Korean chipmakers face growing net-zero demands from global customers

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Samsung Electronics Co. and SK hynix Inc. are being urged by their global customers to use more renewable energy in their chip manufacturing processes, which is putting the Korean tech companies in a difficult position as the supply of electricity generated from eco-friendly methods is limited and costs are high.

According to sources on Wednesday, Dell Technologies Inc., the world’s largest server supplier, has revised its goal to reduce carbon emissions by 45 percent in Scope 3 for purchased goods and services by 2030. Corporate carbon emissions are divided into Scope 1 to 3.

Scope 1 refers to carbon emitted directly from fuel used within the workplace, Scope 2 refers to indirect emissions generated when companies use energy to produce products and Scope 3 includes the total carbon emissions from the entire supply chain, including manufacturing and logistics processes, distribution and disposal by suppliers.

Reducing carbon footprint in Scope 3 means that Dell Technologies will manage the carbon emissions of the semiconductors installed in the servers they produce. This also means that if Korean semiconductor companies want to supply chips to Dell Technologies, they must produce their products using renewable energy.

This demand is being echoed by global companies that are key customers to Korean semiconductor companies. Microsoft Corp., which announced a goal of reducing Scope 3 emissions by more than half by 2030. Amazon Web Services and Apple Inc. declared carbon neutrality by 2040 and 2030, respectively, and are also placing orders with Korean companies with the condition that they use renewable energy to produce semiconductors.

Korean semiconductor companies view demand from these server companies to turn the industry around. Therefore, they must comply with their demands. The problem is that there is a limit to renewable energy production in Korea.

In 2021, use of renewable energy accounted for 20.5 percent of Samsung Electronics’ total energy consumption and 4.1 percent SK hynix. The two firms used 27 terawatt-hours, which corresponds to 9.5 percent of the total industrial electricity consumed in Korea that year. However, the proportion of electricity produced from renewable energy sources was only 4.7 percent of the total power production.

Despite limited production, demand for renewable energy is growing and costs are skyrocketing. The average monthly price of renewable energy certificates (RECs), which companies use to purchase renewable energy, was 47,520 won per unit in March last year, but jumped to 67,865 won in March this year, up 42.8 percent in one year.

Moreover, the cost of renewable energy is increasing for semiconductor companies that are struggling with the sluggish demand.