As COVID-19 spread across the global economy in 2020, Ford had to halt assembly lines at automotive factories in Michigan and Mexico. The old textile mill in Sunbury, Pennsylvania, also closed down for good after surviving previous fabric plant closures. The Texas oil fields, which once made the United States a rival to Saudi Arabia in crude exports, also stopped production. Meanwhile, ERMCO Inc., a Tennessee-based manufacturer of electrical transformers, continued to thrive. Despite the pandemic’s impact on supply chains, ERMCO’s facilities in Illinois, Indiana, and Georgia managed to keep up with record sales. CEO Tim Mills stated that they produced more transformers in 2020 than ever before, and 2021 surpassed that record.
However, the current boom may be just the beginning, as demand is expected to increase further once federal funding from President Joe Biden’s climate-spending laws starts flowing. However, Mills explained that a new regulation aimed at making transformers more energy-efficient is hindering their ability to clear an increasing backlog of orders. This shortage has not only prevented builders from completing new homes but has also raised the cost of replacing power lines damaged in storms by double or even more. Obtaining transformers that used to take weeks now requires waiting for up to a year or more. This crisis is worsening, potentially impeding the shift away from fossil fuels and leading to increased power outages in a country where the average household already experiences twice as much downtime compared to a decade ago.
Transformers come in various shapes and sizes, with the most noticeable ones being the metal cylinders mounted atop electrical poles. Larger transformers convert high voltage into the lower voltage that homes require, while smaller ones perform similar functions as electricity flows through power stations, substations, and into homes and businesses. In the past, demand for transformers kept up with new housing construction since almost every home is connected to one. However, extreme storms and wildfires have been destroying hundreds of transformers at a time, depleting utility stockpiles. This scarcity is further exacerbated by the fact that over a quarter of the US power grid is more than 50 years old and needs upgrading. Moreover, as the US expands its power system to accommodate solar and wind energy, as well as the increasing demand from electric vehicles and appliances, the need for transformers continues to grow.
The issue of transformer shortages has caught the attention of both the Trump and Biden administrations. However, Mills faces difficulties in ramping up production due to the time it takes to establish fully operational assembly lines. Additionally, he is uncertain if the current machines, which are already hard to produce quickly, will be illegal to sell in just four years due to proposed new regulations. The Biden administration’s proposed standards mandate the use of a completely different kind of steel for transformers sold from 2027 onwards. While environmentalists believe this would significantly reduce energy waste, manufacturers argue that the overall energy savings on the grid would be minimal. They warn that forcing factories to overhaul production lines to comply with the new regulations would exacerbate the transformer shortage and delay the transition away from fossil fuels. The Department of Energy has yet to release the final version of the regulation, and opinions on the matter are divided.
Policy experts suggest that simply abandoning the regulation may not solve the problem. Instead, federal assistance should be provided in terms of recruiting and training more workers and establishing a government-controlled stockpile of transformers to resolve the shortage. The shortage of transformers is not limited to one specific region or sector but affects different parts of the country in varying ways. Transformer orders that used to take weeks can now take more than a year, and large power transformers can take over two years. The Tennessee Valley Authority, for example, has experienced longer lead times and price pressures due to transformer supply chain challenges. Importing transformers, particularly from China, has been a common practice. Duke Energy and other utilities have had to turn down new projects to focus on tackling backlogs, maintaining current projects, and replenishing depleted stockpiles. Failure to meet future needs may lead to further delays and an extended surge in demand beyond 2023. Blackouts have become a real concern, with Americans experiencing longer periods without power in recent years. The average household lost power for a combined eight hours in 2021, double the duration compared to 2013.
In response to this rising demand, ERMCO announced plans to build a new production facility in Tennessee to meet the growing needs. However, the company is uncertain about how much space to allocate to transformers made with current materials, as future regulations may require a shift to a different type of steel. The Energy Department’s proposed rule suggests using amorphous electrical steel for transformer cores, which is commonly used in electric vehicles and motors. This presents a challenge for the industry, and Mills emphasized the need for clarity in order to make informed decisions regarding production expansion. Some experts argue that in addition to addressing the regulation issue, the government should provide support through hiring and training programs and the establishment of a national stockpile of transformers.