Transformer and Switchgear Supply and Demand May Pose Challenges to Energy Transition

November 23, 2023

By Blake Marchand

The demand for transformers and switchgear is being impacted by the proliferation of new industries: renewables, solar, energy storage, and data centres, for example. Historically, housing-starts were the key driver for transformer and switchgear demand.

According to a panel discussion from Scotiabank and JST Power Equipment EVP & GM, Matthew Polk, as a result transformer and switchgear lead times have stretched from 8-10 weeks to 130-170 weeks and 26 weeks to 80 weeks, respectively. These types of delays are impacting other equipment categories related to renewable energy, distribution, transmission, and substations.

Polk estimates supply chain constraints won’t be alleviated for 6-8 years.

Power Transmission Research (PTR) says that renewable energy integration, electrification of transport, and installation of EV charging infrastructure is driving demand for power and distribution transformers globally and increasing prices. In North America, upgrades to aging infrastructure add to demand. Particularly in the U.S. where 70% of the power grid is more than 25 years old.

PTR cite distribution transformer lead times at 20 weeks to over one year, “depending on whether you are opting for an in-stock or a custom-built unit.” For large power transformers, PTR say lead times have increased from 12-14 months to 38 months.

“Currently, the global transformer market is observing shortages and subsequent increases in the prices of transformers, mainly due to increased raw material demand, pandemic-related shortages and backlogs, labor constraints, shipping issues, and geopolitical tensions. Since 2020, a radical increase in the prices of transformers (especially small single-phase pole-mounted transformers) was observed, with per-unit prices surging as high as 100-200%. This is quite surprising as prices in the transformer market have been quite stable historically,” explains the PTR article by Kamil Maqsood, Azhar Fayyaz, Mike Sheppard.

The report from Scotiabank/Polk estimates data centres will grow by four times by 2030. A large data centre requires 1,400-1,700 transformers, as well as other distribution equipment. Wind and solar operations also require significantly more transformers than other forms of generation, like nuclear and gas, at a comparable level of output.

From the OEM (original equipment manufacturers) perspective, PTR says, “At present, transformer OEMs do not see the surge in demand for transformers as sustainable and are reluctant to install new manufacturing facilities; instead, they are adding production lines or increasing shifts at the existing facilities.”

It takes approximately two years to get a transformer manufacturing facility built, and there is also a skilled labour piece that poses challenges to expanding production.

Canadian Transformer OEMs

An article on PTI Transformers in the Winnipeg Free Press from earlier this year says the company is searching internationally to fill open positions to meet growing demand. Given the specialized industry, it’s difficult to find skilled workers with experience working with large transformers. They have found success in recruiting skilled professionals from Ukraine, which has an established transformer industry.

Hammond Power Solutions (HPS) is also seeing strong demand for their products, “The third quarter saw continued strong demand across our portfolio of products and services resulting in a record quarterly revenue for the Company. Demand was driven by our custom power units that serve renewable and data center applications,” said Adrian Thomas, CEO of HPS via the company’s 2023 Q3 financial press release.

The press release states the company has approved additional capital expenditure to address long-term demand. They are also aiming to improve production with “improvement programs” and increased hiring.

Similarly, Northern Transformers recently completed an expansion project, “The ongoing renewal of aging energy assets, economic growth and increasing electrification mean that there is a very strong need for high-quality and reliable power transformers,” said Giovanni Marcelli, Northern Transformer Chairman of the expansion via press release.

In the same release, CEO Alexei Miecznikowski notes, “These investments increase our capabilities to supply power transformers up to 240,000 volts and up to 200 MVA allow us to meet the demanding requirements of North America’s top tier utility clients.”

So it appears OEMs are investing in their current facilities to meet demand in Canada.

From the Canadian perspective, research is not as readily available as it is for the U.S. and European markets… Are you witnessing supply chain challenges related to transformers, switchgear, and distribution equipment in the Canadian market? If you would like to share your experience and perspective, please feel free to send me an email.

Aside Note: Canadian Energy Transition

The federal government recently reported that Canada is behind its 2030 emissions reduction targets.

The federal government committed to reducing emissions 40 to 45 per cent below 2005 levels by 2030. They are currently projected to hit 34 per cent by 2030.

“The audit found the plan insufficient because key measures needed to meet the 2030 target were delayed or not prioritized,” explains the Auditor General press release on the report.

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