Making the connection: the electric T&D supply chain challenge | Wood Mackenzie

A shortage of critical components must be addressed to modernise and grow the US electricity network

4 minute read

Executive Vice President, Head of Power and Renewables, Wood Mackenzie

Executive Vice President, Head of Power and Renewables, Wood Mackenzie

Xizhou delivers value for clients by providing leading-edge insights and analytics.

Vice President, Supply Chain Data & Analytics, Wood Mackenzie

Vice President, Supply Chain Data & Analytics, Wood Mackenzie

Devin leads our supply chain group and leads on creating new or improved supply chain products and research.

With US electricity demand rising rapidly for the first time in decades, US electricity grids are struggling to cope. Supply chains have not been able to keep up with demand, especially for critical transmission and distribution electrical equipment where giant spikes in lead times and prices are already delaying our energy transition plans.

We recently held a webinar featuring both Wood Mac and external experts to discuss the issue and introduce our upcoming multiclient study Making the connection: meeting the electric T&D supply chain challenge. Fill out the form at the top of the page to access the full webinar recording, or read on for an introduction to the topic.

New electricity uses, from EV charging to data centres, are driving a sustained and ongoing increase in electricity demand for the first time in many years. Electricity networks need to be modernised and expanded to address this rapid increase in load. Inevitably, that means demand for key equipment is rising. To take one key example, we estimate that global demand for transformers will almost triple by 2034 (see chart below).

With the supply chain slow to react, the gap between supply and demand for a range of essential equipment is worsening. The situation is impeding modernisation and expansion of US electricity networks and creating an obstacle to connecting renewable projects, data centres and advanced manufacturing facilities to the grid.

Equipment shortages have been exacerbated by the need for reconstruction and maintenance in the wake of extreme weather events in the last few years, including Winter Storm Uri and Hurricane Ida in 2021, and most recently Hurricanes Helene and Milton.

Our analysis shows that average spend on transformers, for example, shoots up 39% when comparing periods three months before and after a major storm. Such unscheduled spending has gone up significantly in recent years; for an average medium-to-large US utility, over the last four to five years storm restoration costs have risen from around US$50 million per year to US$250 million. With severe weather events becoming more frequent, demand will only increase.

The direct result of the growing disparity between supply and demand is that the price of key equipment including transformers, circuit breakers and switchgear is soaring (see charts below).

To give perhaps the most significant example, the average price for a large 211 MVA generation step-up (GSU) transformers has increased from US$1.9 million in 2019 to almost US$3 million in 2024; the strongest price escalation has occurred in the last two years, with prices up 37% since the start of 2022. Higher GSU prices are an issue for renewables projects as they are required to step the voltage up to the required transmission level for connection to the grid.

Price escalation isn’t limited to large scale transformers, however. The cost of a 100 KVA single-phase pad-mounted transformer have shot up 80% since 2019, from US$2,500 per unit in 2019 to upwards of US$4,500. The increase in equipment costs is both threatening the economics of projects and increasing the price of electricity.

One small ray of light from a transformer cost perspective is that the price of grain oriented electrical steel, a key commodity input, has declined 60-70% recently. However, the increasing gap between supply and demand may offset any cost relief that comes from commodity declines for the foreseeable future.

Differing supply and demand dynamics mean that lead time trends vary significantly for different components. Perhaps unsurprisingly, the longest average lead times – of close to three years – are for large GSU and power transformers, which need to be custom designed to project requirements. Even four-to-five-year leads have been observed for these large power transformers recently!

Fortunately, transmission and distribution equipment manufacturers globally are starting to react, with US$7 billion invested in new manufacturing projects in 2023 and 2024. At least 50 new production facilities and expansions have been announced by 25 OEMs, with around half of investments intended to serve the US market. Most are expected to be completed between 2025 and 2027, although some larger projects may not be ready until the end of the decade.

Our multiclient study will provide an assessment of the potential future equipment supply-demand balance, comparing the impact on production capacity of these investments with expected market growth rates and import/export trends. It’s critical to give manufacturers confidence what the long-term demand will be given the time and expense required to increase manufacturing capacity.

Remember to fill in the form at the top of the page to download the full webinar recording and accompanying slides, which cover this topic in depth and include contributions from key industry and government stakeholders.