As a professional manufacturer of power transformers & distribution transformers in China since 2000, we think it is necessary to have a deep analysis of the short supply of transformers in U.S and share with all of you.
Driven by the upgrading and renovation of the US power grid network, the construction of solar farms & wind farms, and the return of manufacturing, as well as the impact of the upgrading and renovation of the European power grid, the demand for transformers in overseas markets is high. According to Chinese customs data, the total export of transformers in 2023 reached 6 billion USD, a year-on-year increase of 22%. The export value of transformers from the United States and Mexico in North America is relatively high, at 500 million USD and 200 Million USD respectively.
Recently, during the Q&A session at the closing of the Bosch Connected World Conference, Musk stated that electric vehicles have a huge demand for electricity and power infrastructure, including transformers, and warned that the growth of artificial intelligence and electric vehicles may bring pressure to the supply of electricity and transformers, especially for pad mounted transformers.
This is not the first time Musk has mentioned the shortage of transformers in public. On July 14, 2023, Musk stated at the xAI event that the current shortage is chips, which will turn into a shortage of transformers in a year. “During the operation of AI, power generation is required and a pad mounted transformer is needed; without sufficient energy and transformers, it cannot operate.”
A transformer is an electrical device that uses the principle of electromagnetic induction to change the AC voltage, and its main components are the primary coil, secondary coil, and iron core (magnetic core). The main functions include voltage conversion, current conversion, impedance conversion, isolation, voltage stabilization (magnetic saturation transformer), etc.
In fact, there has been a shortage of transformers in the United States for some time now. According to Wood Mackenzie, due to increased transformer procurement by large developers and utility companies, the average delivery cycle of power transformers in the United States has continued to rise since the first quarter of 2022 and has exceeded 100 weeks by the third quarter of 2023. In addition, the price of transformers in the United States has also increased by four times compared to the level in 2020.
At present, the aging of voltage transformers in the United States is severe, with 70% exceeding their service life. According to data from the International Energy Agency (IEA), over 50% of the power grid infrastructure in developed economies such as the United States and Europe has been in operation for over 20 years in 2021, with some having been in service for over 50 years. The designed lifespan of transformers is 30-40 years, which can be extended to over 70 years in actual operation. The last intensive operation period of large transformers used for power grid transmission in the United States was in the 1950s and 1970s, approximately 50-70 years ago.
The return of manufacturing has also driven a high demand for transformers. According to Eaton’s statistics, large-scale projects related to industrial backflow in the United States and Canada (over $1 billion) have accumulated to $859 billion in the first three quarters of 2021-2023, with electricity related value accounting for approximately 3% -5%, corresponding to $25.8-43 billion.
In addition, in recent years, the significant increase in new energy generation in the United States and the electrification of the transportation sector require corresponding upgrades and expansion of the transmission and distribution grid, thereby increasing the demand for new transformers.
In terms of demand, the upgrading and renovation of the US power grid, the construction of new energy, and the return of manufacturing are expected to last for a long time. For example, as of the end of 2023, the total amount of large-scale projects under industrial reflux reached 933 billion US dollars, of which 72% are still in the planning stage and 18% have actually started. On the supply side, the shortage of raw materials has caused a shortage of supply. A staff member from the Secretary General’s Office of Wangbian Electric told a reporter from Huaxia Times that oriented silicon steel is one of the important raw materials for transformers, and there is a shortage of oriented silicon steel in the United States, which has led to insufficient production capacity to meet demand.
It is reported that transformers are key equipment for power grid transmission and distribution, and oriented silicon steel is the core material of transformers. The production process and manufacturing technology are relatively complex, and the technical barriers are high, accounting for about 25% of the cost of transformers. Its loss performance is the determining factor of key performance such as transformer loss and efficiency. As of the third quarter of 2023, the transformer production capacity and oriented silicon steel in the United States can only meet 20% of local demand.
At present, the supply capacity of the entire industry chain is insufficient, and the rapid growth in demand for distribution transformer and the difficulty of expanding the production of high-voltage products will not change the current supply and demand status for a certain period of time.
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