From S&P Global, January 5:
HIGHLIGHTS
- Transformer waiting times are still up to 40 months
- $9 billion committed to address global shortages
- Grid component market estimated at $350 bil in 2030
Demand for power grid equipment is set to keep rising over the next decade despite bottlenecks in the manufacturing of transformers and other vital grid components, leading to extended waiting times, the CEO of the world's biggest maker of transformers, Hitachi Energy, Andreas Schierenbeck, told Platts, part of S&P Global Energy, in an interview.
"We haven't seen peak demand [for grid equipment] yet and if you talk to my customers, most are even more bullish. I say that we have a good market for the next 10-15 years. Some of my customers say, you are too conservative, make that 15-20 years. That makes me quite optimistic, even if we will see some ups and downs," the Hitachi Energy CEO said.
In the case of large transformers, the company still has waiting times of up to 40 months, despite investing in new production facilities and expanding existing ones.
"The gap between demand and supply is not really closing, and we still have rather long waiting times," Schierenbeck said. "We are only investing into bankable business cases where the capacity output actually is secured by backlog, by capacity agreements or framework agreements."
Transformers are huge, building-sized components that can weigh up to 450 metric tons and are used to change electrical voltage, allowing electricity to be transmitted across large distances.
They take time and expertise to make, with skilled engineers physically winding copper wires to create coils. Production capacity was reduced during a previous period of sluggish demand, when transformers could be sourced in a matter of months.
Expansion to meet demand
Swiss-headquartered Hitachi Energy plans to invest $6 billion in manufacturing capacity expansions by 2027, doubling its spending compared to the previous three years.Overall, the company has committed over $9 billion to address shortages globally, including $1.5 billion specifically to ramp up transformer production.
That includes a new transformer factory in South Boston in the US and expanding factories in Germany (Bad Honnef), Sweden (Ludvika), Finland and Spain, as well as across Asia and South America.
Hitachi Energy, whose products also include high-voltage equipment and grid integration technologies, has a massive backlog not matched by existing manufacturing capacity and estimates the global market for its products to reach $350 billion by 2030.
"We have enough investment possibilities, but it's an individual decision, case by case," the CEO said.
Meanwhile, the war in Ukraine, which has reportedly caused the destruction of 7,000 transformers, is also having an impact. However, Schierenbeck noted that Ukraine itself is a producer of transformers.
"They are quite good at repairing and producing their own. There's not so much export business as I see in Ukraine," Schierenbeck said, noting, however, that a lesson from the Ukraine war is that the grid has to become more resilient.
Race for speed
In Europe, despite some setbacks on the speed of the energy transition by 2030, grid expansion remains a very high political priority."We all agree that the targets or the demand projection for 2040 remain more or less unchanged. At the moment, there's a lot of discussion in Germany about industrial demand destruction ... The way how we are seeing it is maybe a little bit too negative," said Schierenbeck, who previously led German energy group Uniper.
"I think there's a lot of bullishness about AI data centers in the US, but not in Europe. The main driver for that is not the lack of energy. The main fear is [regulatory uncertainty]," the CEO said.
According to Schierenbeck, "AI is a race for speed, which means a race for energy, and that's what the US is having. We [in Europe] have to invest now into energy production and distribution transmission for the data centers; you have to build them now because if you want to win the race, you have to be at the front. And if you have to wait for a grid connection and you have uncertainty about the legal framework, that's probably not the best place to invest."
The recent EU Grid Package shows "that we have finally accepted that the grid is important, which was neglected before. I hope that translates into very fast permitting times," the Hitachi Energy CEO said.
No transition without transmission....
....MUCH MORE
Along with GE Vernova and Siemens Energy, Hitachi is a go-to manufacturer of the stuff that makes and moves the the world's electricity.
