1 00:00:00,240 --> 00:00:02,720 Speaker 1: This is Dana Perkins and you're listening to Switched on 2 00:00:03,040 --> 00:00:05,960 Speaker 1: the b and EF podcast. Earlier this year, we spoke 3 00:00:06,000 --> 00:00:08,719 Speaker 1: with my colleague sun Jeet and Meredith from BNEF about 4 00:00:08,760 --> 00:00:11,200 Speaker 1: one of the most overlooked areas of the energy sector, 5 00:00:11,480 --> 00:00:15,400 Speaker 1: that's grids, and during the conversations, Suenjeit briefly mentioned a 6 00:00:15,440 --> 00:00:18,120 Speaker 1: piece of equipment that is essential for the grid to function. 7 00:00:18,680 --> 00:00:23,080 Speaker 1: Those are transformers. Transformers come in all shapes and sizes, 8 00:00:23,280 --> 00:00:25,520 Speaker 1: as we're going to find out in today's episode, and 9 00:00:25,600 --> 00:00:29,680 Speaker 1: they serve a wide variety of purposes. However, large power 10 00:00:29,720 --> 00:00:33,840 Speaker 1: transformers are lpts for short, because after all, everyone loves 11 00:00:33,880 --> 00:00:37,760 Speaker 1: an acronym, are integral for regulating the supply of electricity 12 00:00:37,760 --> 00:00:40,560 Speaker 1: that runs through the grid. And with gigawatts of renewable 13 00:00:40,680 --> 00:00:44,040 Speaker 1: energy additions set to be added to the US energy makeup, 14 00:00:44,159 --> 00:00:47,440 Speaker 1: as well as even more units needing replacing at their 15 00:00:47,520 --> 00:00:49,960 Speaker 1: end of life, well we're just going to simply need 16 00:00:50,000 --> 00:00:54,160 Speaker 1: more transformers. To put this in perspective, under BNF's Economic 17 00:00:54,200 --> 00:00:57,240 Speaker 1: Transition scenario, which is part of our annual New Energy 18 00:00:57,240 --> 00:01:00,920 Speaker 1: Outlook exercise, we foresee the US day demand for large 19 00:01:00,960 --> 00:01:04,679 Speaker 1: power transformers to reach over thirteen hundred units by the 20 00:01:04,760 --> 00:01:07,680 Speaker 1: end of the decade. That's up by forty seven percent 21 00:01:07,840 --> 00:01:11,039 Speaker 1: when compared with twenty twenty two. So what can be 22 00:01:11,120 --> 00:01:14,280 Speaker 1: done to ensure the US grid has the required amount 23 00:01:14,280 --> 00:01:17,800 Speaker 1: of transformers to reliably function. To take a closer look 24 00:01:17,840 --> 00:01:20,399 Speaker 1: at transformers, on today's show, I get to speak with 25 00:01:20,440 --> 00:01:24,040 Speaker 1: a member of beanuf's modeling team, Ava Gonzalez Isla. Together, 26 00:01:24,120 --> 00:01:27,600 Speaker 1: we discuss the makeup of lpts and in particular the 27 00:01:27,720 --> 00:01:31,240 Speaker 1: very specific type of steel that is required for their manufacturing, 28 00:01:31,400 --> 00:01:34,039 Speaker 1: which is so important that the Department of Energy in 29 00:01:34,040 --> 00:01:37,520 Speaker 1: the US rates it as a near critical material. We 30 00:01:37,600 --> 00:01:40,600 Speaker 1: also discuss the lack of domestic production capacity in the 31 00:01:40,680 --> 00:01:44,479 Speaker 1: US to manufacture large power transformers and which countries are 32 00:01:44,480 --> 00:01:47,200 Speaker 1: making up the shortfall, And we go through the tariffs 33 00:01:47,240 --> 00:01:50,600 Speaker 1: that have hampered the domestic production capabilities in the US 34 00:01:50,800 --> 00:01:53,000 Speaker 1: and whether they have the ability to meet the demand 35 00:01:53,000 --> 00:01:57,120 Speaker 1: for transformers moving forward or will continue to rely on imports. 36 00:01:57,320 --> 00:01:59,960 Speaker 1: As always, if you like the show, if you subscribe, 37 00:02:00,160 --> 00:02:02,680 Speaker 1: you'll receive an update when future shows are published, and 38 00:02:02,720 --> 00:02:04,920 Speaker 1: if you give us a review then you'll make us 39 00:02:04,920 --> 00:02:07,600 Speaker 1: more discoverable by others. But right now, let's jump straight 40 00:02:07,600 --> 00:02:21,040 Speaker 1: into my conversation about transformers with Ava. Ava, thank you 41 00:02:21,120 --> 00:02:22,239 Speaker 1: very much for joining today. 42 00:02:22,360 --> 00:02:25,000 Speaker 2: We thank you for having me. I mean, been listening 43 00:02:25,040 --> 00:02:26,960 Speaker 2: to a lot of shows, so it's nice to be here. 44 00:02:27,280 --> 00:02:28,000 Speaker 3: Ava used to. 45 00:02:27,919 --> 00:02:31,880 Speaker 1: Help produce Switched On, so has picked many an episode 46 00:02:31,880 --> 00:02:33,480 Speaker 1: that people have listened to. But now we have you 47 00:02:33,520 --> 00:02:35,760 Speaker 1: here as a guest, and actually I want to start 48 00:02:35,800 --> 00:02:39,440 Speaker 1: today by talking a little bit about you specifically. But 49 00:02:39,520 --> 00:02:41,560 Speaker 1: let's talk actually first about the sort of work that 50 00:02:41,600 --> 00:02:43,079 Speaker 1: you do for BNOF because we have a lot of 51 00:02:43,160 --> 00:02:46,000 Speaker 1: different roles in people who write different types of research here. 52 00:02:46,080 --> 00:02:49,720 Speaker 1: But you have a very strong numerical background and that 53 00:02:49,840 --> 00:02:52,399 Speaker 1: you've done modeling for us, but then also write long 54 00:02:52,440 --> 00:02:55,399 Speaker 1: form research for us. Talk a little bit about yourself 55 00:02:55,480 --> 00:02:57,760 Speaker 1: and the expertise that you bring. 56 00:02:58,160 --> 00:03:00,600 Speaker 3: I joined the moderning tame on. What we usually do 57 00:03:00,880 --> 00:03:02,359 Speaker 3: is we build Excel tools. 58 00:03:02,160 --> 00:03:04,840 Speaker 2: And we publish them online so that clients can see 59 00:03:04,880 --> 00:03:08,000 Speaker 2: how we are calculating our net present values and a 60 00:03:08,040 --> 00:03:10,800 Speaker 2: lot of stuff. They can challenge our sanctions, they can 61 00:03:11,360 --> 00:03:13,840 Speaker 2: change the default values that we provide. So yeah, we 62 00:03:13,919 --> 00:03:16,400 Speaker 2: provide advances of very useful tools on the web, and 63 00:03:16,440 --> 00:03:19,200 Speaker 2: I've also built some models for other teams and then 64 00:03:19,320 --> 00:03:21,679 Speaker 2: written a long report on the back of that. 65 00:03:22,280 --> 00:03:26,680 Speaker 1: So how did it come about that we started focusing 66 00:03:26,919 --> 00:03:29,960 Speaker 1: on transformers in a serious way? How did this land 67 00:03:30,000 --> 00:03:30,600 Speaker 1: on your desk? 68 00:03:31,080 --> 00:03:33,760 Speaker 2: Clients have been asking people in the US for all 69 00:03:33,760 --> 00:03:36,560 Speaker 2: our forecasts of solar and if we were taken into 70 00:03:36,600 --> 00:03:41,240 Speaker 2: consideration transformer bottlenecks, and we didn't know the answer. So 71 00:03:41,360 --> 00:03:44,080 Speaker 2: they were like, we should probably answer this question, and 72 00:03:44,120 --> 00:03:45,360 Speaker 2: that's what I That's what I did. 73 00:03:45,800 --> 00:03:49,640 Speaker 1: So you've researched transformers and you know about transformers, because 74 00:03:49,920 --> 00:03:52,160 Speaker 1: let's rewind the clock in your life a little bit. 75 00:03:52,440 --> 00:03:56,040 Speaker 1: You actually have experience working in a transformer production facility, 76 00:03:56,160 --> 00:03:59,320 Speaker 1: which is not the typical thing from a being a 77 00:03:59,320 --> 00:04:01,880 Speaker 1: f analyst. So it's nice to bring the real into 78 00:04:01,920 --> 00:04:04,160 Speaker 1: the research. Tell us a little bit about what that 79 00:04:04,200 --> 00:04:05,000 Speaker 1: experience was like. 80 00:04:05,400 --> 00:04:08,760 Speaker 2: Sure, So I worked in the assembly line in a 81 00:04:09,040 --> 00:04:11,960 Speaker 2: facility in the middle of Spain close to Almagro, where 82 00:04:11,960 --> 00:04:15,520 Speaker 2: I'm from, for six weeks, just assembling very small transformers, 83 00:04:15,560 --> 00:04:18,800 Speaker 2: so these ones would go inside swimming pools or maybe 84 00:04:18,839 --> 00:04:21,680 Speaker 2: inside lifts. Yeah, most people that are listening don't know 85 00:04:21,720 --> 00:04:25,120 Speaker 2: about there's transformers everywhere on electronics and also on the 86 00:04:25,120 --> 00:04:27,000 Speaker 2: power system, as we'll say later. 87 00:04:27,160 --> 00:04:29,600 Speaker 3: So it was very nice to work in a factory. 88 00:04:30,000 --> 00:04:32,279 Speaker 1: So the transformers that we're here to talk about today 89 00:04:32,400 --> 00:04:36,440 Speaker 1: are very large transformers, yes, specifically used within the grid. 90 00:04:36,560 --> 00:04:38,840 Speaker 1: So tell us a little bit about the transformers we're 91 00:04:38,839 --> 00:04:41,680 Speaker 1: specifically going to talk about in the context of the US, 92 00:04:41,720 --> 00:04:45,640 Speaker 1: and we'll get to the supply constraints. What are the transformers, 93 00:04:45,680 --> 00:04:48,680 Speaker 1: what are they called, and actually, really importantly, why are 94 00:04:48,760 --> 00:04:51,320 Speaker 1: they such a critical part of clean energy rollout? 95 00:04:51,640 --> 00:04:54,280 Speaker 2: So transformers are pretty much everywhere on the grid because 96 00:04:54,279 --> 00:04:58,279 Speaker 2: the most efficient way to transport power is at high voltages. 97 00:04:58,360 --> 00:05:00,880 Speaker 2: So the transformer is just a pecific way that would 98 00:05:00,920 --> 00:05:03,640 Speaker 2: convert the power from low voltage too high so that 99 00:05:03,640 --> 00:05:07,679 Speaker 2: we can transport it during great distances with very low 100 00:05:07,760 --> 00:05:11,839 Speaker 2: power losses. So it's about system efficiency and low losses basically. 101 00:05:12,040 --> 00:05:15,160 Speaker 2: And you have different voltages in the line, so every 102 00:05:15,160 --> 00:05:18,160 Speaker 2: time you change voltage, you need a transformer. So yeah, 103 00:05:18,160 --> 00:05:21,280 Speaker 2: they are pretty much everywhere. In the report, I focus 104 00:05:21,320 --> 00:05:23,320 Speaker 2: off on the very large ones, as you said, so 105 00:05:23,360 --> 00:05:26,320 Speaker 2: the ones that will go between a power plant and 106 00:05:26,400 --> 00:05:29,760 Speaker 2: the high voltage transmission line or at the substations that 107 00:05:29,800 --> 00:05:33,800 Speaker 2: would convert the voltage down to more manageable voltages for consumption. 108 00:05:34,240 --> 00:05:37,360 Speaker 1: Everything is made of something, certainly, that's why b and 109 00:05:37,400 --> 00:05:41,560 Speaker 1: EF covers commodities. It is the beginning of everything you 110 00:05:41,680 --> 00:05:44,120 Speaker 1: end up seeing in the transition, and this is no exception. 111 00:05:44,480 --> 00:05:47,120 Speaker 1: So what are some of the critical materials that are 112 00:05:47,160 --> 00:05:50,400 Speaker 1: required in order to create a transformer? 113 00:05:51,120 --> 00:05:54,360 Speaker 2: Yeah, that's a great question. So transformer is basically made 114 00:05:54,400 --> 00:05:58,880 Speaker 2: of commodities. The most important party is electrical still, which 115 00:05:58,920 --> 00:06:01,200 Speaker 2: is part of the core, and I guess you'll want 116 00:06:01,200 --> 00:06:03,480 Speaker 2: to dig into that later because it was listed at 117 00:06:03,480 --> 00:06:06,039 Speaker 2: one of the nearer critical materials by the US Department 118 00:06:06,040 --> 00:06:08,120 Speaker 2: of Energy in July. But it also has a lot 119 00:06:08,120 --> 00:06:11,200 Speaker 2: of copper and steel and insulation materials. So yeah, the 120 00:06:11,200 --> 00:06:14,039 Speaker 2: price of the transformer is massively influenced by the price 121 00:06:14,040 --> 00:06:15,560 Speaker 2: of these commodities, obviously. 122 00:06:16,080 --> 00:06:18,720 Speaker 1: So let's have a bit of a vocabulary lesson then here, 123 00:06:18,760 --> 00:06:23,080 Speaker 1: because within steel, there are three different types that go 124 00:06:23,160 --> 00:06:26,520 Speaker 1: into this transformer. Yeah, so this is the goes or 125 00:06:26,560 --> 00:06:27,200 Speaker 1: as it goes. 126 00:06:27,400 --> 00:06:29,400 Speaker 3: Yeah, Yeah, I call it goes. 127 00:06:29,839 --> 00:06:33,120 Speaker 1: The nose and the amorphous steel. 128 00:06:32,880 --> 00:06:33,760 Speaker 3: And the amorphous stel. 129 00:06:33,839 --> 00:06:34,080 Speaker 2: Yeah. 130 00:06:34,240 --> 00:06:36,479 Speaker 1: But I think it would be really well helpful for 131 00:06:36,520 --> 00:06:38,919 Speaker 1: me and hopefully for our listeners. To better understand what 132 00:06:39,000 --> 00:06:41,960 Speaker 1: these three different types of steel that make up the 133 00:06:42,200 --> 00:06:45,640 Speaker 1: overall steel requirements for transformers. So let's start with the 134 00:06:45,680 --> 00:06:48,839 Speaker 1: goes the goes what is a stand for? And yeah, 135 00:06:48,839 --> 00:06:50,960 Speaker 1: where does it come from? And let's go into that. 136 00:06:51,279 --> 00:06:54,919 Speaker 2: Yeah, so goes On knows they're both flat rolled product, 137 00:06:55,200 --> 00:06:58,599 Speaker 2: which means they're produced us seeing like hot and cold 138 00:06:58,800 --> 00:07:02,320 Speaker 2: processes that make it a role like aluminium foil, but 139 00:07:02,360 --> 00:07:05,719 Speaker 2: obviously not aluminium foil, because this is something different is 140 00:07:05,920 --> 00:07:09,000 Speaker 2: still and it has a small percentage of silicon. And 141 00:07:09,040 --> 00:07:12,120 Speaker 2: then with the ghost, there's an additional process called a 142 00:07:12,200 --> 00:07:16,400 Speaker 2: kneeling to orient the particles so that the magnetic field 143 00:07:16,400 --> 00:07:19,600 Speaker 2: inside the transformer can be can be better transmitted. Basically, 144 00:07:19,720 --> 00:07:22,720 Speaker 2: so the ghost and from grain oriented electrical steel, and 145 00:07:22,840 --> 00:07:26,200 Speaker 2: it refers to these particles that are oriented and that 146 00:07:26,280 --> 00:07:29,640 Speaker 2: can transport the magnetic field so that the transformer works better. 147 00:07:29,800 --> 00:07:33,280 Speaker 2: In the nose, it is non oriented electrical steel, so 148 00:07:33,360 --> 00:07:37,800 Speaker 2: the particles are not oriented obviously, and they don't work 149 00:07:37,920 --> 00:07:41,080 Speaker 2: as good in the transformers because the losses are like 150 00:07:41,120 --> 00:07:43,600 Speaker 2: three to five times bigger because of this lack of 151 00:07:43,680 --> 00:07:48,360 Speaker 2: particle orientation. So yeah, all the ghosts demand is basically transformers, 152 00:07:48,400 --> 00:07:50,720 Speaker 2: and because the large ones, there's such a big part 153 00:07:50,760 --> 00:07:53,040 Speaker 2: of it, that is the core that like, yeah, large 154 00:07:53,040 --> 00:07:57,520 Speaker 2: power transformers basically make the demand for ghosts. Nose is 155 00:07:57,560 --> 00:08:00,520 Speaker 2: also is used in all types of motors, electric motors 156 00:08:00,520 --> 00:08:04,400 Speaker 2: and moving parts, so there's a big demand rising due 157 00:08:04,440 --> 00:08:07,280 Speaker 2: to IVY uptake in general, but it's also used in 158 00:08:07,320 --> 00:08:10,680 Speaker 2: power generators and yeah, any moving motor basically. 159 00:08:10,920 --> 00:08:12,680 Speaker 1: And then there's a MorphOS steel. And I know what 160 00:08:12,720 --> 00:08:14,600 Speaker 1: the word of morphus means, but what is in a 161 00:08:14,680 --> 00:08:15,480 Speaker 1: MorphOS steel? 162 00:08:16,480 --> 00:08:20,440 Speaker 2: So amorphos steel is a very niche, niche material actually, 163 00:08:20,600 --> 00:08:23,200 Speaker 2: but it has some properties that can be used in 164 00:08:23,360 --> 00:08:26,720 Speaker 2: very small transformers. And in fact, the US is thinking 165 00:08:26,720 --> 00:08:29,360 Speaker 2: about a standard that would instead of using goos or 166 00:08:29,560 --> 00:08:32,880 Speaker 2: high permeability goes for some of the transformers, they want 167 00:08:32,880 --> 00:08:36,320 Speaker 2: to use amorpho steel because it's slightly more efficient than 168 00:08:36,360 --> 00:08:38,720 Speaker 2: the ghost. But that of course means that then the 169 00:08:38,760 --> 00:08:42,120 Speaker 2: transformer designs have to change. We think that in the 170 00:08:42,200 --> 00:08:47,000 Speaker 2: US there's like twelve million metric tons produced per year 171 00:08:47,240 --> 00:08:50,840 Speaker 2: of gooss. Well there's like forty five thousand produce of 172 00:08:50,840 --> 00:08:53,959 Speaker 2: amorphous steel. So obviously, well, if you want a lot 173 00:08:53,960 --> 00:08:56,640 Speaker 2: of transformers to use these materials, there's a big need 174 00:08:56,720 --> 00:08:57,240 Speaker 2: for scale. 175 00:08:57,600 --> 00:09:00,400 Speaker 1: Also, let's talk about among these, which one is in 176 00:09:00,880 --> 00:09:02,400 Speaker 1: or do we think will be in the future. In 177 00:09:02,440 --> 00:09:05,880 Speaker 1: the scarces supply where we're seeing a real gap in 178 00:09:05,960 --> 00:09:09,199 Speaker 1: terms of ramping up supply for this increased demand. Is 179 00:09:09,240 --> 00:09:11,800 Speaker 1: it goes, the nose, Morphy steel are all of the above. 180 00:09:12,080 --> 00:09:14,680 Speaker 2: The reason why we talk about nose is because the process, 181 00:09:14,760 --> 00:09:18,160 Speaker 2: the fabrication process is super similar with ghosts, so you 182 00:09:18,160 --> 00:09:21,240 Speaker 2: could upgrade a nose factory into goes and make it 183 00:09:21,360 --> 00:09:24,480 Speaker 2: useable in transformers. You cannot use noses in transformers as 184 00:09:24,480 --> 00:09:26,880 Speaker 2: it is because it has bigger losses and nobody wants 185 00:09:26,880 --> 00:09:28,960 Speaker 2: bigger losses in the power system. That's why we have 186 00:09:29,000 --> 00:09:31,560 Speaker 2: transformers in the first place. So the good thing about 187 00:09:31,600 --> 00:09:34,480 Speaker 2: goes is that in the flatterol product you can then 188 00:09:34,800 --> 00:09:36,800 Speaker 2: stack them and produce. 189 00:09:36,760 --> 00:09:38,640 Speaker 3: Huge transformers with that. 190 00:09:39,040 --> 00:09:42,040 Speaker 2: While I'm morpho, still you cannot stack it, so that's 191 00:09:42,080 --> 00:09:45,880 Speaker 2: why you're using it for a very small transformer. There's 192 00:09:45,920 --> 00:09:48,800 Speaker 2: different classes of goals as well, and we want the 193 00:09:48,880 --> 00:09:51,880 Speaker 2: super high quality, high permeability ones because that's the one 194 00:09:51,880 --> 00:09:54,760 Speaker 2: that is going to have lower losses, and there's been 195 00:09:54,800 --> 00:09:58,080 Speaker 2: a high supply issue of goals in the US for 196 00:09:58,160 --> 00:10:00,160 Speaker 2: a very long time because they only produce yeah, two 197 00:10:00,280 --> 00:10:02,400 Speaker 2: million tons a year or something like that. So there 198 00:10:02,480 --> 00:10:05,079 Speaker 2: used to be two domestic players of goals in the US, 199 00:10:05,200 --> 00:10:07,400 Speaker 2: and then the US decided to set up a new 200 00:10:07,440 --> 00:10:10,439 Speaker 2: standard so that the goals would be of higher permeability, 201 00:10:10,679 --> 00:10:13,640 Speaker 2: and that led to the closing of one facility and 202 00:10:13,679 --> 00:10:17,440 Speaker 2: then more imports of this high quality material instead of 203 00:10:17,440 --> 00:10:21,079 Speaker 2: producing domestically. To be fair, producing it is very expensive 204 00:10:21,160 --> 00:10:23,600 Speaker 2: and very hard, and there's a very high failure rate 205 00:10:23,640 --> 00:10:26,280 Speaker 2: and low yielding. So it's an expertise that not many 206 00:10:26,320 --> 00:10:30,360 Speaker 2: companies have. But there's very little domestic capacity in the US. 207 00:10:30,720 --> 00:10:32,720 Speaker 1: So I would love to know where in the world 208 00:10:32,760 --> 00:10:36,080 Speaker 1: transformers are manufactured and really where they're coming from. Is 209 00:10:36,120 --> 00:10:39,079 Speaker 1: this increasingly a domestic market in the US, or is 210 00:10:39,120 --> 00:10:41,200 Speaker 1: it offshore or near shore? 211 00:10:41,520 --> 00:10:44,440 Speaker 2: Well, we do think that domestic manufacturers in the US 212 00:10:44,440 --> 00:10:48,000 Speaker 2: are increasing their capacity slowly because there's in a surge 213 00:10:48,080 --> 00:10:51,800 Speaker 2: in domestic demand, so they're coming more and more from 214 00:10:51,800 --> 00:10:56,080 Speaker 2: the US, But historically they've run at fourty percent capacity, 215 00:10:56,280 --> 00:10:59,960 Speaker 2: and the import penetration rate for these particular transformers round it, 216 00:11:00,960 --> 00:11:02,679 Speaker 2: so mostly from abroad. 217 00:11:03,040 --> 00:11:05,800 Speaker 3: Today, the biggest exporters. 218 00:11:05,160 --> 00:11:09,040 Speaker 2: To the US are Mexico and Canada, and that's because 219 00:11:09,240 --> 00:11:13,680 Speaker 2: labor can be cheaper. There's been less uncertainties about policies, 220 00:11:13,960 --> 00:11:18,440 Speaker 2: trade restrictions, and import standards. There's been, honestly, so much 221 00:11:18,480 --> 00:11:22,360 Speaker 2: going on since twenty ten to today that manufacturers felt 222 00:11:22,400 --> 00:11:25,320 Speaker 2: that they had more of an incertentive to invest in 223 00:11:25,360 --> 00:11:27,680 Speaker 2: Mexico and to invest domestically. 224 00:11:27,920 --> 00:11:30,960 Speaker 1: And then historically they haven't come from any of these places. 225 00:11:31,040 --> 00:11:34,400 Speaker 1: They had been imported from quite far away. What has 226 00:11:34,520 --> 00:11:37,840 Speaker 1: historically been the transformer market. And really when did we 227 00:11:37,920 --> 00:11:41,439 Speaker 1: see it change to being a North American market servicing 228 00:11:41,520 --> 00:11:44,120 Speaker 1: North America versus imported on. 229 00:11:44,080 --> 00:11:45,199 Speaker 3: A ship from far away. 230 00:11:45,559 --> 00:11:48,920 Speaker 2: Sure, so there was a big part of large power 231 00:11:48,960 --> 00:11:52,240 Speaker 2: transformers that were imported from South Korea, and the US 232 00:11:52,400 --> 00:11:56,839 Speaker 2: started some investigations on these, which led to at least 233 00:11:56,920 --> 00:12:02,160 Speaker 2: humanae power transformers may building up in the States, And 234 00:12:02,520 --> 00:12:06,600 Speaker 2: right after they approved the anti dumping order, humandised production 235 00:12:07,000 --> 00:12:11,600 Speaker 2: just substituted the South Korean imports with their local production. 236 00:12:12,000 --> 00:12:14,960 Speaker 2: So in that sense, I guess that order worked, but 237 00:12:15,040 --> 00:12:18,080 Speaker 2: that doesn't mean that it made it easier for local players, because, 238 00:12:18,120 --> 00:12:21,000 Speaker 2: as I said, capacity was still forty percent, and imports 239 00:12:21,040 --> 00:12:24,400 Speaker 2: were still very high. And Yeah, in fact, some plants 240 00:12:24,400 --> 00:12:28,560 Speaker 2: closed in twenty seventeen so well after this anti dumping order. 241 00:12:28,800 --> 00:12:32,160 Speaker 2: So it's just been a tough place and with many 242 00:12:32,280 --> 00:12:33,880 Speaker 2: changes year after year. 243 00:12:34,240 --> 00:12:38,400 Speaker 1: So historically transformers were coming from South Korea to the 244 00:12:38,520 --> 00:12:41,360 Speaker 1: United States to meet the existing demand, which we do 245 00:12:41,400 --> 00:12:43,280 Speaker 1: see and will come to this which we do see 246 00:12:43,320 --> 00:12:46,400 Speaker 1: increasing in the future. Yeah, and we're seeing some changes 247 00:12:46,800 --> 00:12:49,520 Speaker 1: in the last few years, not just in this industry, 248 00:12:49,640 --> 00:12:53,000 Speaker 1: but in other parts of the energy value chain of 249 00:12:53,080 --> 00:12:56,720 Speaker 1: production facilities moving nearer or near shoring. So in this 250 00:12:56,800 --> 00:13:01,560 Speaker 1: circumstance Mexico or also Canada, with that production moving nearby, 251 00:13:02,120 --> 00:13:06,240 Speaker 1: what has that done? Has that increased decreased not only 252 00:13:06,600 --> 00:13:10,960 Speaker 1: costs but also the availability of supply because you mentioned 253 00:13:11,240 --> 00:13:13,760 Speaker 1: that this is actually a really tough business to be in, 254 00:13:14,040 --> 00:13:16,640 Speaker 1: that there's a lot of waste, it's highly technical, and 255 00:13:16,679 --> 00:13:20,480 Speaker 1: that there are some concerns around long term demand. Has 256 00:13:20,520 --> 00:13:23,480 Speaker 1: it made it more expensive and has it made it 257 00:13:23,520 --> 00:13:28,280 Speaker 1: more difficult to attain the transformers with the supply chains 258 00:13:28,320 --> 00:13:31,000 Speaker 1: having moved a little closer to Mexico and Canada, has 259 00:13:31,000 --> 00:13:32,720 Speaker 1: that been good or bad for the US? 260 00:13:33,080 --> 00:13:36,320 Speaker 2: Well? Since Mexico and US are trade freely. For the US, 261 00:13:36,600 --> 00:13:40,960 Speaker 2: importing should then be a national security risk or anything 262 00:13:41,000 --> 00:13:41,320 Speaker 2: like that. 263 00:13:41,480 --> 00:13:45,120 Speaker 3: However, for the ghost part of it, which is. 264 00:13:45,080 --> 00:13:46,880 Speaker 2: You know, fifty percent of the cost, a lot of 265 00:13:46,880 --> 00:13:50,359 Speaker 2: the weight, Mexico and Canada do not have domestic production facilities, 266 00:13:50,400 --> 00:13:54,400 Speaker 2: which means they're importing all these metal from other places. 267 00:13:54,520 --> 00:13:57,640 Speaker 2: And forty six percent of the tones that Mexico imported 268 00:13:57,679 --> 00:14:01,000 Speaker 2: in twenty twenty two so last year were from China, 269 00:14:01,280 --> 00:14:04,360 Speaker 2: and nine percent of the tones that Knada imported of 270 00:14:04,400 --> 00:14:06,839 Speaker 2: goes last year were also from China. So this is 271 00:14:06,880 --> 00:14:09,800 Speaker 2: obviously not ideal for the US. If they are really 272 00:14:09,840 --> 00:14:14,040 Speaker 2: concerned about supply issues with China, the priority should be 273 00:14:14,080 --> 00:14:16,320 Speaker 2: to ensure there's domestic capacity. 274 00:14:16,640 --> 00:14:19,120 Speaker 1: Can you also talk a little bit about the import 275 00:14:19,160 --> 00:14:22,560 Speaker 1: tarraff that was brought into place during the Trump administration, 276 00:14:22,640 --> 00:14:24,120 Speaker 1: specifically with four steel. 277 00:14:24,400 --> 00:14:27,720 Speaker 2: Yeah, Section two to two of the US Trade Expansion Act. 278 00:14:27,920 --> 00:14:30,480 Speaker 2: It's a tariff of twenty five percent on steel that 279 00:14:30,680 --> 00:14:33,680 Speaker 2: was applied during the Trump administration, and that applied to 280 00:14:33,720 --> 00:14:36,480 Speaker 2: a lot of products still and of course because ghost. 281 00:14:36,280 --> 00:14:38,120 Speaker 3: Is a part of STEL, it also applied to ghosts. 282 00:14:38,240 --> 00:14:42,440 Speaker 2: There's a small loophole in this supply chain because what 283 00:14:42,600 --> 00:14:45,920 Speaker 2: goes into transformers is basically goes but just cut with 284 00:14:46,480 --> 00:14:50,040 Speaker 2: some laser machines. So it's very specific. But is the 285 00:14:50,160 --> 00:14:52,240 Speaker 2: raw material. It's the same, nothing is done to it, 286 00:14:52,400 --> 00:14:55,560 Speaker 2: just cut. So when these startiffs came in place, we 287 00:14:55,680 --> 00:14:58,960 Speaker 2: saw a drop in importance of gosts of the raw 288 00:14:59,000 --> 00:15:03,160 Speaker 2: material in a flatterol shape and an increase of just 289 00:15:03,240 --> 00:15:06,240 Speaker 2: the raw material cut because it was on there. Another 290 00:15:06,760 --> 00:15:11,600 Speaker 2: hts growth for imports so they wouldn't suffer the twenty 291 00:15:11,640 --> 00:15:16,440 Speaker 2: five percent tariffs and steel. So that puts some gutters 292 00:15:16,480 --> 00:15:19,320 Speaker 2: in the US out of business or they force them 293 00:15:19,360 --> 00:15:22,160 Speaker 2: to move to Mexico or Canada because goos is like 294 00:15:22,240 --> 00:15:25,440 Speaker 2: sixty percent of the price of the lamination that goes 295 00:15:25,440 --> 00:15:27,600 Speaker 2: into a transformer, and if you apply a twenty five 296 00:15:27,600 --> 00:15:30,520 Speaker 2: percent of that, you're just hurting the local businesses. 297 00:15:32,480 --> 00:15:34,960 Speaker 1: Let's talk a little bit about the future demand for 298 00:15:35,040 --> 00:15:39,080 Speaker 1: these very large transformers that are used for the grid. Yeah, 299 00:15:39,120 --> 00:15:41,240 Speaker 1: and before we actually go into some of what our 300 00:15:41,280 --> 00:15:43,360 Speaker 1: models are telling us we think the demand could be 301 00:15:43,400 --> 00:15:45,480 Speaker 1: in the future, can we talk a little bit about 302 00:15:45,520 --> 00:15:48,280 Speaker 1: the different things we think are impacting demand. What are 303 00:15:48,280 --> 00:15:50,760 Speaker 1: the different variables that you've had to look at to 304 00:15:50,840 --> 00:15:55,560 Speaker 1: try and essentially quantify what that growth will look like. 305 00:15:56,080 --> 00:15:59,040 Speaker 2: As I said earlier in the episode Transformers, I put 306 00:15:59,120 --> 00:16:02,280 Speaker 2: next two generations places so that you can increase the voltage, 307 00:16:02,560 --> 00:16:04,760 Speaker 2: next to demand places so that you can lower it down. 308 00:16:05,040 --> 00:16:09,520 Speaker 2: New generation projects such as renewable projects, which you know 309 00:16:09,560 --> 00:16:12,040 Speaker 2: are part of net zero targets, and all these things 310 00:16:12,160 --> 00:16:14,960 Speaker 2: are going to be a surge in transformer demand. They 311 00:16:15,000 --> 00:16:17,160 Speaker 2: all have to have them, yeah, exactly, the need they 312 00:16:17,240 --> 00:16:20,000 Speaker 2: need a transformer, all of them. And then the US 313 00:16:20,000 --> 00:16:22,920 Speaker 2: greed is starting to get at old. So according to 314 00:16:22,920 --> 00:16:25,080 Speaker 2: the US Department of Energy, the average say, is of 315 00:16:25,120 --> 00:16:28,320 Speaker 2: a transformer is already around forty years, which is the 316 00:16:28,400 --> 00:16:32,280 Speaker 2: recommended replacement AIDS according to many manufacturers. So that means 317 00:16:32,280 --> 00:16:34,160 Speaker 2: they have a lot of transformers on the grid already 318 00:16:34,200 --> 00:16:36,280 Speaker 2: that are getting old and they have to replace them 319 00:16:36,320 --> 00:16:40,000 Speaker 2: because if they fail and they cannot transport the grid, 320 00:16:40,120 --> 00:16:42,680 Speaker 2: that's going to be critical for you know, the affected 321 00:16:42,720 --> 00:16:45,840 Speaker 2: areas for either the power that is generating or the 322 00:16:45,920 --> 00:16:49,080 Speaker 2: demand that is connected to that particular transformer and then 323 00:16:49,160 --> 00:16:53,600 Speaker 2: system reinformer. So the bigger grid gets, the more interconnected 324 00:16:53,680 --> 00:16:55,680 Speaker 2: you need it to be. So we made some assumptions 325 00:16:55,720 --> 00:16:57,960 Speaker 2: on okay, if we have to raise the demand, the 326 00:16:58,200 --> 00:17:00,320 Speaker 2: generation plans by these match and the demands in terms 327 00:17:00,320 --> 00:17:03,480 Speaker 2: about these moths, how many reinforcements we need to make, 328 00:17:03,920 --> 00:17:06,119 Speaker 2: and how many of them will contain transformers. 329 00:17:06,440 --> 00:17:10,720 Speaker 1: So there's this convergence between wanting to create security of supply, 330 00:17:11,119 --> 00:17:14,919 Speaker 1: continuing to keep the existing infrastructure up to date so 331 00:17:14,960 --> 00:17:18,360 Speaker 1: that it works properly. And what we see is increased 332 00:17:18,400 --> 00:17:21,679 Speaker 1: demand for new projects coming online. So what does that 333 00:17:21,800 --> 00:17:24,840 Speaker 1: mean then for the future demand of transformers and where 334 00:17:24,840 --> 00:17:25,680 Speaker 1: do we see it going. 335 00:17:26,119 --> 00:17:29,960 Speaker 2: So most of the demands, according to our calculations, are 336 00:17:30,000 --> 00:17:35,200 Speaker 2: from replacements of an aging assets and system reinforcements. There's 337 00:17:35,200 --> 00:17:38,080 Speaker 2: a big part, well you know this better than me. 338 00:17:38,280 --> 00:17:41,159 Speaker 2: NA has these two scenarios, the economic transition scenario and 339 00:17:41,200 --> 00:17:44,280 Speaker 2: the net zero scenario, So we basically calculated the demand 340 00:17:44,400 --> 00:17:48,080 Speaker 2: under both and an economic transition scenario, most of the 341 00:17:48,119 --> 00:17:51,680 Speaker 2: demand for transformers comes from replacements and system reinformers. In 342 00:17:51,760 --> 00:17:54,560 Speaker 2: the net serio scenario, the proportion is slightly higher for 343 00:17:54,680 --> 00:17:57,359 Speaker 2: new connected projects, which would make sense because we need 344 00:17:57,400 --> 00:17:59,840 Speaker 2: a lot of renewals to get to net zero fast. 345 00:18:00,440 --> 00:18:04,080 Speaker 1: Really, simply put there isn't enough supply to reach future demand. 346 00:18:04,880 --> 00:18:06,919 Speaker 1: So one would think then if you believe that there 347 00:18:06,960 --> 00:18:10,480 Speaker 1: is the invisible hand of capitalism, the companies would want 348 00:18:10,480 --> 00:18:12,680 Speaker 1: to go into the space and this would then be profitable. 349 00:18:12,760 --> 00:18:16,399 Speaker 1: Why are there not companies jumping at the opportunity. Surely 350 00:18:16,440 --> 00:18:18,480 Speaker 1: there is some growth, but why do we think there 351 00:18:18,520 --> 00:18:22,880 Speaker 1: isn't enough growth in the transformer production space to meet 352 00:18:22,920 --> 00:18:23,560 Speaker 1: future demand. 353 00:18:24,400 --> 00:18:27,119 Speaker 2: Yeah, that's a really good question and one I've asked 354 00:18:27,119 --> 00:18:32,399 Speaker 2: myself when I was doing this research. Making a transformer 355 00:18:32,520 --> 00:18:34,840 Speaker 2: takes a very long time. It takes from five to 356 00:18:34,880 --> 00:18:37,480 Speaker 2: twelve months if you don't have any waiting time or 357 00:18:37,480 --> 00:18:40,479 Speaker 2: an equus or anything. What we are seeing now is 358 00:18:40,520 --> 00:18:43,080 Speaker 2: that the waiting time that their manufacturers are giving is 359 00:18:43,119 --> 00:18:46,800 Speaker 2: around from two to four years, sometimes five years. Obviously, 360 00:18:46,840 --> 00:18:49,719 Speaker 2: project developers are seeing this and they are getting their 361 00:18:49,800 --> 00:18:51,879 Speaker 2: orders in advance to make sure, you know, they can 362 00:18:52,000 --> 00:18:54,000 Speaker 2: connect their solar firm or their wind. 363 00:18:53,800 --> 00:18:55,240 Speaker 3: Firem on time and these things. 364 00:18:55,359 --> 00:18:58,679 Speaker 2: Obviously, when transformer makers get some orders for like in 365 00:18:58,760 --> 00:19:02,439 Speaker 2: five years time, are skeptical of like is the demand 366 00:19:02,520 --> 00:19:05,239 Speaker 2: really rising or is it not? 367 00:19:06,080 --> 00:19:08,440 Speaker 1: Are they just trying to secure what they need because 368 00:19:08,440 --> 00:19:12,240 Speaker 1: their backlogs in the existing system, so they're having difficulty 369 00:19:12,400 --> 00:19:13,800 Speaker 1: also looking at future demand. 370 00:19:14,000 --> 00:19:14,880 Speaker 3: Yeah, exactly. 371 00:19:15,400 --> 00:19:20,160 Speaker 2: They are extremely cautious, and they see that they have 372 00:19:20,400 --> 00:19:23,240 Speaker 2: a big back logo for others, and they are willing 373 00:19:23,480 --> 00:19:26,760 Speaker 2: to increase their capacity from the historical forty percent to 374 00:19:26,840 --> 00:19:31,240 Speaker 2: maybe one hundred slowly. They are keen to release their bottleleggs, 375 00:19:31,680 --> 00:19:34,480 Speaker 2: but they not all of them, are keen to build 376 00:19:34,480 --> 00:19:38,240 Speaker 2: a new transformer manufacturing plant and to just romp up 377 00:19:38,359 --> 00:19:40,000 Speaker 2: production on a larger scale. 378 00:19:40,080 --> 00:19:42,439 Speaker 1: Because this is the review that once we replace the 379 00:19:42,480 --> 00:19:45,800 Speaker 1: existing infrastructure, which is a known quantity, and then add 380 00:19:45,840 --> 00:19:49,960 Speaker 1: the additional supply that is forecasted, then it will sort 381 00:19:50,000 --> 00:19:52,480 Speaker 1: of die down and essentially there won't be as much 382 00:19:52,520 --> 00:19:55,399 Speaker 1: demand until the next group of transformers gets to the 383 00:19:55,520 --> 00:19:58,600 Speaker 1: end of their useful life, and that could be forty 384 00:19:58,640 --> 00:20:01,240 Speaker 1: years from now. So is the review that this could 385 00:20:01,240 --> 00:20:04,560 Speaker 1: be a short term spike in demand, and therefore, if 386 00:20:04,560 --> 00:20:06,840 Speaker 1: you're in this business, it may not be worth. 387 00:20:06,680 --> 00:20:10,560 Speaker 2: It if you're asks develop suppliers, transformer suppliers. 388 00:20:10,600 --> 00:20:12,399 Speaker 3: That's what they will tell you, because. 389 00:20:12,160 --> 00:20:16,879 Speaker 2: I've asked them, I've talked to some of them, Yeah, 390 00:20:16,920 --> 00:20:20,920 Speaker 2: and they are really skeptical. They I've told you about 391 00:20:20,920 --> 00:20:23,399 Speaker 2: how tough business was. I've told you they were running 392 00:20:23,400 --> 00:20:25,760 Speaker 2: a forty percent capacity. They don't want to make a 393 00:20:25,840 --> 00:20:29,000 Speaker 2: huge investment for nothing, which I think is fair enough. 394 00:20:29,040 --> 00:20:30,760 Speaker 2: If I were them, I would also want to be 395 00:20:30,880 --> 00:20:34,360 Speaker 2: super sure that if I'm building a new factory, it's 396 00:20:34,400 --> 00:20:34,720 Speaker 2: going to. 397 00:20:34,680 --> 00:20:37,040 Speaker 1: Be called presumably quite expensive. 398 00:20:36,680 --> 00:20:39,320 Speaker 2: Exactly it's going to be utilized for more than a 399 00:20:39,320 --> 00:20:42,359 Speaker 2: couple of years. There's a couple of transformer manufacturers that 400 00:20:42,440 --> 00:20:45,800 Speaker 2: have decided to expand operations though, so some of them 401 00:20:45,840 --> 00:20:48,520 Speaker 2: are ready to invest, but most of them are proceeding 402 00:20:48,600 --> 00:20:52,560 Speaker 2: very cautiously ramping up their current capacity, sorting out some 403 00:20:52,600 --> 00:20:56,040 Speaker 2: of the bottlenecks, maybe bringing some automation because also these plans, 404 00:20:56,080 --> 00:20:58,879 Speaker 2: some of them are very old. We're building the nineteen fifties, 405 00:20:59,040 --> 00:21:02,560 Speaker 2: nineteen sixties, so they are king to ramp up, but 406 00:21:02,680 --> 00:21:06,480 Speaker 2: they don't necessarily see the need of building a new 407 00:21:06,720 --> 00:21:10,840 Speaker 2: plant until they are absolutely sure that the demand is happening. 408 00:21:10,960 --> 00:21:13,199 Speaker 1: I mean, this is really interesting because the grid and 409 00:21:13,440 --> 00:21:15,520 Speaker 1: different parts of the grid keep cropping up in the 410 00:21:15,520 --> 00:21:17,840 Speaker 1: shows that we end up having here at BNEF and 411 00:21:17,960 --> 00:21:20,640 Speaker 1: on Switched on, and we're going to be talking about 412 00:21:20,840 --> 00:21:23,840 Speaker 1: both Onshore and offshore wind in the US. And one 413 00:21:23,920 --> 00:21:27,280 Speaker 1: of the things that's happened with wind, particularly offshore, but 414 00:21:27,320 --> 00:21:30,520 Speaker 1: also on shore, there's the timelines to get these things 415 00:21:30,520 --> 00:21:33,960 Speaker 1: connected to the grid have gotten longer and longer and longer. 416 00:21:34,040 --> 00:21:37,760 Speaker 1: And you had mentioned that the delivery timelines for transformers 417 00:21:37,800 --> 00:21:41,919 Speaker 1: has also extended. Has that played into the timelines that 418 00:21:41,960 --> 00:21:45,800 Speaker 1: you're seeing for the developers and has the move from 419 00:21:46,080 --> 00:21:49,959 Speaker 1: a transformer taking historically eighteen months to arrive to your 420 00:21:50,000 --> 00:21:53,160 Speaker 1: project now taking four years. Has that been a part 421 00:21:53,160 --> 00:21:53,960 Speaker 1: of that bottleneck. 422 00:21:54,359 --> 00:21:57,000 Speaker 2: So what we've seen so far is that as long 423 00:21:57,040 --> 00:22:00,359 Speaker 2: as utilities placed them or they're in advance that areansformer 424 00:22:00,440 --> 00:22:02,800 Speaker 2: will be on time, and for now for years, it's 425 00:22:02,920 --> 00:22:06,520 Speaker 2: not a significant change on the project lifetime. If there 426 00:22:06,560 --> 00:22:09,680 Speaker 2: are improvements in how the US approaches what the US 427 00:22:09,720 --> 00:22:13,639 Speaker 2: and other markets actually approach their great connections and the 428 00:22:13,680 --> 00:22:17,080 Speaker 2: waiting times are shortened on that end, maybe transformers could 429 00:22:17,080 --> 00:22:20,359 Speaker 2: become a bottleneck, but as of today, not really. 430 00:22:20,760 --> 00:22:23,880 Speaker 1: So we've established that some of these companies are domestically 431 00:22:23,880 --> 00:22:27,280 Speaker 1: in the US or in nearby countries Canada and Mexico, 432 00:22:27,440 --> 00:22:29,760 Speaker 1: who are the biggest players in the transformer market. 433 00:22:30,280 --> 00:22:34,520 Speaker 2: You want know many of them because these companies, yeah, 434 00:22:34,600 --> 00:22:37,720 Speaker 2: they're either they're all private companies, either part of a 435 00:22:37,840 --> 00:22:41,600 Speaker 2: large conglomerate, or they've just been doing this thing for 436 00:22:41,680 --> 00:22:44,600 Speaker 2: a very long time. The biggest players are they'llta start, 437 00:22:44,720 --> 00:22:48,880 Speaker 2: Hitachi Energy, these ones you might know, Hiko Hendi Power Transformers, 438 00:22:48,880 --> 00:22:53,760 Speaker 2: and then we have Niagara Power Transformers, Pennsylvania Transformers, Project Ge, 439 00:22:54,080 --> 00:22:56,840 Speaker 2: Virginia Transformers, and Wig Transformers. 440 00:22:56,920 --> 00:22:59,960 Speaker 1: So as you get down that list, they sound quite rich. 441 00:23:00,440 --> 00:23:04,480 Speaker 1: So some of these are not huge companies owned by multinationals. 442 00:23:04,640 --> 00:23:09,240 Speaker 1: They're servicing a specific market and the US is probably 443 00:23:09,280 --> 00:23:11,560 Speaker 1: a good part of their demand and that's where they're 444 00:23:11,560 --> 00:23:11,960 Speaker 1: selling to. 445 00:23:12,520 --> 00:23:16,120 Speaker 3: Yeah, so Pennsylvania Transformers for example, or yeah, and Virginia. 446 00:23:16,160 --> 00:23:18,320 Speaker 2: I think Virginia has a plant in India as well, 447 00:23:18,400 --> 00:23:21,399 Speaker 2: and a couple of plants in Mexico. But yeah, Virginia 448 00:23:21,440 --> 00:23:24,800 Speaker 2: and Pennsylvania, and I think one more. They're family owned. 449 00:23:24,960 --> 00:23:28,639 Speaker 2: Kitasi Energy is owned by Hitashi, and Hyumdai Power Transformers 450 00:23:28,640 --> 00:23:31,439 Speaker 2: I think is owned by Hyundai Industry. Other companies that 451 00:23:31,480 --> 00:23:35,040 Speaker 2: in my list are family owned or owned by their employers, 452 00:23:35,160 --> 00:23:37,119 Speaker 2: so they're not all of them are part of alert 453 00:23:37,359 --> 00:23:38,600 Speaker 2: international conglomerate. 454 00:23:38,680 --> 00:23:40,960 Speaker 3: Basically, some of them are quite local. 455 00:23:40,960 --> 00:23:43,400 Speaker 1: Which then you can also see why they're approaching risk 456 00:23:43,600 --> 00:23:47,360 Speaker 1: differently because the capital that they have available to them 457 00:23:47,640 --> 00:23:49,680 Speaker 1: is different. They have to borrow in a different way. 458 00:23:50,080 --> 00:23:53,159 Speaker 1: So when it comes to policy, if I'm a policy maker, 459 00:23:53,320 --> 00:23:55,480 Speaker 1: I am sitting here thinking, ah, that we must, we 460 00:23:55,760 --> 00:23:58,359 Speaker 1: need to address this. So if companies are not incentivized 461 00:23:58,400 --> 00:24:02,160 Speaker 1: by the economic condition to increase supply, have there been 462 00:24:02,320 --> 00:24:06,920 Speaker 1: policy interventions in order to try and put more transformers 463 00:24:06,960 --> 00:24:09,639 Speaker 1: out there for some of the projects that many of 464 00:24:09,680 --> 00:24:12,800 Speaker 1: them have been spurred on by the policies available in 465 00:24:12,880 --> 00:24:14,280 Speaker 1: Inflation Reduction Act. 466 00:24:14,440 --> 00:24:16,680 Speaker 2: Yeah, So you might think, I mean we talked earlier 467 00:24:16,720 --> 00:24:19,199 Speaker 2: about the invisible hand, and you might think that the 468 00:24:19,280 --> 00:24:21,879 Speaker 2: IRA is there to help the US supply saints. And 469 00:24:21,920 --> 00:24:24,480 Speaker 2: the answer is yes, the IRA is there to help 470 00:24:24,520 --> 00:24:28,440 Speaker 2: the US supply saints. However, the money is more localized 471 00:24:28,480 --> 00:24:32,159 Speaker 2: on very upstream sectors that are usually imported from China, 472 00:24:32,640 --> 00:24:36,200 Speaker 2: So there's not really that much money available for greed 473 00:24:36,400 --> 00:24:39,800 Speaker 2: on transformers from the IRA. And well, you might think 474 00:24:39,920 --> 00:24:42,720 Speaker 2: the IRA is going to increase the solar generation, is 475 00:24:42,760 --> 00:24:45,400 Speaker 2: going to increase the EVS, that's going to raise the demand, 476 00:24:45,400 --> 00:24:48,480 Speaker 2: and then the visible hand, local manufacturers will just raise 477 00:24:48,520 --> 00:24:51,680 Speaker 2: their capacity, but we said they are so risk. 478 00:24:51,480 --> 00:24:54,360 Speaker 1: Covers, it may not happen, yeah, or it. 479 00:24:54,400 --> 00:24:57,320 Speaker 2: Might happen but later, which means that, yeah, if the 480 00:24:57,400 --> 00:25:01,399 Speaker 2: US doesn't raise their capacity, imports have made eighty percent 481 00:25:01,440 --> 00:25:04,240 Speaker 2: of the demand, So you know imports will have to 482 00:25:04,320 --> 00:25:06,720 Speaker 2: keep up because demand is rising according to our. 483 00:25:06,680 --> 00:25:09,960 Speaker 1: Outlook, So there either needs to be something that stimulates 484 00:25:09,960 --> 00:25:14,040 Speaker 1: imports or leads to more domestic supply or needless to say, 485 00:25:14,080 --> 00:25:16,400 Speaker 1: there will be long delays and we may not see 486 00:25:16,400 --> 00:25:22,360 Speaker 1: the degree of retrofitting or replacing existing infrastructure. Now that's 487 00:25:22,400 --> 00:25:25,200 Speaker 1: actually something that is not a brand new story. I 488 00:25:25,240 --> 00:25:29,360 Speaker 1: think about the timelines for actually very well monitored facilities 489 00:25:29,440 --> 00:25:33,159 Speaker 1: like nuclear facilities getting pushed out with the right certifications, 490 00:25:33,359 --> 00:25:35,679 Speaker 1: or dams in the US, or even bridges, and you 491 00:25:35,760 --> 00:25:38,520 Speaker 1: do have this aging infrastructure that has been pushed back 492 00:25:38,560 --> 00:25:42,200 Speaker 1: it's originally expected date. Do you anticipate that that will 493 00:25:42,200 --> 00:25:46,000 Speaker 1: happen with transformers and that they will essentially get more 494 00:25:46,040 --> 00:25:49,879 Speaker 1: time because the kit isn't going to necessarily be available 495 00:25:50,040 --> 00:25:50,520 Speaker 1: right away. 496 00:25:50,880 --> 00:25:56,160 Speaker 2: So we do know that utilities are refurbishing some transformers 497 00:25:56,200 --> 00:25:58,200 Speaker 2: to make sure you know they have a transformer on 498 00:25:58,280 --> 00:26:01,159 Speaker 2: time for a particularly you could also, I mean this 499 00:26:01,240 --> 00:26:02,479 Speaker 2: is bad for power losses. 500 00:26:02,480 --> 00:26:03,560 Speaker 3: You could also use. 501 00:26:03,640 --> 00:26:09,160 Speaker 2: Two smaller transformers that take less time to manufacture instead 502 00:26:09,160 --> 00:26:11,840 Speaker 2: of one, but that would increase your losses. So if 503 00:26:11,880 --> 00:26:14,720 Speaker 2: you needed, if you absolutely needed that transformer, there's other 504 00:26:14,760 --> 00:26:16,240 Speaker 2: ways than getting in brand new. 505 00:26:16,840 --> 00:26:18,959 Speaker 1: So clearly I'm not in the market for one, but 506 00:26:19,280 --> 00:26:22,399 Speaker 1: I want to know how much does a transformer cost? 507 00:26:22,720 --> 00:26:26,960 Speaker 1: Not just in dollar terms, but I want to better 508 00:26:27,040 --> 00:26:30,240 Speaker 1: understand whether or not this is a significant cost to 509 00:26:30,600 --> 00:26:33,919 Speaker 1: the utilities themselves. And this is something that you know 510 00:26:34,040 --> 00:26:34,640 Speaker 1: their sweating. 511 00:26:34,960 --> 00:26:38,560 Speaker 2: So the large power transformers, they're very big. They weigh 512 00:26:38,640 --> 00:26:41,440 Speaker 2: one hundred metric tones. There's a lot of material in there. 513 00:26:41,520 --> 00:26:43,960 Speaker 2: If you look at the import data, the average price 514 00:26:44,080 --> 00:26:47,520 Speaker 2: of a large power transformer in twenty twenty two was 515 00:26:47,680 --> 00:26:49,040 Speaker 2: over a million dollars. 516 00:26:49,320 --> 00:26:51,600 Speaker 1: And how many would you? Would you have multiple on 517 00:26:51,640 --> 00:26:52,399 Speaker 1: the same location? 518 00:26:53,000 --> 00:26:56,159 Speaker 2: Usually not, so there isn't Also why they are so 519 00:26:56,240 --> 00:26:58,960 Speaker 2: expensive and so niche is that you would only use 520 00:26:59,000 --> 00:27:03,640 Speaker 2: the design it's design once, so they're not very standard. 521 00:27:03,680 --> 00:27:05,879 Speaker 2: Every time you place another. You have to design the 522 00:27:05,880 --> 00:27:09,040 Speaker 2: transformer then make it, and you'll never Yeah, it's very 523 00:27:09,119 --> 00:27:11,400 Speaker 2: rare that you would use the same design twice, so 524 00:27:12,080 --> 00:27:15,440 Speaker 2: if the US is important seven hundred transformers, they'll all 525 00:27:15,560 --> 00:27:16,160 Speaker 2: be different. 526 00:27:16,560 --> 00:27:19,440 Speaker 1: But let's use this very nice round number of roughly 527 00:27:19,480 --> 00:27:22,480 Speaker 1: a million, million, million, saying it's actually a little bit over, 528 00:27:22,520 --> 00:27:24,720 Speaker 1: but we'll just go with a million. How many units 529 00:27:24,720 --> 00:27:27,439 Speaker 1: are we expecting to see now and in the future. 530 00:27:27,840 --> 00:27:31,560 Speaker 2: So we estimate that the demand for transformers in twenty 531 00:27:31,560 --> 00:27:34,920 Speaker 2: twenty two was nine hundred and twenty units, so. 532 00:27:35,000 --> 00:27:36,960 Speaker 1: Nine hundred and twenty million. 533 00:27:36,800 --> 00:27:40,399 Speaker 2: Yeah, around one nine hundred and twenty million dollars. And 534 00:27:40,840 --> 00:27:44,119 Speaker 2: we expect the demand in our economic transition scenario to 535 00:27:44,200 --> 00:27:47,320 Speaker 2: be one thousand, three hundred and fifty seven units. And 536 00:27:47,400 --> 00:27:49,800 Speaker 2: if you look at the net zero scenario is over 537 00:27:49,880 --> 00:27:52,439 Speaker 2: two thousand units by twenty thirty. 538 00:27:52,600 --> 00:27:54,560 Speaker 1: And do we expect there to be cost the clients? 539 00:27:54,560 --> 00:27:57,240 Speaker 1: Are We feeling pretty confidently that this is pretty much 540 00:27:57,240 --> 00:27:59,880 Speaker 1: what they're going to cost, at least in the medium term. 541 00:28:00,160 --> 00:28:03,320 Speaker 3: I mean, we have been manufactured, not we, but money. 542 00:28:03,040 --> 00:28:06,879 Speaker 1: People people have been manufacturing have been manufacturing transformers for 543 00:28:06,920 --> 00:28:09,160 Speaker 1: a very long time, and it's pretty much a refined 544 00:28:09,359 --> 00:28:12,840 Speaker 1: product already, so there's no learning rates coming for this. 545 00:28:12,920 --> 00:28:15,560 Speaker 1: These are going to continue to be expensive and important 546 00:28:15,560 --> 00:28:19,760 Speaker 1: pieces of kit, and it has that nice round one 547 00:28:19,840 --> 00:28:24,600 Speaker 1: million number that we can put a dollar value against 548 00:28:24,960 --> 00:28:27,919 Speaker 1: the future units that are required. Well, Eva, thank you 549 00:28:28,080 --> 00:28:31,080 Speaker 1: very much for sharing your views and your research on 550 00:28:31,680 --> 00:28:34,239 Speaker 1: where we see transformer demand going in the future and 551 00:28:34,359 --> 00:28:37,960 Speaker 1: honestly just what transformers are and why they're so critically important. 552 00:28:38,080 --> 00:28:39,080 Speaker 1: Thank you for being here. 553 00:28:39,200 --> 00:28:40,880 Speaker 3: Thank you for having me. 554 00:28:48,880 --> 00:28:51,920 Speaker 1: Bloomberg ne Ef is a service provided by Bloomberg Finance 555 00:28:52,040 --> 00:28:55,480 Speaker 1: LP and its affiliates. This recording does not constitute, nor 556 00:28:55,520 --> 00:28:59,640 Speaker 1: should it be construed as investment advice, investment recommendations, or 557 00:28:59,680 --> 00:29:03,280 Speaker 1: a rectcommendation as to an investment or other strategy. 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