It was just before dawn on a sweltering Taipei morning, and Pegatron Chairman T H Tung was still hunched over his desk analyzing energy portfolios, carbon emissions, government policies and decades of energy-related data from several countries.
It was just one of many sleepless nights Tung had spent in recent months as he tackled a daunting challenge facing not only his USD 40 billion electronics manufacturing empire but Taiwan as a whole: how to reconcile the tech industry’s massive energy demands with the urgent need to cut greenhouse gas emissions.
In addition to Pegatron, the island is also home to Taiwan Semiconductor Manufacturing Company (TSMC), the world’s top contract chip manufacturer, Foxconn, a key iPhone supplier and top server assembler, and countless other tech suppliers.
“TSMC’s cutting-edge chip production technologies, the booming EV industry and Taiwanese suppliers’ strong positions in the AI supply chain—these are symbols of a modernized economy and critical to Taiwan’s competitiveness,” Tung told Nikkei Asia. “If we don’t prepare low-emission power supplies, I fear Taiwan will lose its hard-earned advantages.”
Tung’s interest in the matter is twofold: In addition to serving as Pegatron’s chairman, he has been deputy chair of the presidential office’s climate change response committee since June.
Taiwan’s reliance on fossil fuels remains high, at nearly 80%. The government plans to phase out nuclear power, but renewable energy still accounted for only around 10% of the island’s energy mix as of last year. This has made it hard for companies like Pegatron, which is in the midst of a massive expansion at home and abroad, to reduce carbon emissions without sacrificing growth.
Like others in Taiwan’s tech industry, Tung is calling on the government to stick with nuclear power until green energy capacity can be sufficiently ramped up.
His concerns underscore a dilemma not unique to Taiwan. Economies across Asia are attempting to seize the once-in-a-generation opportunities to be had as supply chains shift away from China. But the question is whether they can attract investment in chips, artificial intelligence, data centers, and other technologies while ensuring enough clean energy to sustain economic growth and combat global warming.
It is a headache for champions and challengers alike.
Taiwan and South Korea boast the world’s second and third largest semiconductor industries after the US, while Japan is working to regain its lost chip prowess. All three economies remain heavy users of fossil fuels, with Japan and Taiwan actually increasing their reliance on them since the 2011 Fukushima nuclear disaster.
The problem is twofold for places like Vietnam, Malaysia, and Thailand, each a key beneficiary of companies moving production away from China amid escalating tensions between Washington and Beijing.
Vietnam is now a production site for most of Apple’s current product lineup as well as Samsung smartphones and Dell notebooks. Thailand meanwhile is becoming a production center for printed circuit boards (PCBs), notebooks, servers, and electric vehicles. Malaysia has attracted fresh investment from top chipmakers and equipment suppliers like Intel, Infineon, and Lam Research.
But these countries are struggling not only to provide enough green energy, in many cases they are having trouble keeping up with surging demand for electricity from any source.
At the same time, global tech companies are getting serious about reducing emissions. Apple, Microsoft, Google, and Samsung have joined RE100, a corporate initiative to commit to 100% use of renewable energy, and they are asking suppliers to quickly and aggressively cut emissions.
Meanwhile, tech’s appetite for energy just keeps growing.
Vietnam gets over 40% of its energy from renewables, primarily hydropower.
The AI multiplier
The growing number of companies setting up production facilities outside of China is just one factor straining power supplies elsewhere in Asia. Chipmaking itself is becoming more energy-intensive as chips become more advanced. Added to that is the boom in AI data centers, which require far more power than their conventional counterparts.
Dedi Iskandar, head of CBRE’s Asia Pacific data center solutions group, told Nikkei that the number of data centers in the region has at least doubled over the past two years. The target of this new investment is also shifting from traditional servers toward AI servers, which will make up about 37% of all data centers by the end of the decade, according to CBRE forecasts, up from around 16% last year.
In line with this trend, data center energy demand in APAC is forecast to rise more than 300% between 2024 and 2030, reaching as high as 6.5 gigawatts, according to Boston Consulting Group (BCG). One gigawatt is about as much electricity as a conventional nuclear reactor produces.
AI data centers are not the only source of the region’s growing energy demand. The manufacture of PCB-mounted graphic processing units (GPUs) and assembly of AI servers are also extremely power-hungry activities. And there is another less well-known energy sink: the “burn-in test,” a stress test lasting hours or even days that batches of GPU boards and AI servers undergo after assembly. The tests simulate a data center environment and attempt to eliminate all potential failure factors before the products are ready to ship.
An eight-hour burn-in test of an Nvidia GB200 NVL72 server rack, for example, can consume about 1,000 kilowatt-hours of electricity, according to industry executives. That is three times what the average Taiwanese household consumes in a month.
“The power demand for AI server manufacturing is more than five times higher than for traditional ones,” said a manager at an Nvidia AI server supplier. “We had to apply for more power distribution for the AI server production lines.”
An eight-hour ‘burn-in’ test of an Nvidia GB200 NVL72 server rack can consume three times as much electricity as an average Taiwanese household uses in a month.
Electricity use from data centers could more than double to 1,050 terawatt-hours by 2026, from around 460 TWh in 2022, roughly equivalent to adding the electricity demand of another Germany, according to International Energy Agency (IEA) and server industry analysts.
And that is not all.
“The current forecast does not consider the air conditioning energy consumption associated with these AI servers,” an Infineon executive said. “We don’t think the speed to build new power plants can catch up with the speed of new AI data center expansion. That is concerning.”
The Taiwanese authorities recently acknowledged for the first time that electricity is in short supply in the northern part of the island, where it has not approved any new data centers with a capacity above 5 megawatts since last September. Even so, the government forecasts electricity demand from AI-related investments will grow eightfold between 2023 and 2028.
Singapore halted new data center construction due to space constraints and environmental concerns between 2019 and 2022, but has since changed tack. In May, the city-state announced plans to expand its data center capacity by more than a third to secure its position as Southeast Asia’s leading data center hub.
Basic infrastructure is also a problem. Multiple tech suppliers told Nikkei that vulnerable power grids and unstable electricity supplies in Vietnam and India are impacting their operations. PCB makers raised similar concerns over electricity in Thailand.
“Forget about carbon emission cuts,” said an executive at one Apple supplier. “We suffer some 10 or even 20 power trips a month in Southeast Asia.”
Securing stable, environmentally friendly energy is a key factor for companies when they plan their expansions, and a big headache for the tech industry as it seeks to grow its supply chains.
“Green data centers have very specific requirements,” said Marko Lackovic, a BCG managing director and partner. “They need basically [round-the-clock] green supply, which might be difficult to source in some of the countries because you need the firm green supply and on top of that, you need the infrastructure that would bring that type of supply directly to the data center.”
CBRE’s Iskandar has a similar view, saying it is already “very challenging to secure the normal energy sources, let alone finding and transitioning to renewable energies.”
Hard to cut down
Most tech hubs tracked by Nikkei have ambitious plans to cut carbon emissions. Their sense of urgency has intensified as extreme weather events, such as droughts and floods, have become more intense and more frequent.
Elina Noor, a senior fellow with the Carnegie Endowment for International Peace’s Asia program, said Southeast Asia is already among the regions most vulnerable to climate change, and attracting more data centers and tech investment could exacerbate the problem.
“Running these data centers … is very resource intensive and can divert water away,” Noor said. “It’s crazy that there is going to be this boom in data centers when Southeast Asia is so vulnerable to climate changes already.”
Transitioning to green energy requires clear government policies, investment in electricity infrastructure and often new or revised regulations. And it is a race against time, as renewable energy projects often take years to become operational, while the desire to capture the tech boom for economic growth is here now.
India and Thailand have vowed to reach carbon neutrality by 2070 and 2065, respectively, while at least six other Asian economies are aiming for a more aggressive timeline of 2050. All eight remain heavily reliant on fossil fuels, with renewable energy making up a single- or low double-digit share of their energy mix.
Spending, moreover, is not rising fast enough to keep the region’s climate goals on track. According to the IEA, Southeast Asia accounted for just 2% of global spending on clean energy, despite accounting for 6% of global gross domestic product.
Bright ideas
About an hour and a half drive from the bustling city of George Town on Penang Island, nestled amid lush Black Thorn durian and palm tree plantations, stands a gleaming solar power plant. The plant in the Malaysian state of Kedah is not far from where Infineon and Intel operate some of their biggest chip facilities.
The solar plant was constructed by Solarvest, Malaysia’s top solar and renewable energy provider, and boasts a capacity of roughly 20 MW per hour. For now, the electricity it generates can only go directly to state-owned power company Tenaga Nasional, but Malaysia recently unveiled an initiative to liberalize the electricity market by allowing private renewable energy suppliers to negotiate directly with companies. The new framework is set to go into effect this month.
Solarvest has built 1,200 MW of solar energy projects around Southeast Asia, primarily in Malaysia. The company also aims to expand in Vietnam, Taiwan, Indonesia, and the Philippines over the next three years, as new tech investments drive demand for green energy.
Davis Chong, Solarvest’s co-founder and CEO, said global chip companies have a particularly urgent need for renewable energy.
“We have been speaking with many chipmakers, and they were asking about more new sources of green energy,” Chong said. “Their targets from headquarters in the US, Europe and Japan are very clear and urgent, [saying] that they need to cut carbon footprints massively by 2025 and 2030.
“On the demand side, it’s totally no problem,” he said. “But the policy side previously was quite slow to respond, and is only starting to catch up now.”
Elsewhere, wind power is taking off.
“Taiwan and the Philippines are among the most aggressive countries in terms of developing offshore wind power in the Asia Pacific region,” said Marina Hsu, regional managing director for Taiwan, Vietnam, and the Philippines at Copenhagen Infrastructure Service.
“Usually it takes 12, 13 years to build an offshore wind farm in Europe, but in Taiwan, we managed to do it in eight years, which is considered very fast in the industry,” she said.
Hsu said Asia’s interest in renewable energy is growing, driven by the US-China trade war. But challenges remain, including inconsistent government policies, lack of regulation and underdeveloped grid infrastructure.
“We have to pragmatically look into the feasibility of governments’ ambitious goals. Otherwise, it is just empty pipelines, hard to materialize,” she said.
Solutions on the horizon?
Companies are taking the initiative in fighting climate change, not least because of its potential impact on their competitiveness.
Foxconn, the world’s largest contract electronics manufacturer, consumes roughly 10 billion kWh of electricity per year at facilities around the world, including in China, Taiwan, Vietnam, and India. It joined the RE100 initiative in July.
Ron Horng, vice president of Foxconn’s central environment division, said that energy security and access to green energy are among the company’s top priorities when negotiating with local governments about building a factory at a new location.
“But in some countries, they are struggling with stable power supply or vulnerable power grids, which makes it very difficult to ask for low-carbon and green power,” Horng said. “It’s like if someone is starving, and you ask them why they don’t eat beef instead. That’s unrealistic.”
Foxconn, which has reached 45% renewable energy use globally, is lobbying governments in countries like Vietnam to enhance their green energy supply and infrastructure. It is also upgrading its facilities to increase energy efficiency and it aims to lower its energy consumption by 4% each year, Horng said.
“The industry is shifting toward low-carbonization. It is a new form of economic war,” he said. “If you don’t make efforts to love the Earth, you will not survive in the top-tier supply chain.”
Delta Electronics, the world’s biggest supplier of power management solutions for computers and servers, was one of the first tech suppliers to join RE100 in 2021. It has committed to source all of its electricity from renewables and be carbon neutral by 2030.
“We reached 76% renewable electricity use in 2023 in terms of our global manufacturing and operation,” Jesse Chou, Delta’s vice president and chief sustainability officer, told Nikkei. “Our challenge is we have to meet such goals in our 190 diversified locations globally. … Thailand and India are the most challenging countries.”
Chou said governments have to build the infrastructure for renewable energy faster and deploy policies to step up emissions reduction.
“But other than that, we have to do self-rescue. … We are building a solar power plant in India, and we are also evaluating building power plants in Thailand on our own,” he said. “We—and the entire industry and governments—need to face the problems directly. ”
TSMC, which was one of the first chipmakers to commit to RE100, told Nikkei that increasing electricity demand for AI servers and chip investments will not affect its renewable energy strategy. The world’s top chipmaker aims to use 60% renewable energy by 2030. Overseas operations have already reached 100% renewable use, but a low figure in its home market of Taiwan, where most of its operations are based, means its overall total is just 11%.
For Pegatron’s Tung, expansion in Taiwan, Southeast Asia, India, and Mexico has been an eye-opener, making him realize how hard it is to access and secure stable and renewable energy. “The development and expansion of green energy is not fast enough to support the urgent need to cut carbon emissions and [ensure] economic growth,” the chairman said.
That is why he is pushing so hard for Taiwan to stick with nuclear power, even if he feels he is fighting an uphill battle.
“The Gospels have been preached for 2,000 years, but I’ve just started,” Tung said. “We need to provide enough low-emission power, otherwise energy will weaken Taiwan’s competitiveness.”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.