After 25 Years, Cost of Water Rises

Government and business are taking action to conserve water and raise artificially low prices in response to the threat of an increase in droughts.

After more than a quarter of a century without any price increase, water is finally becoming more expensive for some enterprises in Taiwan. Since February 1 this year, as part of the government’s response to recent years’ serious water shortages – during which TSMC trucked water to some of its fabs to ensure production could continue uninterrupted – large-scale consumers have had to pay an additional water tariff of NT$1.5 for each metric ton used during the November-to-April dry season. From mid-2025, this extra fee will double.

Figures from the Ministry of Economic Affairs’ (MOEA) Water Resources Agency (WRA) show that, in 2021, the average price of water in Taiwan was NT$9.24 per metric ton. In percentage terms, therefore, the supplementary levy is a substantial increase – yet the cost of water on the island will still be far below that in Japan (where consumers pay about three times as much) or in the U.S. (where water is often five times more expensive than it is in Taiwan).

A lack of water has been identified as one of the “five shortages” holding back the economy, the others being electricity, land, labor, and professional talent. The causes of the water issue are well known. Pronounced “wet” and “dry” seasons – especially in the south, where several weeks can pass with no rainfall – leave factories and households dependent on reservoirs, the capacity of which has been diminished by sedimentation.

Proposals to construct new reservoirs invariably run into opposition from environmentalists and nearby residents. In the case of Meinong in Kaohsiung, a coalition was successful in getting the plan withdrawn. At Nantou County’s Niaozui Artificial Lake, which is close to completion, the project’s cost was revised upward so a landfill could be relocated, and wildlife-friendly features added.

Climate change is expected to exacerbate Taiwan’s water woes. A United Nations University technical report on the period between June 2020 and May 2021, during which Taiwan received just a third of its usual precipitation, explains that the frequency of local water-scarcity episodes is likely to increase as the Earth gets hotter:

“Rising ocean temperatures, on the one hand, lead to stronger typhoons, with potentially more devastating impacts… On the other hand, atmospheric warming diverts typhoons away from the island in a more northerly direction, meaning fewer typhoons will hit, making dry spells and droughts more frequent.”

Years of low prices not only encouraged businesses to take a lackadaisical approach to water conservation. They also left state-owned utility Taiwan Water Corp. (TWC) too cash-starved to replace old infrastructure. The amount of water lost each year as a result of leaky pipes would fill Shimen Reservoir, the country’s third-largest reservoir, at least twice over.

Aside from social welfare institutions like schools and hospitals, as well as essential farming and livestock operations, the new add-on water tariff applies to all entities that buy over 9,000 metric tons of water per month from TWC. The surcharge does not apply to recycled water, seawater (used in some factories to cool machinery), and rainwater harvested on-site.

The special rate is expected to apply to between 1,700 and 2,200 companies. Among them are tech heavyweights like AU Optronics Corp., Innolux Corp., and TSMC. Other giants, such as China Steel Corp., Formosa Plastics Group, and state-run oil refiner CPC Corp will also be surcharged. According to 2020 data from TWC, these six enterprises are among the 10 entities that account for 41% of Taiwan’s total non-agricultural water consumption.

In a January 6 press release, the MOEA stated that the new price scheme will incentivize water efficiency and encourage investment in water-saving technologies, calling it “a win-win policy.”

The levy is expected to bring in between NT$600 million and NT$1.4 billion per year. The increased revenue will go to the WRA, which plans to use it to develop renewable water resources and promote water conservation.

Climate change is expected to increase the occurrence of extreme weather events.

Proactive measures

Rather than wait for the government to hike the price of water, some major enterprises started searching for ways to reduce water usage several years ago. TSMC’s Southern Taiwan Science Park water recycling plant, which has a daily capacity of 10,000 metric tons, began operating in September 2022. Other companies taking a circular-economy approach to water include AUO and BenQ Materials. In 2015, AUO consumed as much water as 373,000 Taiwanese households; it now recycles 94% of production water. BenQ Materials’ Taoyuan plant recovered 93.8% of the water it used in 2020.

In off-the-record conversations, however, a number of local executives say major companies’ recent enthusiasm for water conservation and recycling is not motivated by a fear that their bills will go up, but rather a need to “look good” in ESG reports and a realization that, even if they are willing to pay much more for water, and the government is willing to pay yet more farmers to leave their fields fallow, in the future it may not always be available in the quantities they need.

Other critical voices question the timing of the surcharges. Quoting environmentalists who see Taiwan’s recent pricing change as too little and too late – or, as they put it, “much thunder but little rain” – a January 30 article by Taiwanese media outlet Business Today noted how rollout of Taiwan’s scheme was delayed by more than six years.

The legislative framework was established in 2016, yet negotiations between the MOEA and industry representatives dragged on until the third quarter of 2021. A draft formula was published, and a start date of July 1, 2022, was announced. But after Russia’s invasion of Ukraine, soaring inflation hit the global economy, and the MOEA decided to postpone implementation, anxious to protect local enterprises from cost pressures.

Among Taiwan’s industries, the semiconductor sector is the thirstiest. With an average fab consuming between 7,000 and 12,000 metric tons of Ultrapure Water per day and around 80 semiconductor fabrication plants in Taiwan, the water consumption of this industry is staggering. For instance, the daily water consumption of the Southern Taiwan Science Park, which hosts companies like TSMC and United Microelectronics Corp. (UMC), is about as much as the yearly consumption of Taipei 101.

“South Taiwan is especially vulnerable to water shortages due to the lack of rainfall and falling water levels at reservoirs,” says K.C. Chou, a senior vice president at Advanced Semiconductor Engineering, part of ASE Holdings (ASEH). But that has not kept the company from continuing to expand its operations in Kaohsiung.

Chou says that to address water issues, ASEH is “reinforcing water resource management, which allows us to quickly optimize the use of water and dispense measures in accordance with municipal water-alert levels. Over the past seven years, we’ve been able to manage our water supply during several periods of island-wide shortages, largely due to the effectiveness of our water recycling plant and boosting water efficiency through strategic management policies and execution.”

ASEH’s water recycling plant in Kao-hsiung’s Nanzih Technology Industrial Park has been operating since April 2015. The plant, which the company says cost more than NT$1 billion, reclaims an average of 16,500 metric tons of water per day and has also brought about a considerable reduction in effluent discharge. ASEH is working with National Cheng Kung University (NCKU) to improve the plant’s efficiency and has set a target of raising the recycling rate from 70% to 75% by the end of 2023.

In a written response, ASEH said it had developed AI-powered IT systems “that collect, analyze and monitor data across [our] operations to improve water efficiency, and prevent and anticipate any water emergencies. Internally, the company conducts regular campaigns to heighten awareness and promote water saving as a way of life.”

While confirming its support for and participation in government-initiated water resource programs, ASEH declines to say if it has benefited from subsidies or tax breaks related to water efficiency. But like other large-scale consumers, it will be exempted from up to two-thirds of the surcharge if it can meet an industry-wide benchmark for water reclamation.

These benchmarks range from 50-97% in the stonecutting sector (because recycling water used in cutting and polishing is relatively straightforward) to 10-30% for vegetable wholesalers. Within the semiconductor industry, packaging and testing operations such as ASEH’s are expected to achieve reuse rates of 50-95%. For integrated circuit manufacturers like TSMC, the goal is set at 50-85%, depending on the nanometer process.

A handful of government-backed water reclamation facilities, including one in Tainan’s Yongkang District, have come online since 2018. A December 2022 study by a team of NCKU scholars and private-sector experts noted, however, that the cost of water from such plants, not including construction costs, ranges from NT$18.8-30.9 per metric ton, so their financial viability depends on finding customers willing to pay over the odds. So far, the Yongkang facility has signed supply deals with Innolux, TSMC, and UMC.

Daily water usage at the Southern Taiwan Science Park is comparable to Taipei 101’s annual usage.

Some industries spared

The water-use surcharge was initially set to apply to consumers using more than 1,000 metric tons per month. This much lower threshold would have impacted water-intensive industries, such as hospitality, which have not come under the same kind of scrutiny as wafer fabs and steel mills in Taiwan.

Some hotels use over a metric ton of water per guestroom per day. Hotels such as the Mandarin Oriental Taipei, with its 303 rooms and suites, would thus have had to pay additional water fees under the original surcharge proposals. Despite being spared for now, the hotel has initiated efforts to reduce water usage. Luanne Li, Mandarin Oriental Taipei’s director of marketing communications, says that the five-star establishment has installed water-efficient sensor faucets in public and back-of-house areas; these have cut consumption in those parts of the complex by 40%.

The hotel also harvests rainwater, which is used to water its gardens, and launders house linens in a way that minimizes water wastage, Li adds. But the hotel does not have a measurement mechanism to calculate just how much tap water these practices save.

Other real estate managers are also working to decrease water usage for both environmental and cost-saving purposes. One of these is Taipei Financial Center Corp., the owner of Taipei 101, Taiwan’s tallest and most iconic building.

Since the pandemic began, Taipei 101 has used significantly less water than it did from 2016 to 2019, when more than two million tourists per year visited the skyscraper’s observatory, and the office occupancy rate topped 95%. Still, the building’s owner expects to pay the new surcharge.

Even in 2021, when many people worked from home, Taipei 101 used more than 200,000 metric tons of tap water and 2,023 metric tons of rainwater, explains Michael Liu, Tower Management COO for Taipei Financial Center Corp. Cooling accounts for around 40% of the building’s water consumption.

The tower, which was inaugurated at the end of 2004, began harvesting rainwater in 2015. Precipitation is collected via exterior balconies and stored in a 3,210-metric-ton underground tank, where it is filtered and sterilized before being used for landscape irrigation and toilet flushing.

According to Liu, Taipei Financial Center Corp. has spent around NT$7 million adding other water-efficiency features, such as aerators on sensor-activated faucets, water-saving flushing valves on toilets, water-saving valves on urinals, and diverting wastewater from RO-filtered drinking water systems for reuse. He says that because the price of water is so low, it is unlikely the cost of these investments will ever be recouped through reduced water bills. So far, Taipei 101’s water-saving efforts have not qualified it for any subsidies or tax breaks, he adds.