Transformer supply bottleneck threatens grid stability, load growth intensifies challenges

The modernization of the U.S. electric power system is being hindered by slow acquisition of critical new power transformers. Advanced computing and economy-wide electrification are expected to increase electricity demand by nearly 16% by 2030, requiring more and larger transformers, according to a December study by the National Renewable Energy Laboratory (NREL). This demand is even more prominent when extreme weather events, such as Los Angeles wildfires and East Coast hurricanes, require rebuilding distribution systems.

However, ongoing global supply chain disruptions continue to slow the acquisition of transformers that are critical to stabilizing voltage and efficiency in the power system.

"Delivery of new transformers ordered today can take up to three years," said Peter Ferrell, Director of Government Relations at the National Electrical Manufacturers Association (NEMA). "Five years ago, the wait time was four to six weeks."

Manufacturers say that accelerating transformer acquisition requires time and investment.

"In the short term, large investment areas will face difficulties, with projects delayed by one to two years," said Jeffrey DeSain, General Manager of Schneider Electric's North American transformer business. "Supply chains and manufacturers need multiple investment de-risking solutions to catch up."

Manufacturers and analysts say that load growth pressure on existing infrastructure could last for years, or even more than a decade. Meanwhile, transformer supply solutions, such as standardizing transformer designs or organizing and funding reserve supplies, require cooperation from policymakers, and many say it is uncertain whether these solutions can be implemented.

More than 80,000 transformer types

The various types of transformers used to step up or step down voltage in the power system have different lead times.

In wind and solar projects, small pad-mounted transformers step up voltage to medium voltage or large transformers for use at production site substations, according to Doug Wolken, Head of Transformer Marketing and Sales for Hitachi Energy North America. Large transformers at natural gas, nuclear, and hydroelectric plants also step up voltage to the transmission system, he said.

At distribution substations, large pad-mounted transformers step down voltage from the transmission system to medium voltage or small pad-mounted transformers, Wolken said. Small pole-mounted or pad-mounted distribution transformers step down voltage to levels used by homes and businesses.

The U.S. system had 60 million to 80 million distribution transformers at the end of 2024, and demand by 2050 "could increase by up to 260% compared to 2021 levels," the NREL report said. The laboratory said about 55% of residential transformers are near the end of their useful life, with many exceeding 40 years.

According to a 2024 National Infrastructure Advisory Council (NIAC) report from industry stakeholders, there are more than 80,000 transformer types in the U.S. power system.

According to an April report by Wood Mackenzie (WoodMac), lead times for large transformers are 80 to 120 weeks. WoodMac said special electrical steel, which is critical for reducing transformer power losses, remains expensive and difficult to source domestically.

The slowdown varies among manufacturers. Lead times for pad-mounted distribution transformers "are two to three times pre-pandemic levels," said Wolken of Hitachi Energy. "Lead times for transmission-scale equipment are now three to six years, with specialized transformers taking the longest," he added.

Puget Sound Energy confirmed that lead times for some equipment have extended, said utility spokesperson Andrew Padula.

"Realistically, these lead time increases are not expected to improve in the short term," because the causes are intensifying, said Ben Boucher, Senior Analyst for Supply Chain Data and Analytics at WoodMac.

Drivers of transformer demand growth

Sustained load growth, aging system infrastructure, and increasingly severe extreme weather events are driving transformer demand, manufacturers and analysts say.

The current shortage began during the COVID pandemic, with manufacturing shutdowns and global supply chain slowdowns, said Kevin Coss, spokesperson for Xcel Energy. Many factors continue to push transformer demand higher, he said.

"We are approaching an unprecedented period of transformer demand," said Killian McKenna, Senior Researcher at NREL and Manager of the Distribution Edge Group, and author of NREL's study on transformer supply. Growing electricity demand is stressing infrastructure nearing the end of its useful life, from "renewables, data centers, building and vehicle electrification such as EV charging stations and heat pumps," McKenna added.

Extreme weather events such as hurricanes and wildfires further cause losses of distribution transformers, McKenna said. Replacement needs exceed utility inventories to meet routine failures and new customer requests, according to McKenna.

After Hurricanes Helene and Milton, Duke Energy needed to replace about 16,000 transformers, according to its November earnings report. That is more than other utilities need in a year, said Boucher of WoodMac.

Rebuilding in Los Angeles has not truly begun yet, according to city officials. As of February 2, Southern California Edison workers, contractors, and mutual assistance partners had installed nearly 400 transformers in the Eaton and Palisades wildfire areas, utility spokesperson Jeffrey Monford reported.

"Bitcoin mining, AI training and quantum computing, U.S. manufacturing reshoring, and system modernization plans will bring enormous new electricity use," said Ferrell of NEMA. Demand "is growing exponentially while the manufacturing base and supply chain are sized for a market from five years ago."

A boom in virtual power plants composed of distributed system resources could relieve system stress, developers say. But significant new loads from EV charging or electric heat pumps may require larger or more distribution transformers, said DeSain of Schneider Electric, McKenna of NREL, and others.

After lagging in response to transformer demand growth in 2022-23, manufacturers announced $600 million in new transformer capacity investments in 2024, said Boucher of WoodMac. Schneider Electric "is investing hundreds of millions of dollars in capacity expansion," DeSain added.

Hitachi Energy North America will invest $500 million in transformer manufacturing capacity by 2027, Wolken said. This is part of a global $1.5 billion investment in transformer production, based on demand expected to last at least a decade, he added.

But manufacturers and analysts say these investments may not be enough to meet demand, and other more innovative solutions have been proposed.

Solutions to the transformer shortage

Of the seven solutions described in the NIAC report, three have been adopted by manufacturers, utilities, and other stakeholders.

More accurate demand forecasting and long-term agreements among power companies, manufacturers, and suppliers of raw materials such as electrical steel are already in practice, said Scott Aaronson, Senior Vice President of Security and Preparedness at the Edison Electric Institute (EEI).

Utility resilience planning for extreme weather events has led to "storm stockpiles," or internal supplies of distribution system infrastructure, according to Aaronson. "Large utilities may have access to large power transformers and 10,000 or more distribution transformers through mutual assistance networks," he said.

Integrated planning makes it possible to forecast where and when transformer demand will occur and to work with manufacturers to secure supply, said Coss of Xcel.

"Until recently, few utilities, manufacturers, and supply chain partners had strategic alliances, but five-year planning agreements and long-term contracts are becoming the norm," said DeSain of Schneider Electric. "A multi-year perspective and choosing more standard designs, materials, and electronic components can reduce risk," he added.

"Replacing aging infrastructure can be a huge opportunity or a missed one," said McKenna of NREL. "Short-term decisions that do not anticipate future load growth and resilience needs will lead to high labor costs," but building for long-term needs can make it a one-time cost, he said.

The NIAC report calls for federal policy and funding support to expand transformer production, which will be submitted to the 2025 Congress as the recently introduced Moran-Cortez Masto bill.

"Extending the federal 45X domestic manufacturing tax credit would support more U.S. transformer production," said Ferrell of NEMA, adding that "state or federal workforce expansion initiatives may be the best policy solution, as automating the manufacturing of so many unique types of transformers and components is not feasible."

The NIAC report also proposes establishing a virtual transformer reserve, with the U.S. government acting as buyer of last resort.

"A reserve is not a physical stockpile, but a way to retain spare manufacturing capacity," said Ferrell of NEMA. "It would be a commitment to certainty in maintaining mid- to long-term manufacturing capacity, but it is unclear how the required federal investment would be determined, who would provide it, and how the reserve would be managed."

However, the risk is small because current demand growth appears to be long-term, Aaronson said.

The most important proposal in the NIAC report may be standardizing transformer designs.

Standardization "would make equipment sharing easier and produce more transformers faster to meet growth demand," said Aaronson of EEI.

But given the many transformer types, "it may not be possible to significantly shorten production times," said Ferrell of NEMA. Utilities could agree on standard specifications, "but that would be difficult because the operational needs of a new utility in Southern California differ greatly from those of an older utility in Maine," he said.

DeSain of Schneider Electric and Wolken of Hitachi Energy agree. The U.S. power system "is one of the most unique machines in the world, with transformer design and manufacturing tailored to very specific local distribution system complexities, which makes standardization a real challenge," Wolken said.

On average, a distribution system may have 200 or more different designs per 1,000 transformers, according to Wolken. "But in certain areas, under utility leadership, some degree of standardization may be achievable," he said.

Even reducing the number of transformer types from 80,000 to 60,000 "would allow for a more efficient manufacturing process," said Aaronson of EEI.

Standardization may seem complex, said Boucher of WoodMac. But when severe weather events occur, utilities "accept whatever transformers they can get, which shows that standardized specifications and designs are realistic and may be key to resolving the current shortage," he added.