Taiwan's Nuclear Option

Taiwan packs a mighty economic punch. Its population numbers under 25 million, but it claims a spot close to the top 20 globally in GDP, and it continues to ascend the rankings ladder even as its neighbors slip into low-growth malaise. In fact, in 2021, Taiwan's economy grew at an astonishing 6%.

The country’s economic heft is exemplified by Taiwan Semiconductor Manufacturing Co, Ltd. (TSMC), which consistently ranks near the top 10 among all global companies by market capitalization. Last year was yet another banner year for the firm. As shifts in consumer behavior precipitated by the coronavirus carried over from 2020, demand for TSMC’s chips climbed higher than ever, with the company hauling in 24% more revenue in 2021 than in the year prior.

Anchored by companies like TSMC, Taiwan is an export-oriented, manufacturing economy. Beyond semiconductors, other leading companies produce electronic devices, plastics and machine tools—even bicycles. Despite its miniscule size, it is the ninth-largest supplier of goods imported by the United States. And put together, Taiwan’s manufacturing sector makes up more than 30% of its GDP, higher than any member of the Organization for Economic Cooperation and Development. Germany’s vaunted manufacturing sector accounts for less than a quarter of the country’s GDP. The U.S. manufacturing sector barely musters 10%. Even China lags Taiwan on this score, despite Taiwan being far richer on a per capita basis—typically a harbinger of manufacturing’s relative decline.

With manufacturing such a crucial part of its economy, industrial power and heat sources are of even greater importance to Taiwan than they may be in other countries. According to the Bureau of Energy, as of 2021, industrial production accounted for 56% of total electricity consumption in Taiwan. Of this 56%, electronics manufacturing (including chipmaking) accounted for 37%.

Unfortunately, Taiwan has some big problems hampering the success of industries. First are the natural hurdles to energy security. Second are the self-imposed policy constraints that limit energy possibilities. And third, its space in global geopolitics jeopardizes its energy status quo.

As difficult as these problems are, though, they point to one solution: a nuclear renaissance.

Taiwan’s Looming Energy (and Economic) Crunch

As researchers Sih Ting Jhou and Huei-Chu Liao wrote for the Brookings Institution in September 2013, “Taiwan has almost zero energy endowment, and relies on imports for nearly 98 percent of its consumption.” Little has changed in the intervening decade. The island lacks a domestic energy production base capable of powering its industrial economy and, therefore, it imports an almost identical portion of its total energy supply today as it did in the early-2010s.

Taiwan uses fossil energy for the vast majority of its electricity, with 45% coming from coal and 37% from natural gas. Meanwhile, 10% comes from nuclear power and 6% from renewables, including solar, hydropower, biomass and wind, according to a 2022 Bureau of Energy report on current and future electricity demand.

Tsai Ing-wen, who has been president since 2016, champions radical changes to Taiwan’s electricity mix. In 2017, she proposed increasing natural gas’s share to 50% of the power mix by 2025, reducing coal’s share to 30%, and ramping up renewables, with an aim of hitting 20 gigawatts of solar photovoltaic installations and 5 gigawatts of offshore wind, for a total renewable percentage of 20%.

As the economic growth figures would suggest, rising manufacturing prowess has led to surging industrial power demand, which is driving the island’s electricity consumption higher than ever. In 2020, Taiwan used over 270,000 gigawatt-hours compared to 250,000 gigawatt-hours in 2015. Industrial electricity use now constitutes well over half of Taiwan’s power consumption according to the Bureau of Energy. Complicating matters, Taiwan maintains distorting caps on rate increases for both industrial energy consumers and residential users. Amid the ongoing global natural gas crunch, this consumption stretches the grid to its limits. All too frequently, those limits are exceeded, and the island is subjected to productivity-sapping blackouts, as occurred in May 2021 and March 2022.

Given its extraordinary power requirements and its geographic and geological constraints, Taiwan would seem to be a prime candidate for nuclear power, the low-emissions electricity source that provides the best combination of dispatchability and energy-density. Tsai and the Democratic Progressive Party, however, have explicitly spurned nuclear power, excluding it from the Tsai power plan and arguing against life extensions for Taiwan’s existing baseload nuclear fleet.

Taiwan’s electricity choices put it in a position of vulnerability. While the Bureau of Energy report predicted peak usage of 39.7GW in 2022 and 40.64GW in 2023, peak power usage in Taiwan jumped to 40.74 GW just a day after the report was released. The state-run Taiwan Power Company, or Taipower, has adjusted its 2022 peak usage estimate above 41GW.

Taiwan is already suffering from an unsettling number of crippling, island-wide blackouts—one in March 2022, which caused rush-hour chaos as traffic lights stopped working up and down the island, particularly spooked Taipower. Major industrial customers now find themselves on the receiving end of unusual phone calls from Taipower managers and even political higher-ups pressuring them to reduce power usage, or even pause operations, whenever capacity looks tight. Those calls for help have become routine, much to the dismay of industry, as unplanned stopping and starting of machinery is disastrous for productivity. At the macro level, too, the repercussions are a potential loss of confidence in Taiwan.

Matters will soon be made worse. Taiwan’s three nuclear reactors, which together supply around 10% of its electricity, are slated to go offline by 2025. According to Tsai’s plan, the power shortfall is supposed to be made up by renewable energy, which currently sits at just 6% of total generation. The Tsai administration’s original goal of 20% renewables by 2025 was adjusted downward to 15.1% by 2025 earlier this year. And with the growth of natural gas generation constrained by both spiking global prices and limited LNG receiving capacity, the increase in coal capacity being politically impossible, and the growth in demand galloping beyond expectations, it is unclear how Taiwan is going to fill the nuclear gap.

Tsai’s Gamble on Renewables Goes Bust

And so, Taiwan finds itself in a dangerous place. To understand how it got here, we have to press the rewind button. When Tsai, now two years into her second term, was first elected in 2016, Taiwan’s electricity mix was 45.9% coal, 31.5% natural gas, 12% nuclear and 4.8% renewables.

While campaigning for the presidency, Tsai championed renewable power, but stumped even more explicitly on eliminating nuclear power plants, promising a “nuclear-free homeland,” among other steps away from the Chiang-era policy legacy. After Tsai won, the Electricity Act of Taiwan was updated to say that nuclear power shall be phased out by 2025. A 2018 referendum changed the law so that it would be legal to keep nuclear in the mix beyond 2025, but it didn’t change the fact that all currently operating reactors are slated to shut down by 2025. A 2021 referendum to start the mothballed fourth Nuclear Power Plant at Lungmen was unsuccessful.

But something will need to give. Taiwan’s current 6% figure for renewables is a rather anemic increase from 4.8% at the start of Tsai’s term in 2016. Given this paltry growth, even meeting the new 15.1% goal by 2025 will be a monumental challenge. Some of the slower-than-hoped-for growth in solar and wind generation can be attributed to NIMBYism. Solar projects near farmland, for example, must seek Council of Agriculture approval on a case-by-case basis. Offshore wind farms have faced construction delays due to pandemic-related supply chain and labor issues. Meanwhile, coal has barely budged, decreasing from 45.9 to 44.3%, and natural gas still has a long way to go if it’s ever going to reach the 50% goal.

Emissions aside, Taiwan’s gas-forward plan entails significant risks. While Taiwan is dependent on imports for virtually all hydrocarbons and nuclear fuel, its reliance is especially problematic for natural gas. Natural gas, which is mostly purchased via long-term contracts, has to come to Taiwan in highly-specialized liquified natural gas (LNG) vessels, as geopolitics and geography rule out pipelines. There are currently only two receiving terminals in Taiwan, with a third due to come online in 2025, and a fourth location under discussion. To reach the high natural gas penetration called for in Tsai’s plan, four or even five receiving terminals would be necessary.

With only two terminals, Taiwan can currently hold only two weeks’ worth of natural gas at any one time. In summer, that drops down to 10 days. This creates a couple of problems.

Low storage capability means that until more terminals come online, Taiwan is always going to be two badly-timed typhoons away from an outage. The situation becomes more dire in the scenario of a blockade by China. In the past, most invasion scenarios assumed that China would invade via sea, in which case the taking of the island could be a fait accompli. But regional experts now increasingly forecast a blockade as a probable tactic for Beijing to attempt to subdue Taipei.

As New York Times chief China correspondent Chris Buckley and co-authors wrote in the wake of Nancy Pelosi's August 2022 Taiwan visit and ensuing Chinese encirclement exercises, a key textbook for officers in China’s People’s Liberation Army describes a “strategic blockade” as a way to “destroy the enemy’s external economic and military connections, degrade its operational capacity and war-fighting potential, and leave it isolated and unaided.” Concurring with Buckley, Ou Si-fu, a fellow with a Taiwan Defense Ministry research affiliate, told the Times, “I think they have shown their intentions, encircling Taiwan and countering foreign intervention.”

The ability of Taiwan’s energy system to hold while allies mobilize would be key to its survival. Nuclear generation can increase its chances; as opposed to gas plants, nuclear power plants routinely hold 18 months of fuel on site. A common knee-jerk concern pertains to the risk of direct Chinese attacks on nuclear plants, but it would be unrealistic for China to attack those without contaminating its own cities on the mainland.

Given the energy and geopolitical challenges the Tsai administration faces, it makes little sense for it to be so adamant about phasing out nuclear power. To understand why it maintains its position—and to see how it might be overturned—we need to go back even further.

Nuclear Rods at the Ready

Taiwan’s nuclear power plants were built under the authoritarian regime of Chiang Kai-shek, who wanted to boost technological standing and economic growth and to hedge against the risks revealed by the 1970s oil crises. The first still-operating reactor was built at Jinshan in 1978, followed by reactors at Kuosheng in 1981 and 1983, then at Maanshan in 1984 and 1985. Chiang is remembered by many as a brutal dictator who crushed dissent, and nuclear energy became tainted by association.

At its nuclear zenith in 1987, the final year of the rule of Chiang Kai-shek’s son, Chiang Ching-kuo, Taiwan’s nuclear power reactors produced just over 50% of the island’s power mix. When combined with hydropower, these meant that Taiwan was running on almost 60% zero-carbon energy that year.

In fall 1986, meanwhile, the pro-democracy forces in Taiwan had coalesced into the Democratic Progressive Party. Earlier in that year, of course, the meltdown at Chernobyl had happened. The freshness of that episode so close to the founding of the DPP, combined with nuclear power’s association with Chiang’s rule, meant that anti-nuclearism was baked into the DPP’s political DNA.

Fast forward to the present day, and the energy battle lines have not much shifted, with most pro-nuclear advocates also representing the Kuomintang (KMT), the party of Chiang Kai-shek and whose candidate drew just 39% of the vote in the 2020 presidential race. Meanwhile, the DPP, which has grown to become dominant, remains heavily anti-nuclear. Over time, the distinctions on nuclear have become less about anti- or pro-authoritarianism; rather, the DPP is widely seen as the young, pro-environment party, while the KMT is seen as pro-business (and, paradoxically given its origins, too cozy with China). This leaves very little political space to advocate for nuclear energy on the premises of eco-modernist environmentalism.

There is the possibility, however, of change. The 2018 referendum to strike the part of the Electricity Act outlawing nuclear power by 2025 could not have been passed on KMT votes alone. The vote breakdown shows that both traditionally “blue” (pro-KMT) and “green” (pro-DPP) municipalities passed the referendum by comparable percentages. This means that there must be defections on both sides. In short, there are plenty of DPP members who are voting for nuclear, even if party representatives are not yet willing to stand up for it in public.

Perhaps due to the 2018 showing, DPP politicians are now quietly scoping out the possibility of life extensions for Taiwan’s nuclear power plants, according to Yeh Tsung-kuang. Yeh, who was formerly a professor of nuclear engineering within the island’s top nuclear program and now holds a professorship within National Tsing Hua University’s Department of Engineering and System Science, is optimistic.

“More than one legislator from the DPP has approached me to ask about the possibility of life extension for Taiwan’s nuclear fleet,” Yeh said in a telephone interview. Those inquiries are strictly off the record, said Yeh, because it is currently political suicide for a DPP politician to “come out of the closet” as pro-nuclear and will be as long as Tsai remains in office. Indeed, Yeh said, “despite the fact that her energy transition plans have not worked out, Tsai will resist doing a U-turn on nuclear energy at all costs as she was elected on the ‘nuclear-free homeland’ platform,” adding, “but after her term ends in 2024, there is a chance for the DPP to pivot.”

By the time that chance arrives, there may be even more momentum. In addition to the looming power crunch, two other factors have begun to sway public opinion on nuclear energy: the soaring price of LNG in the wake of the Russian attack on Ukraine and the European Union’s 2022 decision to designate nuclear energy green energy, which will impact Taiwan’s electronics exports.

Asked if 2024 would be too late, as more reactors are slated to shutter by then, Yeh was hopeful. He confirmed that “it is possible to turn all the nuclear power reactors in Taiwan back on, even the First Nuclear Power Plant.” And Taiwan’s first three nuclear power plants did all come online in relatively quick succession in the late 1970s and early 1980s—a trick the country may be able to pull off again.

The first, Jinshan, has two 604MW Boiling Water Reactors (BWRs); the second, Kuosheng, has two 985MW BWRs; while the third, Maanshan, has two 951MW Pressurized Water Reactors (PWRs). Jinshan’s two units have already gone offline, along with the first unit in the Kuosheng plant. A fourth nuclear power plant was built and almost finished but never commissioned, with two 1,350MW advanced boiling water reactors that Yeh estimates could be made operational with two to five years of lead time.

According to Yeh, the potential for life extension for Taiwan’s reactors is excellent, even for the first plant at Jinshan, which went offline in 2018 and 2019. Similar makes and models of reactors have received at least 20 extensions in the states. Further, Taiwan is in a unique position to restart even reactors that went offline years ago, which, in an enigmatic twist of fate, have actually never been decommissioned, due to the way Taiwan stores waste.

Usually, when nuclear reactors stop producing power, they undergo a decommissioning process that makes it extremely difficult if not impossible for them to be restarted. That process never happened in Taiwan because, despite a 40-plus year history of using nuclear power there, it never approved any dry storage location site due to its political quagmire. This means that the wet storage pools for nuclear power waste, only ever meant for short-term storage, are full. Upon shutdown, there is no room for the last batch of fuel rods in wet storage, meaning that those rods are still in the now-offline reactors at Jinshan and Kuosheng. To keep those spent fuel rods safe, none of the three reactors have fully shut down. Yeh estimates that it will take less than a year to bring the ones in “stasis” back into service.

Unfortunately, the 2021 referendum to activate the fourth nuclear power plant failed to pass in a highly-partisan, low-turnout vote. The fact that the failed referendum is so fresh, and that it would still take longer to start than the others—or just to grant life extensions for the reactors that are still online—means that the fourth plant is not likely to churn out more clean electricity in the near future.

Complicating matters, the fourth plant is also being maintained with care as an asset in Taipower’s books, simply for the fact that if maintenance stopped, Taipower would have to write it off. The resultant red ink would threaten to bankrupt the state-run utility giant.

The Case of SMRs

If Taiwan manages to switch on all its existing reactors and complete the fourth nuclear power plant, that would give it 7.78GW of total nuclear capacity, equivalent to almost 20% of 2022’s roughly 41GW demand peak.

More creative effort, however, will still be needed. There probably won’t be high demand for further large-scale nuclear projects in the immediate term, and, of course, there is a big waste storage issue to deal with. But in parallel to the political discussions, industry leaders have also been focusing more and more on Small Modular Reactors (SMRs) as a route to greater nuclear power.

With their passive “fail-to-safe” features, by which failed systems revert to a safe position, SMRs are a second chance to sell nuclear power to a fearful public. Even Taiwan’s Ministry of Economic Affairs has said that they have not ruled out advanced nuclear technology such as SMRs and fusion from their future energy plans. Taiwan’s industrial giants are keen to control their own power security, i.e., to avoid the blackouts and political pressure to cut back that has been put on them in recent years. Just as a savvy homeowner in Texas might purchase a powerwall or a backup generator to ensure their family can weather the next winter storm, major Taiwanese manufacturers are looking to secure their own power sources.

More than one Taiwanese company, Yeh says, has reached out for his advice in securing their own SMR. Formosa Plastics, one of the most avid of the Taiwanese companies pursuing SMR research, is reportedly looking to develop an SMR project in the Philippines. This makes sense from the point of view of ultimately bringing the technology back to Taiwan, said Yeh. “The political environment in Taiwan is not yet mature, but the Philippines is bullish on nuclear power,” and so, “if Formosa Plastics can successfully develop an SMR in the Philippines, it can then quickly transfer that experience into a Taiwan project.”

“I can easily see a SMR in Taiwan before 2035,” said Yeh. If this occurs, it would free up generation sources, and potentially activated or reactivated large-scale nuclear, to meet demand elsewhere.

Whatever the overall mix, given its increasing demand and roaring economy, it is more important than ever for Taiwan to secure its energy supply. Due to its precarious geopolitical situation, ending its dependance on just-in-time natural gas delivery is paramount. Nuclear energy presents the best option to satisfy Taiwan’s various needs. While baseload nuclear power is crucial, Taiwan’s tangled energy politics make SMRs an important new option, taking nuclear energy out of political tug-of-war and putting it under the care of trusted industrial institutions.

Because the KMT is seen by so many young voters as out of touch, most commentators expect the DPP to dominate elections on the national level for the foreseeable future. And this will change the DPP's political calculus considerably. With the KMT fading as a threat, the DPP can afford to reassess its "no nuclear homeland" strategy. Indeed, it can’t afford not to; the greatest political dangers it faces are regular blackouts or power shortages that damage Taiwan's export industries. And with neighbors and rivals like China, South Korea and Japan all returning to nuclear power with various degrees of enthusiasm, the DPP will be wise to put power stability over long-held ideology.