World’s largest transformer maker warns of supply crunch

by Admin
World’s largest transformer maker warns of supply crunch

Unlock the Editor’s Digest for free

The world’s largest producer of transformers has warned its industry is “overwhelmed” and unable to meet exploding demand for grid equipment, threatening delays to vital infrastructure projects that would boost the share of renewable energy across the globe.

Andreas Schierenbeck, chief executive of Hitachi Energy, a rapidly growing division at the heart of Japan’s third-most valuable public company, said transformer manufacturers would be hard-pressed to boost output quickly enough to meet demand to upgrade grids, with supplies strained by the growing needs of data centres used for generative artificial intelligence.

Hitachi Energy CEO Andreas Schierenbeck ©

“Ramping up capacity is definitely an issue. It’s not easy and it will probably not ramp up fast enough,” he told the Financial Times. Schierenbeck warned that utilities’ projects would be delayed and existing infrastructure’s lifetime would have to be extended. “Everybody is overwhelmed by the demand.”

Transformers are vital to change the voltage of electricity to enable power to flow efficiently from power plants to end users and can be the size of a house, weighing between 400 and 500 tonnes. Making them is labour-intensive and requires specialised winding machines that take years to source. Manufacturers are also cautious about overinvesting.

Bolstered by a takeover of ABB Power Grids in 2020 that valued it at $11bn, Hitachi Energy has become a key growth engine for the Japanese group. The unit aims to increase revenues by $1bn-$2bn each year to reach $30bn around 2030, up from $13bn at present.

Column chart of Global market size ($bn) showing Power transformer demand takes off as grids need upgrading

Transformers had long been readily available within six to eight months when manufacturers suffered from a glut for years, but demand in the $48bn market has suddenly rocketed. Its size is expected to reach $67bn by 2030, according to estimates by consultancy Rystad Energy.

Utilities wanting to buy the key piece of electrical infrastructure would now have to wait three to four years if they have not reserved one already, said Schierenbeck, formerly CEO of German energy company Uniper.

The supply chain bottleneck is another pinch point for power systems struggling with surging growth in electricity generation and ageing infrastructure.

In particular, the expanding share of renewables in the electricity mix in some markets requires more transmission equipment because they are often located far from users and produce power from more dispersed sources than traditional electricity plants.

Column chart of Liquid dielectric transformers ($bn) showing Chinese exports of transformers jumped last year

That has created an urgent need to upgrade the grid to tackle huge waiting lists for new projects to connect to networks, as regulators struggle to cope with the major power system overhaul that decarbonising requires.

“The transformer industry is experiencing unprecedented strain,” said Edvard Christoffersen, senior supply chain research analyst at Rystad Energy. He estimated that prices had risen by 40 per cent since 2019 and that the supply crunch would last until at least the end of 2026.

“Power transformers are currently the most severely undersupplied critical power grid equipment,” he added.

The US National Renewable Energy Laboratory warned this year of an “unprecedented imbalance between supply and demand” for distribution transformers, while the US President’s National Infrastructure Advisory Council called the shortage “critical” in another report.

Hitachi Energy is investing $6bn and will hire 15,000 more people to expand production capacity and boost other key services for the grid over the next three years, with all new output already pledged to customers.

Schierenbeck dismissed the likelihood of the industry tipping into overcapacity any time soon, adding it would take a long time before Chinese competitors became a threat, despite exports from China starting to surge.

“Building a new factory takes four years from the ground [up] and so we cannot really build it faster than the market,” he said, adding that the Chinese were “not exporting, because it’s built for their own purposes”.

Source Link

You may also like

Leave a Comment

This website uses cookies. By continuing to use this site, you accept our use of cookies.