High energy costs in the European Union are probably among the main reasons behind the bloc's deindustrialization. Many power-hungry production facilities relocate to Asia because it has become nearly impossible for them to stay competitive with current energy prices. Ireland is not an exception, and this makes Intel very concerned (according to RTE) as it runs its major Fab 34 near Leixlip and has to make sure that the fab produces products at competitive costs. But should Intel really be worried?
Intel's Fab 34 in Ireland is the first production facility in Europe to use extreme ultraviolet (EUV) lithography to make chips in high volumes. The fab is capable of producing microelectronics using Intel 4 (previously known as 7nm) and Intel 3 (formerly known as 5nm) process technologies and currently produces compute tiles for Intel's Core Ultra 1-series (Meteor Lake on Intel 4) and Xeon 6 processors (Granite Rapids and Sierra Forest on Intel 3). These are premium products.
Energy prices are rising across the world, in the U.S., Europe, and Asia. However, energy prices are considerably higher in Europe when compared to Asia and the U.S. For example, rates per kWh in the U.S. range from 8.57¢ in Texas to 11.41¢ in Oregon to 12.31¢ in Arizona. By contrast, electricity costs in Ireland vary from 15¢ (night rate) to 26¢ (day rate) for commercial customers. In South Korea and Taiwan, electricity for large commercial users costs 13¢ after increases in late 2024. Therefore, it is more expensive to make chips in Ireland than in the U.S. or Taiwan, at least with respect to energy costs.
Energy Costs
| Row 0 - Cell 0 | Arizona | Ireland | Ohio | Oregon | South Korea | Taiwan | Texas |
| kWh rate | 12.31 ¢ | 15 ¢ - 26 ¢ | 10.94 ¢ | 11.41¢ | 13 ¢ | 13 ¢ | 8.57¢ |
Electricity cost source links: Arizona, Ireland, South Korea, Taiwan
When it comes to multibillion-dollar semiconductor fabrication facilities, the vast majority of their costs are represented by capital expenditures, depreciation, materials, and labor. Utilities, such as electricity, water, and cooling, account for a relatively small — single-digit to low double-digit percentage — of microelectronics production costs, according to some industry estimates.
For example, Intel consumed around 9.1 billion kWh of electricity in 2023, according to the company's Corporate Responsibility Report (CSR). Intel uses green energy across all of its facilities in the U.S., Europe, Israel, and Asia, so its energy prices are a bit higher than those of average businesses. But if we assume that Intel paid 13¢ per kWh on average, then the company paid approximately $1.183 billion for electricity in 2023. Meanwhile, Intel's total revenue in 2023 was $54.2 billion and its total costs were around $32.5 billion (that includes R&D, CapEx, SG&A, depreciation, etc.).
Therefore, energy accounted for 3.64% of Intel's costs and 2.18% of Intel's product revenue. It is plausible to assume that energy costs account for approximately 5% of Intel's product costs, but that probably depends on actual products. For products like Intel's Xeon 6980P, which sells for over $12,000, the contribution of energy costs is probably negligible.
But Intel is still concerned about energy costs in Ireland, according to the report. In fact, a 'senior source' in Davos told RTE that lower labor costs in Ireland are offset by high energy costs. These high costs stem from delays in renewable energy infrastructure and the fixed expenses of offshore wind farms, which are often passed on to customers, RTE claims. To address this, Intel is advocating for the state to assume part of these costs during the development phase to ease the financial burden on manufacturers like itself, the report says.
