Renewable energy developers are looking to build projects faster than ever before, but are increasingly stumbling into the same bottleneck: the supply shortage of transformers, a critical piece of equipment for most generating facilities and electric infrastructure.
The demand for transformers has soared in recent years and the market is likely to continue growing. One analysis found that it could grow from $29.9 billion in 2022 to some $57.6 billion by 2032.
But supply hasn’t kept up with this increase. Lead times for transformers are continuing to increase, ranging in some cases up to four years. The shortages have been a huge source of anxiety in the project development community; energy consultancy Wood Mackenzie has estimated they could ultimately delay as many as a quarter of global renewable projects in the next five years.
“At this point, I think these shortages will last all the way through projects that we’re building in 2028,” said Naveen Abraham, chief engineering, procurement, and construction officer at energy storage developer Plus Power.
“We’re talking to suppliers today and they’re telling us that if you order in the next six months, we’ll deliver it in 2028,” he added. “So at least the next three to four years of projects will be impacted by these delays.”
But the industry is slowly learning how to adapt to these equipment shortages. Developers are employing creative measures — whether by building better relationships with manufacturers, or tapping into overseas supplier pools — to navigate potential delays. Transformer manufacturers, meanwhile, are looking to scale up manufacturing capacity to try and meet the soaring demand.
‘We could see the lead times creeping up’
Transformers are pieces of equipment that step voltage either up or down, in order to send bulk power across long distances or deliver power to customers. They are a critical component of electrical infrastructure, but in recent years have become more difficult to procure, as well as more expensive.
Lead times of transformers range from 115 to 130 weeks on average, according to Wood Mackenzie, while larger ones have lead times ranging from 80 to 210 weeks. Prices, meanwhile, have grown 60% to 70% on average since January 2020.
Multiple factors have contributed to this shortage. Peter Ferrell, director of government relations at the National Electrical Manufacturers Association, said that demand for transformers has grown significantly due to both the substantial investments that the federal government is pumping into the electric system, as well as a broader trend towards digitization.
But manufacturers have been unable to keep up with the swelling demand. Because of these shortages, renewable and storage developers now have to build their project schedules around transformer deliveries. And many are implementing creative, forward-looking measures to try and get around the problem.
One example is expanding qualification processes for vendors, said Zac Osgood, vice president of EPC at renewables and storage developer Agilitas Energy. Most developers have a qualified vendor list of manufacturers they’ve already vetted, and Agilitas is now expanding that process to a wider range of distributors and manufacturers of medium-voltage transformers. Furthermore, the company -– historically focused on domestic transformers brands -– is looking to overseas manufacturers to find products with the best lead times and prices for a particular project.
“It gives us a little bit more flexibility than we originally had in our initial strategy,” Osgood said.
Plus Power, meanwhile, has managed thus far to avoid any project delays due to transformer lead times, in part by developing projects with a procurement strategy in mind earlier on, Abraham said.
“We could see the lead times creeping up even before they did, so we started taking very proactive measures, and ordering equipment far ahead of when we needed to,” he said.
Plus Power is also focused on building strong relationships with key high-voltage transformer manufacturers, in a bid to lock down a production slot with them earlier on.
“We have these master agreements in place, and volume retention agreements, which gives us multiple transformers at different times of the year,” Abraham said.
The challenge for manufacturers: labor and supply chains
Equipment manufacturers inability to keep up the transformer supply in the wake of swelling demand, meanwhile, is partly because of labor shortages. Transformers tend to have unique specifications depending on their end use, and consequently are largely handmade, Ferrell said; it can take years for someone to learn, for instance, how to wrap a wire around the core of a transformer.
The equipment is also dependent on a particularly fragile supply chain. Only one domestic supplier makes the specific type of steel used to build transformers (grain-oriented electrical steel), which means a lot of the material has to be imported into the U.S.
On the manufacturing front, multiple players — like the Virginia Transformer Corporation, Prolec GE, and Hitachi -– have announced plans to expand manufacturing capacity or open new plants, according to Wood Mackenzie.
Rich Voorberg, North America president of Siemens Energy, said the company is also looking to increase manufacturing capacity in the U.S., and is using digital systems that can help extend transformer lifetimes.
Transformer manufacturers are also trying to expand capacity at facilities that are closer to the end users of the products, as well as to labor. The strategy is essentially “recruiting, retention, moving to where the labor pools are and where the talent is,” NEMA’s Ferrell said.
But the industry is going to need policy support to ramp up its production capacity. One option is providing manufacturing credits, like those in the Inflation Reduction Act for photovoltaic modules, said Sagar Chopra, a senior research analyst at Wood Mackenzie.
On the labor front, strategies could include establishing apprenticeships, or collaborating with technical and vocational schools to help develop talent, Ferrell said.
Another potential strategy is creating a framework for more generalized distribution transformers, a sort of off-the-shelf product that could help reduce the demand curve but might also reduce the efficiency of the equipment.
In the meantime, the stakes remain high for the clean energy transition. If the equipment shortages persist, Osgood said they could slow down renewables deployment.
“As these supply chain issues, labor shortages all affect the business, you’re going to see it continue to trickle through the renewable energy space,” he said. “I do think it’s going to have an impact on how quickly we can build out our renewable energy portfolio here in the United States.”
