Summer is here, and homes and businesses across the United States are already cranking the air conditioner.

The U.S. Energy Information Administration (EIA) pegged electricity consumption at about 4.05 trillion kWh in 2022, the highest amount on record. As more people use more electricity, more reliable and available electricity sources and delivery methods are needed.

But, as with any infrastructure, threats are a constant risk. Summer temperatures strain aging power grids, while hurricanes, tornadoes, floods, and other natural disasters are always on the radar.

Even something as simple as old age or a damaged pole can be enough to send electrical utilities scrambling.

Transformer Terrors

The electrical grid faces several issues, including a lack of electrical utility materials like transformers.

Transformers are used to step electrical voltage up or down during transmission and distribution to businesses and homes. Without them, voltages would be too powerful or weak to properly serve end users. Worse yet, without transformers, crews must find workaround solutions to bring power back online for customers.

It isn’t just existing infrastructure that would be in a tight spot without transformers. New construction is moving more slowly because neighborhoods and homes rely on transformers to safely deliver electricity to end users.

Unfortunately, the U.S. is in a predicament – we’re short on electrical transformers.

What’s the Problem?

Data from the Department of Energy (DOE) suggests more than 90% of consumed electricity goes through a large power transformer.

It’s a lot of power to handle, especially when the average age of transformers is roughly 40 years – the same as its usable lifespan. The problem may only get worse with time, too. According to a 2022 DOE report, more than 70% of large power transformers are 25 years or older. As we know, the older things get, the more maintenance they need and the more prone to failure they become.

In 2019, the U.S. consumed about 750 large power transformers, and the need is expected to grow to about 900 by 2027. Experts say the increase is likely because utilities need to upgrade infrastructure, expand the power grid, and accommodate more renewable energy sources.

Additionally, states like California are going all-in on the EV revolution, even going so far as to pass laws requiring landlords to install EV charging stations (in certain situations) if they receive a written request from a tenant.

We will need more transformers in the coming years, an estimated $73B worth by 2032, but the problem stretches beyond stock. You need workers to produce transformers, but the government says manufacturers face about 10% employee turnover. If it’s harder to hire, train, and keep employees, it affects lead times and throttles domestic production.

At the same time, utilities are expected to increase demand, complicating matters. When you have less labor and more demand… you can see where this is going.

Between hampered production processes, long total lead times, and supply chain issues, utilities are left scrambling to find transformers during an emergency.

Long Lines, Short Supplies, Can’t Win

The writing is on the wall: the electrical industry has a transformer supply problem.

Product shortages have led to lead times stretching a year or more, though some utilities are expected to wait two to three years.

They may not look like it, but transformers are complex and hard to manufacture. On top of that, they can cost hundreds of thousands of dollars to manufacture, and the profit margins aren’t good.

Combine those facts, and it makes sense why manufacturing companies don’t have a bunch of transformers on hand.

Specialized Materials Complicate Matters

Even if companies were incentivized to make more transformers, getting their hands on materials and components is another challenge.

Manufacturers need grain-oriented electrical steel (GOES) to make a transformer. This type of steel has magnetic properties that make it permeable while reducing core loss, but it’s a specialty product only one U.S. company, Cleveland-Cliffs Inc., makes.

“It’s not as profitable – it’s not a high-profit item,” Justin Solberg with Border States said. “The core steel is what has been cited by several manufacturers. It’s a niche steel product.”

We could import the steel from a foreign source, like China, but lead times are affected by tariffs and other delays. GOES isn’t the only material needed to make a transformer, either. Other raw materials include CTC copper wire, mineral oil, and polymers, each serving a unique purpose. Depending on availability, pricing can fluctuate quite a bit.

Addressing the Shortage

With so few transformers available, utilities are getting desperate to keep the stock they do have working.

When utilities can’t get ahold of new transformers, they can refurbish old ones to keep them operating. Unfortunately, repairs take labor and time and may not always result in much improvement or performance. There’s also the rising cost of materials and short supplies, which further complicates inventory management.

Fixing and maintaining wet or dry transformers isn’t an easy job, either. The job requires special training that not all electricians or utility workers may have. In those cases, there are companies with professionally trained technicians whose sole job is to keep electrical equipment online.

“If you can’t get transformers, you can’t provide power to your customers,” Solberg said. “In this market, you see utilities more open to approving alternates or looking for other solutions they otherwise wouldn’t have. The utilities have some workarounds, but it’s obviously not ideal.”

The shortage has pushed some utilities to look outside the U.S. for parts, materials, and finished goods to keep the grid running efficiently.

Invoking the Defense Production Act

There is some hope on the horizon, though. On June 6, 2022, the Biden administration invoked the Defense Production Act (DPA) to reduce lead times for domestic industries and consumers.

The decades-old law allows the government to require manufacturers to make goods related to national defense, including energy production, infrastructure projects, public health programs, and emergencies.

In this case, the DPA will support the defense, decarbonization, and growth of the electrical grid due to the rise of electric vehicles (EVs) and renewable energy. With more transformers, utilities are less vulnerable while improving grid security and reliability.

Despite the situation, the move could be seen as a proactive effort by the U.S. to prepare for the future. It’s estimated we would need to expand transmission systems by more than 60% by 2030 and triple it by 2050 due to rising electricity demand and more renewable energy sources joining the grid.

Long-Term Solutions

Unfortunately, there is no overnight solution to quickly make transformers.

Long production lead times will stay for a bit, especially while the U.S. grapples with securing a steady supply of materials to build with. Availability and production costs also need to be figured out, though the government can subsidize some production costs.

In the meantime, electricity consumption is growing, and the rise of EVs will continue stretching resources thin as new power producers come online.

It’s up to the industry and the government to find a solution that makes sense and is reliable. Until then, utilities are expected to do more with less to keep the lights on.

Get the Latest Copper Pricing

See the most up-to-date information with the latest market data available.

Learn More