a nuclear-free Taiwan by 2025, but this stance will depend on whether the power system can survive the summer.”

Taiwan has mothballed one of its four nuclear power stations, and three of the remaining six remaining reactors are shut down. Wu Tsai-yi, president at Taiwan Research Institute, said the restart of two of the shut reactors has been stalled by lawmakers. Nuclear made up 12 percent of Taiwan’s power mix last year, down from 17 percent in 2013, according to its Bureau of Energy.

Legislation passed in January set a goal of getting rid of nuclear power by 2025, as well as lowering the share of coal to 30 percent and raising natural gas to 50 percent, with the remainder coming from renewables, according to Bloomberg New Energy Finance.

Taiwan’s three shut reactors — both units at Jinshan and the No. 2 unit at Kuosheng — have combined capacity of almost 2.26 gigawatts, according to the Atomic Energy Council. The Tatan plant accidentally shut on Tuesday can produce 4.38 gigawatts, according to Taiwan Power Co., known as Taipower. The country’s total generation capacity is 49.9 gigawatts, according to Bureau of Energy, Ministry of Economic Affairs.

Semiconductors

The impact so far on Taiwan’s technology industry has been limited. Advanced Semiconductor Engineering Inc. said production lines are operating again at two plants hit by the blackout and the company is evaluating any losses. ChipMOS Technologies Inc. said production has been restored, while Taiwan Semiconductor Manufacturing Co. said there was no impact on output, with all lines operating as normal.

Advanced Semiconductor and TSMC are both suppliers to Apple Inc. The main assembler of iPhones, Hon Hai Precision Industry Co., locates most of the production for the U.S. company in mainland China.

The power cut Tuesday hit Taiwan’s Hsinchu Science Park, the “heart” of its semiconductor industry, said Annabelle Hsu, a senior research manager in Taiwan at International Data Corp.

“Factories there are running 24 hours a day, so sudden power cut without warning could cause a big damage,” Hsu said.

–With assistance from Dan Murtaugh, Jing Yang, Aibing Guo and Gao Yuan