Low-Energy Fridays: The Transformer Shortage Has a Washington Backstory
Electric transformers are critical in connecting power-generating plants to end-use consumers, and they are getting harder to buy. Lead times that were a few weeks not long ago can now stretch to four years. It’s a global problem, but it’s particularly acute in the United States, where demand for power is growing fast. The federal government helped create the shortage, and it’s about to repeat its mistake.
Recent news coverage mostly tells the same story about the shortage: Utilities are fixing an aging grid, rebuilding after storms, and preparing for larger loads. But the transformer shortage isn’t a simple case of rising demand catching manufacturers by surprise; it’s a story about federal policymakers giving manufacturers good reasons to hold off on investments even as the shortage grew.
Government regulation affects every part of the electricity industry, including transformer design. By law, the U.S. Department of Energy (DOE) must set efficiency standards for distribution transformers and review them every six years. In late 2020, environmentalists and energy efficiency advocates sued the agency after it failed to complete several required reviews, including the one on transformer efficiency. To any manufacturer contemplating investments in new capacity, the missing review and litigation would have signaled that a standards fight was brewing. A manufacturer considering a multimillion-dollar expansion had good reason to pause.
The fight arrived on schedule. In January 2023, the DOE proposed a rule that would have required most manufacturers to shift toward amorphous-core steel-based products on a short timetable. When the agency backed away from that position in its final rule 15 months later, it left a much larger role for grain-oriented electrical steel—the material used in most existing transformers—and gave manufacturers until 2029 to comply. The details matter less than the sequence. Firms knew for several years that rules could change dramatically at any time, but they didn’t know just how.
In the middle of the standards debate, Washington layered on a second source of uncertainty. In June 2022, the White House invoked the Defense Production Act (DPA) for transformers and grid components, stating that the domestic industry couldn’t expand productive capacity in time without presidential action. That may sound like high-powered help was coming, but to manufacturers thinking about expansion, it sounded like “The government might subsidize your expansion if you wait.” The DPA announcement set off a round of lobbying for those subsidies; however, Congress failed to provide funding. The irony is hard to miss: The urgency of the DPA announcement gave firms another reason to wait.
Two pieces of evidence strongly point to government as the primary source of delay. First, once the standards fight ended in April 2024, manufacturers began announcing substantial new investments in transformer production capacity. Second, a June 2024 federal infrastructure advisory panel assembled to examine grid reliability problems flagged regulatory uncertainty regarding which kind of electrical steel manufacturers would be required to use as a significant reason for the transformer shortage.
That’s the part the shortage commentary keeps skating past. Yes, demand surged and capacity lagged, but explanations stopping there are incomplete. Between the overdue standards review, the litigation, the aggressive standards proposal, and the DPA signal, Washington told producers of the need for more transformer capacity while also making it harder to know what kind of transformer capacity to build.
If government-driven uncertainty helped slam the brakes on investment, the answer isn’t more government steering. However, just this week the White House invoked the DPA once again, renewing the push to address the shortage of distribution transformers and other grid equipment.
While the new DPA announcement is another “hurry up and wait” command, policy certainty is a better approach. A clear and stable rule is easier to hit than a moving target. Above all, the transformer shortage is a story about manufacturers sidelined by policy fights. Until policymakers recognize that, this new round of fixes will repeat the last round’s mistake—telling manufacturers to build while giving them good reasons to wait.