Gridlock Ahead? Transformer Shortage and the Renewable Energy Challenge

Transformers play a vital role in energy distribution systems by converting high-voltage electricity from transmission lines into low-voltage electricity for consumer use. Thus any supply disruptions in the supply of this essential component, coupled with resultant rising prices in the global transformer market, can significantly affecting utilities. Over the past three years, this situation has been an understated risk that threatens energy accessibility, reliability, and affordability, posing challenges to both consumers and energy providers.

Several factors influence the demand for transformers, making long-term forecasting difficult. These include load growth driven by the electrification of buildings and transportation, the rising frequency and severity of extreme weather events, and the need to upgrade aging electrical infrastructure. Additionally, factors like new renewable energy projects, expanding electrification, the growth of EV charging networks, and the establishment of new data centers contribute to fluctuating demand. During periods of supply-side inefficiencies, demand tends to surge naturally.

Supply Side Paucity: Increase in Wait Time

The demand for transformers has increased substantially worldwide amid the shortage of supply. The wait time to get a new transformer has doubled from 50 weeks in 2021 to nearly two years now, according to a report from Wood MacKenzie released in 2024. 

The wait for specialised large power transformers (LPTs), which boost voltage from power plants to transmission lines, has stretched to an astonishing four years. Supply-side constraints have driven costs skyward, with prices soaring by 60 to 80 percent since the start of 2020. In India, the situation is equally dire with wait times for 220-kilovolt transformers having risen from the earlier 8 months to over a year, underscoring the strain on this critical sector. 

Why is there a Shortage?

The transformer shortage is a result of market forces stemming from electricity demand and material supply chains. For example, transformer cores are generally made of grain-oriented electrical steel, or GOES. GOES is an important component for electric motors and EV chargers. The expansion of these adjacent industries intensified the demand for GOES and diverted much of the supply.

As per one Fortune Business Insights report, updated in December 2024, the Grain Oriented Electrical Steel market size was valued at USD 12.40 billion in 2023 and is projected to grow from USD 13.11 billion in 2024 to USD 20.48 billion by 2032, exhibiting a CAGR of 5.7 percent during the forecast period. Notably, the market size in the US is projected to grow significantly, reaching an estimated value of USD 1.54 billion by 2032, driven by the increasing demand for electric vehicles in the North American nation.

By 2024, GOES prices doubled since 2020 driven by a significant market deficit and key manufacturers curtailing production due to manufacturers expecting a drop in demand during pandemic.

For some US manufacturers, the demand skyrocketed by as much as 70 percent over the last two years. Further, the global demand for LPTs with voltages over 100 kV has grown more than 47 percent since 2020. Industry experts expect it to increase further 30 percent by 2030. 

After a boom in transformer manufacturing about 20 years ago, the industry is now facing a slowdown. Manufacturers often take decades to break even, leaving many hesitant to invest in expanding production. Companies that gained technological expertise and financial capital in the 1980s are currently benefiting from full production schedules and higher margins due to surging global demand. However, this profitability reduces their incentive to scale up, potentially leading to financial instability if market dynamics shift.

Despite these challenges, some manufacturers have announced plans to build new facilities in countries like Australia, China, Colombia, Finland, Germany, Mexico, the United States, and Vietnam. While these expansions are promising, they may fall short of alleviating the ongoing transformer shortage, which is quite pronounced compared to the demand. In the US, only around 20 percent of transformer demand can be met by domestic supply.

Dearth of Transformers: A Bad News for RE Sector

AC-DC conversion is crucial for the RE industry because many technologies, including the electrolyzers that create hydrogen fuel, EV charging stations, and energy storage, that aim to be a part of the cleaner energy future need transformers for DC power.

Step-up transformers are used to convert low-voltage electrical generation into high-voltage electricity for long-distance transmission. They are needed to integrate wind and solar farms onto the power grid by adjusting voltages, improving efficiency, and enhancing grid reliability. 

The supply side crunch of transformers directly affects the renewable energy projects. Wood MacKenzie reports that a quarter of the world’s renewable-energy projects may be delayed while awaiting transformers to connect them to local grids. For instance, the increased wait time for 220-kilovolt transformers could potentially affect nearly 150 GW of new solar development in India alone.

The current transformer shortage is likely to affect beyond current times. European Green Deal, for instance, planned for a substantial build-out of Europe’s transmission network by 2030 to accelerate electrification. This target now risks getting derailed if the transformer industry doesn’t ease the wait time.

In addition to the RE sector, the shortage of transformers also impacts other sectors which need them for integration in the grid, such as utilities, homeowners, businesses, rail systems, EV charging stations. 

Impact on India’s Renewable Segment

Transformers play a pivotal role in integrating renewable energy into the grid, ensuring efficient power transmission and grid stability. With India targeting 500 GW of renewable energy by 2030, the demand for transformers has surged, making their availability a critical factor for meeting these goals. However, a significant shortage of transformers now threatens to derail the momentum of India’s renewable energy transition.

The shortage of Cold-Rolled Grain-Oriented (CRGO) steel, a critical material for manufacturing transformers, is a key factor contributing to the transformer supply gap. Domestic production in India meets just 10-12 percent of the total demand, leaving the country heavily dependent on imports. In FY2024, India required 400,000 tonnes of CRGO steel but produced only 50,000 tonnes locally, relying on imports for 239,200 tonnes from countries such as Japan, South Korea, China, and Russia. This dependency is further complicated by delays in import certifications and expiring licenses issued by the Bureau of Indian Standards (BIS), creating uncertainty and disruptions in the power sector. Also India needs alloy steel like stainless steel or CRGO steel for its expanding aerospace, automotive, and energy industries.

The rapid growth of EV charging networks, data centres, and the push for smart grids further drives the demand for advanced transformers capable of meeting modern grid requirements.

The transformer shortage has significant implications for India’s renewable energy goals. Delayed project timelines risk deterring investors and slowing the progress of solar, wind, and energy storage projects. Moreover, the intermittent nature of renewable energy sources demands transformers with advanced monitoring and control systems to maintain grid stability. Without a steady supply of these critical components, the dependability and efficiency of the power infrastructure could be compromised.

Efforts are underway to address the shortage. Key players in the Indian transformer industry, including BHEL, Siemens India, and Voltamp Transformers, are ramping up production. Some manufacturers are also investing in new facilities. However, these measures may not be enough to bridge the demand-supply gap in the short term. Experts emphasize the need for robust policies to promote local manufacturing of both transformers and CRGO steel.

The recent government policy measures and the growing energy industry is expected to ease the pressure a little 2025 onwards with India Power Transformer Market expected to register a CAGR of greater than 3 percent between 2025 and 2030, as per Mordor Intelligence report. 

India’s renewable energy ambitions are closely tied to ensuring the availability of transformers and other essential components. To achieve its climate commitments and meet the growing energy needs of the country, immediate steps to strengthen domestic production and streamline supply chains are crucial. Without decisive action, the transformer shortage could jeopardise India’s ability to realise its ambitious energy transition goals.