The world’s largest producer of transformers, Hitachi Energy, has issued a stark warning that the industry is “overwhelmed” by soaring demand for grid equipment, potentially causing significant delays to infrastructure projects crucial for expanding the share of renewable energy worldwide.
In an interview with the Financial Times, Andreas Schierenbeck, CEO of Hitachi Energy, expressed concern that transformer manufacturers would struggle to scale production quickly enough to meet the urgent need for grid upgrades. This challenge is further compounded by the rising demand from data centers, which are vital for the growing field of generative artificial intelligence.
“Ramping up capacity is definitely an issue. It’s not easy, and it will probably not ramp up fast enough,” Schierenbeck said. He cautioned that utility projects would face delays, and the lifespan of existing infrastructure would have to be extended to accommodate the mounting demand. “Everybody is overwhelmed by the demand,” he added.
Transformers play a critical role in the electricity supply chain by adjusting the voltage to allow efficient power flow from power plants to end users. These devices can be massive, weighing between 400 to 500 tonnes and often the size of a house. However, their manufacturing process is labor-intensive and relies on specialized winding machines that take years to procure, making it difficult to ramp up production quickly.
Despite these challenges, Hitachi Energy, bolstered by its 2020 acquisition of ABB Power Grids valued at $11 billion, has become a key growth engine for its parent company, Hitachi Ltd.. The division aims to increase revenues by $1 billion to $2 billion annually, targeting $30 billion in revenue by 2030, up from the current $13 billion.
Historically, transformers were readily available within six to eight months due to an industry surplus, but that is no longer the case. Demand in the $48 billion transformer market has surged unexpectedly, with projections by consultancy Rystad Energy suggesting the market will reach $67 billion by 2030.
According to Schierenbeck, utilities now face wait times of three to four years to secure the essential transformers, unless they have already placed orders. “If utilities haven’t reserved one, they’ll have to wait that long,” he noted.
The supply chain bottleneck is exacerbating the pressures on power systems, which are already grappling with aging infrastructure and skyrocketing electricity generation growth. Notably, the increasing share of renewable energy in some regions’ electricity mixes is placing added demands on transmission equipment. Since renewable energy sources are often located far from population centers and generate power from more dispersed sources, they require additional transmission infrastructure to integrate effectively into the grid.
As the race to modernize power grids and integrate renewable energy continues, the supply of critical components like transformers is proving to be a major obstacle. With demand far outstripping supply, the industry faces a complex challenge in meeting the needs of both traditional and emerging energy markets.
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