The transformer problem
- Dec 30, 2022 9:43 am GMT
Cars, both new and used, are back on the lots, christmas packages arrived on time this year, grocery prices are stabilizing. The two-headed monster of inflation and supply chain issues that has terrorized the post-covid world seems to finally be tapering off. Inflation in the USA clocked in at just 7.1% in November, representing a surprising decline. However, not all goods are normalizing. One product that remains abnormally expensive and rare is the all important transformer, and it’s messing up the entire industry.
When I first found out about the transformer shortage back in the summer, I assumed it could be chalked up to the normal set of post COVID supply-chain issues affecting much of our economy. However, it turns out the causes might be broader in scope, predating the pandemic in some instances. For example, the grain oriented steel necessary for transformer production has dwindled probably in part to Trump era steel tariffs. More recently, the Department of Energy slapped new efficiency standards on distribution transformers, promoting a backlash from the APPA, which argued the regulations would make it more expensive to produce transformers.
The wide range of causes behind the transformer shortage helps explain with the component has yet to normalize like other products.
To make matters worse, distribution system transformers are now in short supply in addition to large bulk power system transformers. Both shortages have serious consequences for grid security and costs.
The numbers are astounding. Large transformers cost anywhere from 20% to 50% more than they did in 2020 and procurement times have jumped from around 20 months to 39 months in just a year. Distribution system transformers have doubled to tripled in cost, depending where you are, and procurement times have risen to over a year from just three months in 2020.
Industry leaders have taken notice, as you’d expect, and are acting. In a letter this past November, a group of organizations and companies urged federal lawmakers to appropriate $1 billion from the Defense Protection Act (DPA) to alleviate the supply chain crisis for electric distribution transformers.
The industry’s plea seems to have worked. A handful of lawmakers, led by Rep. Sean Casten, D-III., is lobbying the government to authorize $2.1 billion from the DPA to solve the supply issues related to transformers for investments in grid security technologies.
The latest transformer crisis is just more wood on top of the fire that is transmission development in the United States. Just consider this fact reported in an Atlantic article last year: “Since 2009, China has built more than 18,000 miles of ultrahigh-voltage transmission lines. The U.S. has built zero.”
If the United States is to quit fossil fuels by 2050 and also boost power dependability during a time of increasingly extreme weather, the transmission system must be radically improved. The big question is whether we can revolutionize our regulatory system to promote, instead of stymie, powerlines. That alone is a daunting task considering the country’s laborious democratic processes. Add an unprecedented transformer crisis on top of that and it’s hard not to feel pessimistic. Industry leaders and policy makers have their work cut out for them. Urgency, ingenuity, and more urgency are the only way to get over this hurdle.
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