World’s largest transformer maker warns of supply crisis

Transformers are vital for changing the voltage of electricity and ensuring efficient transfer of energy from power plants to end consumers. Transformers can be the size of a house and weigh between 400 and 500 tons.

Their production is labor intensive and requires the use of specialized winding machines, which take years to acquire. Manufacturers are also wary of over-investment.

With its $US11 billion (NZ$18.38 billion) takeover of ABB Power Grids in 2020, Hitachi Energy has become a key driver of the Japanese group’s growth.

The division aims to grow revenue by $1 billion to $2 billion each year and reach $30 billion by around 2030, up from $13 billion currently.

Transformers had long been available for six to eight months when manufacturers had suffered from glut for years, but demand suddenly surged in the $48 billion market.

According to the consulting company Rystad Energy, by 2030 its size will reach $67 billion.

Utilities looking to buy a key piece of electrical infrastructure will now have to wait three to four years if they haven’t already secured it, said Schierenbeck, the former CEO of German utility Uniper.

Supply chain bottlenecks are another challenge for energy systems struggling with surges in power generation and aging infrastructure.

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

This has created an urgent need to modernize the grid to cope with huge waiting lists for new grid connection projects as regulators struggle to cope with the grid overhaul that decarbonisation requires.

“The transformer industry is under unprecedented pressure,” said Edward Christoffersen, senior supply chain research analyst at Rystad Energy. He estimates that prices have increased by 40% since 2019, and the supply crisis will last at least until the end of 2026.

“Power transformers are currently the most critical power grid equipment in short supply,” he added.

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

Hitachi Energy will invest $6 billion and hire a further 15,000 people to expand production capacity and develop other key services for the network over the next three years, with all new products already delivered to customers.

Schierenbeck dismissed the possibility that the industry will face overcapacity any time soon, adding that it will be a long time before Chinese competitors become a threat, even as exports from China are starting to grow.

“It takes four years to build a new plant from scratch, and so we can’t build it faster than the market,” he said, adding that the Chinese “don’t export because it’s built for their own purposes.”

Writer: Harry Dempsey in Tokyo

© Financial Times