Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the b and EF podcast. Earlier this year, we spoke
Speaker 1: with my colleague sun Jeet and Meredith from BNEF about
Speaker 1: one of the most overlooked areas of the energy sector,
Speaker 1: that's grids, and during the conversations, Suenjeit briefly mentioned a
Speaker 1: piece of equipment that is essential for the grid to function.
Speaker 1: Those are transformers. Transformers come in all shapes and sizes,
Speaker 1: as we're going to find out in today's episode, and
Speaker 1: they serve a wide variety of purposes. However, large power
Speaker 1: transformers are lpts for short, because after all, everyone loves
Speaker 1: an acronym, are integral for regulating the supply of electricity
Speaker 1: that runs through the grid. And with gigawatts of renewable
Speaker 1: energy additions set to be added to the US energy makeup,
Speaker 1: as well as even more units needing replacing at their
Speaker 1: end of life, well we're just going to simply need
Speaker 1: more transformers. To put this in perspective, under BNF's Economic
Speaker 1: Transition scenario, which is part of our annual New Energy
Speaker 1: Outlook exercise, we foresee the US day demand for large
Speaker 1: power transformers to reach over thirteen hundred units by the
Speaker 1: end of the decade. That's up by forty seven percent
Speaker 1: when compared with twenty twenty two. So what can be
Speaker 1: done to ensure the US grid has the required amount
Speaker 1: of transformers to reliably function. To take a closer look
Speaker 1: at transformers, on today's show, I get to speak with
Speaker 1: a member of beanuf's modeling team, Ava Gonzalez Isla. Together,
Speaker 1: we discuss the makeup of lpts and in particular the
Speaker 1: very specific type of steel that is required for their manufacturing,
Speaker 1: which is so important that the Department of Energy in
Speaker 1: the US rates it as a near critical material. We
Speaker 1: also discuss the lack of domestic production capacity in the
Speaker 1: US to manufacture large power transformers and which countries are
Speaker 1: making up the shortfall, And we go through the tariffs
Speaker 1: that have hampered the domestic production capabilities in the US
Speaker 1: and whether they have the ability to meet the demand
Speaker 1: for transformers moving forward or will continue to rely on imports.
Speaker 1: As always, if you like the show, if you subscribe,
Speaker 1: you'll receive an update when future shows are published, and
Speaker 1: if you give us a review then you'll make us
Speaker 1: more discoverable by others. But right now, let's jump straight
Speaker 1: into my conversation about transformers with Ava. Ava, thank you
Speaker 1: very much for joining today.
Speaker 2: We thank you for having me. I mean, been listening
Speaker 2: to a lot of shows, so it's nice to be here.
Speaker 3: Ava used to.
Speaker 1: Help produce Switched On, so has picked many an episode
Speaker 1: that people have listened to. But now we have you
Speaker 1: here as a guest, and actually I want to start
Speaker 1: today by talking a little bit about you specifically. But
Speaker 1: let's talk actually first about the sort of work that
Speaker 1: you do for BNOF because we have a lot of
Speaker 1: different roles in people who write different types of research here.
Speaker 1: But you have a very strong numerical background and that
Speaker 1: you've done modeling for us, but then also write long
Speaker 1: form research for us. Talk a little bit about yourself
Speaker 1: and the expertise that you bring.
Speaker 3: I joined the moderning tame on. What we usually do
Speaker 3: is we build Excel tools.
Speaker 2: And we publish them online so that clients can see
Speaker 2: how we are calculating our net present values and a
Speaker 2: lot of stuff. They can challenge our sanctions, they can
Speaker 2: change the default values that we provide. So yeah, we
Speaker 2: provide advances of very useful tools on the web, and
Speaker 2: I've also built some models for other teams and then
Speaker 2: written a long report on the back of that.
Speaker 1: So how did it come about that we started focusing
Speaker 1: on transformers in a serious way? How did this land
Speaker 1: on your desk?
Speaker 2: Clients have been asking people in the US for all
Speaker 2: our forecasts of solar and if we were taken into
Speaker 2: consideration transformer bottlenecks, and we didn't know the answer. So
Speaker 2: they were like, we should probably answer this question, and
Speaker 2: that's what I That's what I did.
Speaker 1: So you've researched transformers and you know about transformers, because
Speaker 1: let's rewind the clock in your life a little bit.
Speaker 1: You actually have experience working in a transformer production facility,
Speaker 1: which is not the typical thing from a being a
Speaker 1: f analyst. So it's nice to bring the real into
Speaker 1: the research. Tell us a little bit about what that
Speaker 1: experience was like.
Speaker 2: Sure, So I worked in the assembly line in a
Speaker 2: facility in the middle of Spain close to Almagro, where
Speaker 2: I'm from, for six weeks, just assembling very small transformers,
Speaker 2: so these ones would go inside swimming pools or maybe
Speaker 2: inside lifts. Yeah, most people that are listening don't know
Speaker 2: about there's transformers everywhere on electronics and also on the
Speaker 2: power system, as we'll say later.
Speaker 3: So it was very nice to work in a factory.
Speaker 1: So the transformers that we're here to talk about today
Speaker 1: are very large transformers, yes, specifically used within the grid.
Speaker 1: So tell us a little bit about the transformers we're
Speaker 1: specifically going to talk about in the context of the US,
Speaker 1: and we'll get to the supply constraints. What are the transformers,
Speaker 1: what are they called, and actually, really importantly, why are
Speaker 1: they such a critical part of clean energy rollout?
Speaker 2: So transformers are pretty much everywhere on the grid because
Speaker 2: the most efficient way to transport power is at high voltages.
Speaker 2: So the transformer is just a pecific way that would
Speaker 2: convert the power from low voltage too high so that
Speaker 2: we can transport it during great distances with very low
Speaker 2: power losses. So it's about system efficiency and low losses basically.
Speaker 2: And you have different voltages in the line, so every
Speaker 2: time you change voltage, you need a transformer. So yeah,
Speaker 2: they are pretty much everywhere. In the report, I focus
Speaker 2: off on the very large ones, as you said, so
Speaker 2: the ones that will go between a power plant and
Speaker 2: the high voltage transmission line or at the substations that
Speaker 2: would convert the voltage down to more manageable voltages for consumption.
Speaker 1: Everything is made of something, certainly, that's why b and
Speaker 1: EF covers commodities. It is the beginning of everything you
Speaker 1: end up seeing in the transition, and this is no exception.
Speaker 1: So what are some of the critical materials that are
Speaker 1: required in order to create a transformer?
Speaker 2: Yeah, that's a great question. So transformer is basically made
Speaker 2: of commodities. The most important party is electrical still, which
Speaker 2: is part of the core, and I guess you'll want
Speaker 2: to dig into that later because it was listed at
Speaker 2: one of the nearer critical materials by the US Department
Speaker 2: of Energy in July. But it also has a lot
Speaker 2: of copper and steel and insulation materials. So yeah, the
Speaker 2: price of the transformer is massively influenced by the price
Speaker 2: of these commodities, obviously.
Speaker 1: So let's have a bit of a vocabulary lesson then here,
Speaker 1: because within steel, there are three different types that go
Speaker 1: into this transformer. Yeah, so this is the goes or
Speaker 1: as it goes.
Speaker 3: Yeah, Yeah, I call it goes.
Speaker 1: The nose and the amorphous steel.
Speaker 3: And the amorphous stel.
Speaker 2: Yeah.
Speaker 1: But I think it would be really well helpful for
Speaker 1: me and hopefully for our listeners. To better understand what
Speaker 1: these three different types of steel that make up the
Speaker 1: overall steel requirements for transformers. So let's start with the
Speaker 1: goes the goes what is a stand for? And yeah,
Speaker 1: where does it come from? And let's go into that.
Speaker 2: Yeah, so goes On knows they're both flat rolled product,
Speaker 2: which means they're produced us seeing like hot and cold
Speaker 2: processes that make it a role like aluminium foil, but
Speaker 2: obviously not aluminium foil, because this is something different is
Speaker 2: still and it has a small percentage of silicon. And
Speaker 2: then with the ghost, there's an additional process called a
Speaker 2: kneeling to orient the particles so that the magnetic field
Speaker 2: inside the transformer can be can be better transmitted. Basically,
Speaker 2: so the ghost and from grain oriented electrical steel, and
Speaker 2: it refers to these particles that are oriented and that
Speaker 2: can transport the magnetic field so that the transformer works better.
Speaker 2: In the nose, it is non oriented electrical steel, so
Speaker 2: the particles are not oriented obviously, and they don't work
Speaker 2: as good in the transformers because the losses are like
Speaker 2: three to five times bigger because of this lack of
Speaker 2: particle orientation. So yeah, all the ghosts demand is basically transformers,
Speaker 2: and because the large ones, there's such a big part
Speaker 2: of it, that is the core that like, yeah, large
Speaker 2: power transformers basically make the demand for ghosts. Nose is
Speaker 2: also is used in all types of motors, electric motors
Speaker 2: and moving parts, so there's a big demand rising due
Speaker 2: to IVY uptake in general, but it's also used in
Speaker 2: power generators and yeah, any moving motor basically.
Speaker 1: And then there's a MorphOS steel. And I know what
Speaker 1: the word of morphus means, but what is in a
Speaker 1: MorphOS steel?
Speaker 2: So amorphos steel is a very niche, niche material actually,
Speaker 2: but it has some properties that can be used in
Speaker 2: very small transformers. And in fact, the US is thinking
Speaker 2: about a standard that would instead of using goos or
Speaker 2: high permeability goes for some of the transformers, they want
Speaker 2: to use amorpho steel because it's slightly more efficient than
Speaker 2: the ghost. But that of course means that then the
Speaker 2: transformer designs have to change. We think that in the
Speaker 2: US there's like twelve million metric tons produced per year
Speaker 2: of gooss. Well there's like forty five thousand produce of
Speaker 2: amorphous steel. So obviously, well, if you want a lot
Speaker 2: of transformers to use these materials, there's a big need
Speaker 2: for scale.
Speaker 1: Also, let's talk about among these, which one is in
Speaker 1: or do we think will be in the future. In
Speaker 1: the scarces supply where we're seeing a real gap in
Speaker 1: terms of ramping up supply for this increased demand. Is
Speaker 1: it goes, the nose, Morphy steel are all of the above.
Speaker 2: The reason why we talk about nose is because the process,
Speaker 2: the fabrication process is super similar with ghosts, so you
Speaker 2: could upgrade a nose factory into goes and make it
Speaker 2: useable in transformers. You cannot use noses in transformers as
Speaker 2: it is because it has bigger losses and nobody wants
Speaker 2: bigger losses in the power system. That's why we have
Speaker 2: transformers in the first place. So the good thing about
Speaker 2: goes is that in the flatterol product you can then
Speaker 2: stack them and produce.
Speaker 3: Huge transformers with that.
Speaker 2: While I'm morpho, still you cannot stack it, so that's
Speaker 2: why you're using it for a very small transformer. There's
Speaker 2: different classes of goals as well, and we want the
Speaker 2: super high quality, high permeability ones because that's the one
Speaker 2: that is going to have lower losses, and there's been
Speaker 2: a high supply issue of goals in the US for
Speaker 2: a very long time because they only produce yeah, two
Speaker 2: million tons a year or something like that. So there
Speaker 2: used to be two domestic players of goals in the US,
Speaker 2: and then the US decided to set up a new
Speaker 2: standard so that the goals would be of higher permeability,
Speaker 2: and that led to the closing of one facility and
Speaker 2: then more imports of this high quality material instead of
Speaker 2: producing domestically. To be fair, producing it is very expensive
Speaker 2: and very hard, and there's a very high failure rate
Speaker 2: and low yielding. So it's an expertise that not many
Speaker 2: companies have. But there's very little domestic capacity in the US.
Speaker 1: So I would love to know where in the world
Speaker 1: transformers are manufactured and really where they're coming from. Is
Speaker 1: this increasingly a domestic market in the US, or is
Speaker 1: it offshore or near shore?
Speaker 2: Well, we do think that domestic manufacturers in the US
Speaker 2: are increasing their capacity slowly because there's in a surge
Speaker 2: in domestic demand, so they're coming more and more from
Speaker 2: the US, But historically they've run at fourty percent capacity,
Speaker 2: and the import penetration rate for these particular transformers round it,
Speaker 2: so mostly from abroad.
Speaker 3: Today, the biggest exporters.
Speaker 2: To the US are Mexico and Canada, and that's because
Speaker 2: labor can be cheaper. There's been less uncertainties about policies,
Speaker 2: trade restrictions, and import standards. There's been, honestly, so much
Speaker 2: going on since twenty ten to today that manufacturers felt
Speaker 2: that they had more of an incertentive to invest in
Speaker 2: Mexico and to invest domestically.
Speaker 1: And then historically they haven't come from any of these places.
Speaker 1: They had been imported from quite far away. What has
Speaker 1: historically been the transformer market. And really when did we
Speaker 1: see it change to being a North American market servicing
Speaker 1: North America versus imported on.
Speaker 3: A ship from far away.
Speaker 2: Sure, so there was a big part of large power
Speaker 2: transformers that were imported from South Korea, and the US
Speaker 2: started some investigations on these, which led to at least
Speaker 2: humanae power transformers may building up in the States, And
Speaker 2: right after they approved the anti dumping order, humandised production
Speaker 2: just substituted the South Korean imports with their local production.
Speaker 2: So in that sense, I guess that order worked, but
Speaker 2: that doesn't mean that it made it easier for local players, because,
Speaker 2: as I said, capacity was still forty percent, and imports
Speaker 2: were still very high. And Yeah, in fact, some plants
Speaker 2: closed in twenty seventeen so well after this anti dumping order.
Speaker 2: So it's just been a tough place and with many
Speaker 2: changes year after year.
Speaker 1: So historically transformers were coming from South Korea to the
Speaker 1: United States to meet the existing demand, which we do
Speaker 1: see and will come to this which we do see
Speaker 1: increasing in the future. Yeah, and we're seeing some changes
Speaker 1: in the last few years, not just in this industry,
Speaker 1: but in other parts of the energy value chain of
Speaker 1: production facilities moving nearer or near shoring. So in this
Speaker 1: circumstance Mexico or also Canada, with that production moving nearby,
Speaker 1: what has that done? Has that increased decreased not only
Speaker 1: costs but also the availability of supply because you mentioned
Speaker 1: that this is actually a really tough business to be in,
Speaker 1: that there's a lot of waste, it's highly technical, and
Speaker 1: that there are some concerns around long term demand. Has
Speaker 1: it made it more expensive and has it made it
Speaker 1: more difficult to attain the transformers with the supply chains
Speaker 1: having moved a little closer to Mexico and Canada, has
Speaker 1: that been good or bad for the US?
Speaker 2: Well? Since Mexico and US are trade freely. For the US,
Speaker 2: importing should then be a national security risk or anything
Speaker 2: like that.
Speaker 3: However, for the ghost part of it, which is.
Speaker 2: You know, fifty percent of the cost, a lot of
Speaker 2: the weight, Mexico and Canada do not have domestic production facilities,
Speaker 2: which means they're importing all these metal from other places.
Speaker 2: And forty six percent of the tones that Mexico imported
Speaker 2: in twenty twenty two so last year were from China,
Speaker 2: and nine percent of the tones that Knada imported of
Speaker 2: goes last year were also from China. So this is
Speaker 2: obviously not ideal for the US. If they are really
Speaker 2: concerned about supply issues with China, the priority should be
Speaker 2: to ensure there's domestic capacity.
Speaker 1: Can you also talk a little bit about the import
Speaker 1: tarraff that was brought into place during the Trump administration,
Speaker 1: specifically with four steel.
Speaker 2: Yeah, Section two to two of the US Trade Expansion Act.
Speaker 2: It's a tariff of twenty five percent on steel that
Speaker 2: was applied during the Trump administration, and that applied to
Speaker 2: a lot of products still and of course because ghost.
Speaker 3: Is a part of STEL, it also applied to ghosts.
Speaker 2: There's a small loophole in this supply chain because what
Speaker 2: goes into transformers is basically goes but just cut with
Speaker 2: some laser machines. So it's very specific. But is the
Speaker 2: raw material. It's the same, nothing is done to it,
Speaker 2: just cut. So when these startiffs came in place, we
Speaker 2: saw a drop in importance of gosts of the raw
Speaker 2: material in a flatterol shape and an increase of just
Speaker 2: the raw material cut because it was on there. Another
Speaker 2: hts growth for imports so they wouldn't suffer the twenty
Speaker 2: five percent tariffs and steel. So that puts some gutters
Speaker 2: in the US out of business or they force them
Speaker 2: to move to Mexico or Canada because goos is like
Speaker 2: sixty percent of the price of the lamination that goes
Speaker 2: into a transformer, and if you apply a twenty five
Speaker 2: percent of that, you're just hurting the local businesses.
Speaker 1: Let's talk a little bit about the future demand for
Speaker 1: these very large transformers that are used for the grid. Yeah,
Speaker 1: and before we actually go into some of what our
Speaker 1: models are telling us we think the demand could be
Speaker 1: in the future, can we talk a little bit about
Speaker 1: the different things we think are impacting demand. What are
Speaker 1: the different variables that you've had to look at to
Speaker 1: try and essentially quantify what that growth will look like.
Speaker 2: As I said earlier in the episode Transformers, I put
Speaker 2: next two generations places so that you can increase the voltage,
Speaker 2: next to demand places so that you can lower it down.
Speaker 2: New generation projects such as renewable projects, which you know
Speaker 2: are part of net zero targets, and all these things
Speaker 2: are going to be a surge in transformer demand. They
Speaker 2: all have to have them, yeah, exactly, the need they
Speaker 2: need a transformer, all of them. And then the US
Speaker 2: greed is starting to get at old. So according to
Speaker 2: the US Department of Energy, the average say, is of
Speaker 2: a transformer is already around forty years, which is the
Speaker 2: recommended replacement AIDS according to many manufacturers. So that means
Speaker 2: they have a lot of transformers on the grid already
Speaker 2: that are getting old and they have to replace them
Speaker 2: because if they fail and they cannot transport the grid,
Speaker 2: that's going to be critical for you know, the affected
Speaker 2: areas for either the power that is generating or the
Speaker 2: demand that is connected to that particular transformer and then
Speaker 2: system reinformer. So the bigger grid gets, the more interconnected
Speaker 2: you need it to be. So we made some assumptions
Speaker 2: on okay, if we have to raise the demand, the
Speaker 2: generation plans by these match and the demands in terms
Speaker 2: about these moths, how many reinforcements we need to make,
Speaker 2: and how many of them will contain transformers.
Speaker 1: So there's this convergence between wanting to create security of supply,
Speaker 1: continuing to keep the existing infrastructure up to date so
Speaker 1: that it works properly. And what we see is increased
Speaker 1: demand for new projects coming online. So what does that
Speaker 1: mean then for the future demand of transformers and where
Speaker 1: do we see it going.
Speaker 2: So most of the demands, according to our calculations, are
Speaker 2: from replacements of an aging assets and system reinforcements. There's
Speaker 2: a big part, well you know this better than me.
Speaker 2: NA has these two scenarios, the economic transition scenario and
Speaker 2: the net zero scenario, So we basically calculated the demand
Speaker 2: under both and an economic transition scenario, most of the
Speaker 2: demand for transformers comes from replacements and system reinformers. In
Speaker 2: the net serio scenario, the proportion is slightly higher for
Speaker 2: new connected projects, which would make sense because we need
Speaker 2: a lot of renewals to get to net zero fast.
Speaker 1: Really, simply put there isn't enough supply to reach future demand.
Speaker 1: So one would think then if you believe that there
Speaker 1: is the invisible hand of capitalism, the companies would want
Speaker 1: to go into the space and this would then be profitable.
Speaker 1: Why are there not companies jumping at the opportunity. Surely
Speaker 1: there is some growth, but why do we think there
Speaker 1: isn't enough growth in the transformer production space to meet
Speaker 1: future demand.
Speaker 2: Yeah, that's a really good question and one I've asked
Speaker 2: myself when I was doing this research. Making a transformer
Speaker 2: takes a very long time. It takes from five to
Speaker 2: twelve months if you don't have any waiting time or
Speaker 2: an equus or anything. What we are seeing now is
Speaker 2: that the waiting time that their manufacturers are giving is
Speaker 2: around from two to four years, sometimes five years. Obviously,
Speaker 2: project developers are seeing this and they are getting their
Speaker 2: orders in advance to make sure, you know, they can
Speaker 2: connect their solar firm or their wind.
Speaker 3: Firem on time and these things.
Speaker 2: Obviously, when transformer makers get some orders for like in
Speaker 2: five years time, are skeptical of like is the demand
Speaker 2: really rising or is it not?
Speaker 1: Are they just trying to secure what they need because
Speaker 1: their backlogs in the existing system, so they're having difficulty
Speaker 1: also looking at future demand.
Speaker 3: Yeah, exactly.
Speaker 2: They are extremely cautious, and they see that they have
Speaker 2: a big back logo for others, and they are willing
Speaker 2: to increase their capacity from the historical forty percent to
Speaker 2: maybe one hundred slowly. They are keen to release their bottleleggs,
Speaker 2: but they not all of them, are keen to build
Speaker 2: a new transformer manufacturing plant and to just romp up
Speaker 2: production on a larger scale.
Speaker 1: Because this is the review that once we replace the
Speaker 1: existing infrastructure, which is a known quantity, and then add
Speaker 1: the additional supply that is forecasted, then it will sort
Speaker 1: of die down and essentially there won't be as much
Speaker 1: demand until the next group of transformers gets to the
Speaker 1: end of their useful life, and that could be forty
Speaker 1: years from now. So is the review that this could
Speaker 1: be a short term spike in demand, and therefore, if
Speaker 1: you're in this business, it may not be worth.
Speaker 2: It if you're asks develop suppliers, transformer suppliers.
Speaker 3: That's what they will tell you, because.
Speaker 2: I've asked them, I've talked to some of them, Yeah,
Speaker 2: and they are really skeptical. They I've told you about
Speaker 2: how tough business was. I've told you they were running
Speaker 2: a forty percent capacity. They don't want to make a
Speaker 2: huge investment for nothing, which I think is fair enough.
Speaker 2: If I were them, I would also want to be
Speaker 2: super sure that if I'm building a new factory, it's
Speaker 2: going to.
Speaker 1: Be called presumably quite expensive.
Speaker 2: Exactly it's going to be utilized for more than a
Speaker 2: couple of years. There's a couple of transformer manufacturers that
Speaker 2: have decided to expand operations though, so some of them
Speaker 2: are ready to invest, but most of them are proceeding
Speaker 2: very cautiously ramping up their current capacity, sorting out some
Speaker 2: of the bottlenecks, maybe bringing some automation because also these plans,
Speaker 2: some of them are very old. We're building the nineteen fifties,
Speaker 2: nineteen sixties, so they are king to ramp up, but
Speaker 2: they don't necessarily see the need of building a new
Speaker 2: plant until they are absolutely sure that the demand is happening.
Speaker 1: I mean, this is really interesting because the grid and
Speaker 1: different parts of the grid keep cropping up in the
Speaker 1: shows that we end up having here at BNEF and
Speaker 1: on Switched on, and we're going to be talking about
Speaker 1: both Onshore and offshore wind in the US. And one
Speaker 1: of the things that's happened with wind, particularly offshore, but
Speaker 1: also on shore, there's the timelines to get these things
Speaker 1: connected to the grid have gotten longer and longer and longer.
Speaker 1: And you had mentioned that the delivery timelines for transformers
Speaker 1: has also extended. Has that played into the timelines that
Speaker 1: you're seeing for the developers and has the move from
Speaker 1: a transformer taking historically eighteen months to arrive to your
Speaker 1: project now taking four years. Has that been a part
Speaker 1: of that bottleneck.
Speaker 2: So what we've seen so far is that as long
Speaker 2: as utilities placed them or they're in advance that areansformer
Speaker 2: will be on time, and for now for years, it's
Speaker 2: not a significant change on the project lifetime. If there
Speaker 2: are improvements in how the US approaches what the US
Speaker 2: and other markets actually approach their great connections and the
Speaker 2: waiting times are shortened on that end, maybe transformers could
Speaker 2: become a bottleneck, but as of today, not really.
Speaker 1: So we've established that some of these companies are domestically
Speaker 1: in the US or in nearby countries Canada and Mexico,
Speaker 1: who are the biggest players in the transformer market.
Speaker 2: You want know many of them because these companies, yeah,
Speaker 2: they're either they're all private companies, either part of a
Speaker 2: large conglomerate, or they've just been doing this thing for
Speaker 2: a very long time. The biggest players are they'llta start,
Speaker 2: Hitachi Energy, these ones you might know, Hiko Hendi Power Transformers,
Speaker 2: and then we have Niagara Power Transformers, Pennsylvania Transformers, Project Ge,
Speaker 2: Virginia Transformers, and Wig Transformers.
Speaker 1: So as you get down that list, they sound quite rich.
Speaker 1: So some of these are not huge companies owned by multinationals.
Speaker 1: They're servicing a specific market and the US is probably
Speaker 1: a good part of their demand and that's where they're
Speaker 1: selling to.
Speaker 3: Yeah, so Pennsylvania Transformers for example, or yeah, and Virginia.
Speaker 2: I think Virginia has a plant in India as well,
Speaker 2: and a couple of plants in Mexico. But yeah, Virginia
Speaker 2: and Pennsylvania, and I think one more. They're family owned.
Speaker 2: Kitasi Energy is owned by Hitashi, and Hyumdai Power Transformers
Speaker 2: I think is owned by Hyundai Industry. Other companies that
Speaker 2: in my list are family owned or owned by their employers,
Speaker 2: so they're not all of them are part of alert
Speaker 2: international conglomerate.
Speaker 3: Basically, some of them are quite local.
Speaker 1: Which then you can also see why they're approaching risk
Speaker 1: differently because the capital that they have available to them
Speaker 1: is different. They have to borrow in a different way.
Speaker 1: So when it comes to policy, if I'm a policy maker,
Speaker 1: I am sitting here thinking, ah, that we must, we
Speaker 1: need to address this. So if companies are not incentivized
Speaker 1: by the economic condition to increase supply, have there been
Speaker 1: policy interventions in order to try and put more transformers
Speaker 1: out there for some of the projects that many of
Speaker 1: them have been spurred on by the policies available in
Speaker 1: Inflation Reduction Act.
Speaker 2: Yeah, So you might think, I mean we talked earlier
Speaker 2: about the invisible hand, and you might think that the
Speaker 2: IRA is there to help the US supply saints. And
Speaker 2: the answer is yes, the IRA is there to help
Speaker 2: the US supply saints. However, the money is more localized
Speaker 2: on very upstream sectors that are usually imported from China,
Speaker 2: So there's not really that much money available for greed
Speaker 2: on transformers from the IRA. And well, you might think
Speaker 2: the IRA is going to increase the solar generation, is
Speaker 2: going to increase the EVS, that's going to raise the demand,
Speaker 2: and then the visible hand, local manufacturers will just raise
Speaker 2: their capacity, but we said they are so risk.
Speaker 1: Covers, it may not happen, yeah, or it.
Speaker 2: Might happen but later, which means that, yeah, if the
Speaker 2: US doesn't raise their capacity, imports have made eighty percent
Speaker 2: of the demand, So you know imports will have to
Speaker 2: keep up because demand is rising according to our.
Speaker 1: Outlook, So there either needs to be something that stimulates
Speaker 1: imports or leads to more domestic supply or needless to say,
Speaker 1: there will be long delays and we may not see
Speaker 1: the degree of retrofitting or replacing existing infrastructure. Now that's
Speaker 1: actually something that is not a brand new story. I
Speaker 1: think about the timelines for actually very well monitored facilities
Speaker 1: like nuclear facilities getting pushed out with the right certifications,
Speaker 1: or dams in the US, or even bridges, and you
Speaker 1: do have this aging infrastructure that has been pushed back
Speaker 1: it's originally expected date. Do you anticipate that that will
Speaker 1: happen with transformers and that they will essentially get more
Speaker 1: time because the kit isn't going to necessarily be available
Speaker 1: right away.
Speaker 2: So we do know that utilities are refurbishing some transformers
Speaker 2: to make sure you know they have a transformer on
Speaker 2: time for a particularly you could also, I mean this
Speaker 2: is bad for power losses.
Speaker 3: You could also use.
Speaker 2: Two smaller transformers that take less time to manufacture instead
Speaker 2: of one, but that would increase your losses. So if
Speaker 2: you needed, if you absolutely needed that transformer, there's other
Speaker 2: ways than getting in brand new.
Speaker 1: So clearly I'm not in the market for one, but
Speaker 1: I want to know how much does a transformer cost?
Speaker 1: Not just in dollar terms, but I want to better
Speaker 1: understand whether or not this is a significant cost to
Speaker 1: the utilities themselves. And this is something that you know
Speaker 1: their sweating.
Speaker 2: So the large power transformers, they're very big. They weigh
Speaker 2: one hundred metric tones. There's a lot of material in there.
Speaker 2: If you look at the import data, the average price
Speaker 2: of a large power transformer in twenty twenty two was
Speaker 2: over a million dollars.
Speaker 1: And how many would you? Would you have multiple on
Speaker 1: the same location?
Speaker 2: Usually not, so there isn't Also why they are so
Speaker 2: expensive and so niche is that you would only use
Speaker 2: the design it's design once, so they're not very standard.
Speaker 2: Every time you place another. You have to design the
Speaker 2: transformer then make it, and you'll never Yeah, it's very
Speaker 2: rare that you would use the same design twice, so
Speaker 2: if the US is important seven hundred transformers, they'll all
Speaker 2: be different.
Speaker 1: But let's use this very nice round number of roughly
Speaker 1: a million, million, million, saying it's actually a little bit over,
Speaker 1: but we'll just go with a million. How many units
Speaker 1: are we expecting to see now and in the future.
Speaker 2: So we estimate that the demand for transformers in twenty
Speaker 2: twenty two was nine hundred and twenty units, so.
Speaker 1: Nine hundred and twenty million.
Speaker 2: Yeah, around one nine hundred and twenty million dollars. And
Speaker 2: we expect the demand in our economic transition scenario to
Speaker 2: be one thousand, three hundred and fifty seven units. And
Speaker 2: if you look at the net zero scenario is over
Speaker 2: two thousand units by twenty thirty.
Speaker 1: And do we expect there to be cost the clients?
Speaker 1: Are We feeling pretty confidently that this is pretty much
Speaker 1: what they're going to cost, at least in the medium term.
Speaker 3: I mean, we have been manufactured, not we, but money.
Speaker 1: People people have been manufacturing have been manufacturing transformers for
Speaker 1: a very long time, and it's pretty much a refined
Speaker 1: product already, so there's no learning rates coming for this.
Speaker 1: These are going to continue to be expensive and important
Speaker 1: pieces of kit, and it has that nice round one
Speaker 1: million number that we can put a dollar value against
Speaker 1: the future units that are required. Well, Eva, thank you
Speaker 1: very much for sharing your views and your research on
Speaker 1: where we see transformer demand going in the future and
Speaker 1: honestly just what transformers are and why they're so critically important.
Speaker 1: Thank you for being here.
Speaker 3: Thank you for having me.
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