Powering the Nation: How to Fix the Transformer Shortage

Ongoing supply chain shortages make it difficult to maintain the electric grid and exacerbate the impact of transformer disruptions. Approximately 80 percent of transformers are manufactured abroad. Transformer components such as digital monitoring devices and remote sensors are vulnerable to hacking, leading to a 2020 executive order that authorized federal officials to ban the domestic use of electronic components produced by companies with connections to “foreign adversaries.”

Additionally, current transformer supplies are inadequate to meet the projected demands of green energy infrastructure. The Biden administration has committed to halving U.S. carbon emissions by 2030 and zeroing them out by 2050. Studies from Princeton, MIT, and National Renewable Energy Laboratory show that to achieve such rapid rates of decarbonization, transmission infrastructure will have to double or triple over the next 30 years. Otherwise, renewables will not be able to connect to the grid or send the electricity they produce to end users. Long delivery times, high prices, and reliance on international transformer manufacturers will limit our ability to realize construction at such an unprecedented pace.

Supply Chain Issues and a Limited Labor Pool
The average cost of transformers has doubled or tripled since 2020, and the lag between order and delivery has grown from three months to a year. A 2020 report from the Department of Commerce found that the average transformer is 30 to 40 years old — far beyond the intended lifespan of 25 years. The age of our current stock suggests that active transformers may be more vulnerable to mechanical breakdowns and failure. This reflects a broader trend of underinvestment in maintenance and modernization of electric infrastructure.

The transformer manufacturing industry was decimated by offshoring. The remaining eight U.S.-based companies that produce transformers satisfy only about 20 percent of the market, leaving America’s 3,000 domestic electric utilities vulnerable to supply chain disruptions. This was starkly evident in the wake of the pandemic. The prior transformer deficit was exacerbated as lockdowns scrambled supply chains and energy loads fluctuated widely in response to the shift to remote work. Major storms, fires and hurricanes in the past two years have also led to substantial reductions in inventory. Since 2020, prices for some specific transformers have increased as much as 900 percent. Foreign producers have also been suspected of trying to corner the large transformer market by bidding low to drive competitors out of business.

LPT manufacturing is a skill- and resource-intensive process, with a single unit costing $4 million or more. LPTs are typically custom-built, with exacting technical specifications and high safety standards. Specially trained engineers design LPTs and experienced technicians assemble the rare, highly sensitive components into the final product. Their size and delicate machinery make transportation, installation, and maintenance an expensive undertaking.

A shrinking labor pool is one of the main challenges to scaling up transformer manufacturing. The one-two punch of offshoring and a decrease in vocational training left manufacturers of transformers and their components with an aging workforce and few opportunities to attract new employees. The decline in vocational education has shrunk the pool of individuals who have the skills required for transformer manufacturing, such as welding, coil winding, and transformer testing. Welders are particularly sought-after, but unlike electricians or carpenters, they do not have a single union where employers could easily find them. Transformer manufacturing also requires electrical engineers. But the majority of electrical engineers pursue electronics or computer science employment, while few postsecondary institutions offer the required specializations in manufacturing, power, or electrical design engineering. Addressing the skills mismatch and training a younger workforce are longer-term endeavors that should start as soon as possible. 

Creating a Transformer Reserve and Training the Workforce 
Policymakers must not only address the immediate need for transformers but also develop a longer-term base of production that can provide a robust and accessible supply.

In the near term, the Biden administration and Congress should consider the following actions:

·  Allocate Inflation Reduction Act funding to allow the president to boost transformer production using the National Defense Production Act.

·  Create a strategic transformer stockpile to mitigate the risk of a sudden loss of existing infrastructure. 

·  Pioneer transformer modularity, enabling manufacturers and utilities to produce and replace transformers more easily.

·  Task the Departments of Energy and Homeland Security with creating and maintaining an ongoing inventory of domestic transformer quantities and locations. 

·  Task DOE and DHS with creating a transformer import screening program to ensure the functionality and mechanical integrity of transformer imports.

Long-term solutions require addressing industry-wide challenges to scaling manufacturing, including securing resources and growing the labor pool. Workforce development can occur through the private sector, agencies, and legislative actions. The following policies should be considered: 

·  Expand mechanisms such as competitive grants, direct loans, and loan guarantees that support domestic LPT manufacturing capabilities and job creation.

·  Retool existing Department of Labor workforce programs to close the skills gap.

·  Create industry-led internships, apprenticeships, and cooperative education programs to increase the engineering and technician talent pool. 

·  Establish university-industry partnerships to expand relevant electrical engineering subspecialty courses and raise awareness of the need for workers in the LPT manufacturing industry.

·  Include transformer manufacturing workforce development in the upcoming National Science and Technology Strategy. 

·  Prioritize transformer workforce development through the National Science Foundation’s Technology, Innovation, and Partnerships Directorate programs. 

·  Prioritize transformer intermodality research and deployment through existing federal science and innovation programs, like the Small Business Innovation Research program.

·  Improve transformer resilience, hardening them to resist physical and cyber attacks. 

·  Task DOE and DHS to report on best practices to modernize transformer maintenance, replacement, and manufacturing.

Conclusion
Transformers are a fundamental component of our electric grid. Securing the transformer supply chain is critical to ensure the grid’s resilience, strengthen national security, and build a decarbonized future. Longstanding domestic manufacturing deficiencies exacerbated by the pandemic have left us with an urgent need for federal action. Policy solutions like those outlined above will create opportunities to boost domestic employment and guarantee a resilient electric grid.

Gabriela Rodriguez is an Innovation Policy analyst at the Niskanen Center. Johan Cavert is a Transmission Policy analyst with the Niskanen Center’s Climate Team.This article is published courtesy of the Niskanen Center.