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Global Surge in Renewable Energy Exposes Critical Transformer Shortage

Nov 1, 2024

Financial Times

Can Innovation Bridge the Gap? ENPOSS's FORCE Technology Offers Hope Amidst Transformer Crisis

Hitachi Energy, the world’s largest transformer producer, has issued a warning that its industry is “overwhelmed” by the rapid rise in global demand for grid equipment, potentially delaying essential infrastructure projects needed to increase renewable energy capacity. CEO Andreas Schierenbeck highlighted that manufacturers are unlikely to expand output quickly enough to meet the surging demand, driven partly by the growth of data centers for generative AI and the global transition to cleaner energy.



“It’s challenging to increase capacity, and it probably won’t happen fast enough,” Schierenbeck told the Financial Times, explaining that utilities may have to delay projects and prolong the lifespan of existing equipment. Transformers, which can weigh up to 500 tonnes, are crucial for managing electricity voltage across power grids but are complex to produce, requiring specialized machines and extensive labor.



Following Hitachi’s $11 billion acquisition of ABB Power Grids in 2020, the company has become a major growth engine for Japan’s third-largest public company. Hitachi Energy aims to boost revenue by $1-2 billion annually, with a goal of reaching $30 billion by 2030, up from the current $13 billion. While transformers used to be available within six to eight months, demand in the $48 billion market has soared, with projections suggesting it will reach $67 billion by 2030, according to Rystad Energy.



Utilities that haven’t pre-ordered transformers may now face three- to four-year wait times, further straining grid upgrades as electricity demand rises and infrastructure ages. The shift to renewable energy, often sourced from remote locations, has increased the need for transmission infrastructure, putting added pressure on regulators working to modernize and decarbonize power systems.



Edvard Christoffersen, a senior supply chain analyst at Rystad, noted that transformer prices have increased by 40% since 2019, with supply bottlenecks expected to last until at least 2026. “Transformers are currently the most critically undersupplied grid component,” he said. Transformer shortages have also been highlighted as a major issue by the U.S. National Renewable Energy Laboratory and the President’s National Infrastructure Advisory Council.



In response, Hitachi Energy plans to invest $6 billion and add 15,000 new employees over the next three years to increase production, though all new capacity is already committed to existing clients. Schierenbeck sees minimal risk of oversupply, given the lengthy timeline to build new factories. He also noted that, while China has started exporting transformers, most of its production remains focused on domestic needs.

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