US power companies face long waits for transformers amid data center surge
Surging demand from AI data centers is causing critical shortages of grid equipment like transformers across the U.S., leading to increased costs and multi-year lead times. Power companies and developers are responding by ordering equipment years in advance, refurbishing older units, and diversifying their supply chains. Federal regulators have ordered grid operators to investigate new protocols for connecting large energy users like data centers.
The rapid expansion of artificial intelligence data centers is intensifying existing shortages of crucial grid equipment, such as transformers, across the United States. This surge in demand is causing significant cost increases and extending lead times for some high-voltage transformers from approximately one year in 2020-2021 to multiple years by 2026, according to Ben Boucher, senior analyst with Wood Mackenzie.
Data centers are projected to consume eight times more electricity than electric vehicles by 2030, with U.S. data center capacity reaching 110 gigawatts, up from 24 gigawatts currently. Their share of the electrical equipment market could grow to 40% from less than 2% in 2020, exacerbating supply chain pressures on components like circuit breakers and switchgear. Transformer costs are also expected to rise by 4% to 10% over the next year.
Utilities and developers are adapting by securing equipment well in advance, refurbishing older units, asking customers for prepayments, and diversifying their sourcing. Dan Beans, CEO of California's Roseville Electric Utility, highlighted this shift, noting that his utility now plans three to five years ahead for equipment procurement. Many are also increasingly sourcing from overseas suppliers, with Roseville Electric Utility seeing about three-fourths of its bids for transformers come from foreign sources. Federal regulators have also directed grid operators to explore new protocols for connecting data centers and other large energy users more swiftly.
Long-term strategies to alleviate these challenges include delaying power plant retirements and expanding domestic manufacturing capacity for grid components to reduce reliance on international markets and shorten grid connection queues.