The agency warned that water reliability is becoming an increasingly important factor for economic resilience, industrial continuity and credit quality in regions that host high-value manufacturing industries.
The report pointed to Taiwan’s experience during severe droughts between 2021 and 2023, which created operational challenges for chipmakers by sharply reducing reservoir levels and raising concerns over water availability at Hsinchu Science Park, one of the world’s most important semiconductor manufacturing clusters.
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The risks extend beyond Taiwan. The OECD estimates that the world’s five largest semiconductor-producing economies account for around three-quarters of global semiconductor value added, making reliable water supplies critical to the industry’s operations.
Located in northwestern Taiwan, Hsinchu Science Park hosts more than 600 companies and generates annual revenue of more than NT$1 trillion. Integrated circuits account for about 70% of the park’s output, while electronic integrated circuits made up 32.7% of Taiwan’s total exports in 2025, according to Taiwan’s Ministry of Finance.
“Water reliability is becoming a more prominent constraint on growth and industrial continuity,” Moody’s said, adding that water stress becomes most relevant when it affects industries with limited flexibility to cope with supply disruptions. In such cases, supply reliability can influence output, investment and export earnings.
As reservoir levels in northern Taiwan came under pressure during the 2021 drought, authorities introduced contingency measures to safeguard water supplies to critical industrial users. Moody’s said it was contingency infrastructure, rather than demand-management measures alone, that helped preserve reliable access to water during the crisis.
A key role was played by the Taoyuan-Hsinchu backup pipeline, completed in February 2021. The pipeline transferred around 23 million tonnes of water during the drought and, together with backup wells, helped prevent depletion of the Baoshan reservoirs during renewed dry conditions in 2023.
According to Moody’s, Taiwan’s experience demonstrates that the impact of a water crisis depends not only on reservoir levels but also on whether governments and utilities have sufficient backup infrastructure to maintain reliable supplies when conditions deteriorate. The agency said contingency capacity provides a more useful measure of a system’s resilience than storage levels alone.
The report comes amid growing concerns over water availability globally. The OECD estimates that worldwide water demand will rise by 55% by 2050, while around 40% of the world’s population will live in water-stressed river basins. Moody’s noted that water management is already a credit risk for one-third of the sovereigns it rates.
The ratings agency also warned that rapidly growing demand from data centres, fuelled by cloud computing and artificial intelligence, is adding to pressure on already strained water systems, making water reliability an increasingly important consideration for governments and industries alike.
The growing water footprint of AI infrastructure has also pushed technology companies to explore alternatives to conventional cooling systems.
NVIDIA recently said advances in liquid-cooling technology could significantly reduce water consumption in AI data centres.
According to the company, AI facilities using 45-degree Celsius liquid cooling can rely on dry coolers instead of traditional cooling towers, reducing cooling-related water use from roughly 2.6 million gallons per megawatt per year to near zero in suitable climates.
The chipmaker said its latest Rubin-generation AI systems use a fully liquid-cooled, closed-loop design that can operate without evaporative water cooling for most of the year, potentially lowering both water and energy consumption.