WEBVTT - Gridlock: US Struggles to Make Enough Transformers 0:00:00.240 --> 0:00:02.720 This is Dana Perkins and you're listening to Switched on 0:00:03.040 --> 0:00:05.960 the b and EF podcast. Earlier this year, we spoke 0:00:06.000 --> 0:00:08.719 with my colleague sun Jeet and Meredith from BNEF about 0:00:08.760 --> 0:00:11.200 one of the most overlooked areas of the energy sector, 0:00:11.480 --> 0:00:15.400 that's grids, and during the conversations, Suenjeit briefly mentioned a 0:00:15.440 --> 0:00:18.120 piece of equipment that is essential for the grid to function. 0:00:18.680 --> 0:00:23.080 Those are transformers. Transformers come in all shapes and sizes, 0:00:23.280 --> 0:00:25.520 as we're going to find out in today's episode, and 0:00:25.600 --> 0:00:29.680 they serve a wide variety of purposes. However, large power 0:00:29.720 --> 0:00:33.840 transformers are lpts for short, because after all, everyone loves 0:00:33.880 --> 0:00:37.760 an acronym, are integral for regulating the supply of electricity 0:00:37.760 --> 0:00:40.560 that runs through the grid. And with gigawatts of renewable 0:00:40.680 --> 0:00:44.040 energy additions set to be added to the US energy makeup, 0:00:44.159 --> 0:00:47.440 as well as even more units needing replacing at their 0:00:47.520 --> 0:00:49.960 end of life, well we're just going to simply need 0:00:50.000 --> 0:00:54.160 more transformers. To put this in perspective, under BNF's Economic 0:00:54.200 --> 0:00:57.240 Transition scenario, which is part of our annual New Energy 0:00:57.240 --> 0:01:00.920 Outlook exercise, we foresee the US day demand for large 0:01:00.960 --> 0:01:04.679 power transformers to reach over thirteen hundred units by the 0:01:04.760 --> 0:01:07.680 end of the decade. That's up by forty seven percent 0:01:07.840 --> 0:01:11.039 when compared with twenty twenty two. So what can be 0:01:11.120 --> 0:01:14.280 done to ensure the US grid has the required amount 0:01:14.280 --> 0:01:17.800 of transformers to reliably function. To take a closer look 0:01:17.840 --> 0:01:20.399 at transformers, on today's show, I get to speak with 0:01:20.440 --> 0:01:24.040 a member of beanuf's modeling team, Ava Gonzalez Isla. Together, 0:01:24.120 --> 0:01:27.600 we discuss the makeup of lpts and in particular the 0:01:27.720 --> 0:01:31.240 very specific type of steel that is required for their manufacturing, 0:01:31.400 --> 0:01:34.039 which is so important that the Department of Energy in 0:01:34.040 --> 0:01:37.520 the US rates it as a near critical material. We 0:01:37.600 --> 0:01:40.600 also discuss the lack of domestic production capacity in the 0:01:40.680 --> 0:01:44.479 US to manufacture large power transformers and which countries are 0:01:44.480 --> 0:01:47.200 making up the shortfall, And we go through the tariffs 0:01:47.240 --> 0:01:50.600 that have hampered the domestic production capabilities in the US 0:01:50.800 --> 0:01:53.000 and whether they have the ability to meet the demand 0:01:53.000 --> 0:01:57.120 for transformers moving forward or will continue to rely on imports. 0:01:57.320 --> 0:01:59.960 As always, if you like the show, if you subscribe, 0:02:00.160 --> 0:02:02.680 you'll receive an update when future shows are published, and 0:02:02.720 --> 0:02:04.920 if you give us a review then you'll make us 0:02:04.920 --> 0:02:07.600 more discoverable by others. But right now, let's jump straight 0:02:07.600 --> 0:02:21.040 into my conversation about transformers with Ava. Ava, thank you 0:02:21.120 --> 0:02:22.239 very much for joining today. 0:02:22.360 --> 0:02:25.000 We thank you for having me. I mean, been listening 0:02:25.040 --> 0:02:26.960 to a lot of shows, so it's nice to be here. 0:02:27.280 --> 0:02:28.000 Ava used to. 0:02:27.919 --> 0:02:31.880 Help produce Switched On, so has picked many an episode 0:02:31.880 --> 0:02:33.480 that people have listened to. But now we have you 0:02:33.520 --> 0:02:35.760 here as a guest, and actually I want to start 0:02:35.800 --> 0:02:39.440 today by talking a little bit about you specifically. But 0:02:39.520 --> 0:02:41.560 let's talk actually first about the sort of work that 0:02:41.600 --> 0:02:43.079 you do for BNOF because we have a lot of 0:02:43.160 --> 0:02:46.000 different roles in people who write different types of research here. 0:02:46.080 --> 0:02:49.720 But you have a very strong numerical background and that 0:02:49.840 --> 0:02:52.399 you've done modeling for us, but then also write long 0:02:52.440 --> 0:02:55.399 form research for us. Talk a little bit about yourself 0:02:55.480 --> 0:02:57.760 and the expertise that you bring. 0:02:58.160 --> 0:03:00.600 I joined the moderning tame on. What we usually do 0:03:00.880 --> 0:03:02.359 is we build Excel tools. 0:03:02.160 --> 0:03:04.840 And we publish them online so that clients can see 0:03:04.880 --> 0:03:08.000 how we are calculating our net present values and a 0:03:08.040 --> 0:03:10.800 lot of stuff. They can challenge our sanctions, they can 0:03:11.360 --> 0:03:13.840 change the default values that we provide. So yeah, we 0:03:13.919 --> 0:03:16.400 provide advances of very useful tools on the web, and 0:03:16.440 --> 0:03:19.200 I've also built some models for other teams and then 0:03:19.320 --> 0:03:21.679 written a long report on the back of that. 0:03:22.280 --> 0:03:26.680 So how did it come about that we started focusing 0:03:26.919 --> 0:03:29.960 on transformers in a serious way? How did this land 0:03:30.000 --> 0:03:30.600 on your desk? 0:03:31.080 --> 0:03:33.760 Clients have been asking people in the US for all 0:03:33.760 --> 0:03:36.560 our forecasts of solar and if we were taken into 0:03:36.600 --> 0:03:41.240 consideration transformer bottlenecks, and we didn't know the answer. So 0:03:41.360 --> 0:03:44.080 they were like, we should probably answer this question, and 0:03:44.120 --> 0:03:45.360 that's what I That's what I did. 0:03:45.800 --> 0:03:49.640 So you've researched transformers and you know about transformers, because 0:03:49.920 --> 0:03:52.160 let's rewind the clock in your life a little bit. 0:03:52.440 --> 0:03:56.040 You actually have experience working in a transformer production facility, 0:03:56.160 --> 0:03:59.320 which is not the typical thing from a being a 0:03:59.320 --> 0:04:01.880 f analyst. So it's nice to bring the real into 0:04:01.920 --> 0:04:04.160 the research. Tell us a little bit about what that 0:04:04.200 --> 0:04:05.000 experience was like. 0:04:05.400 --> 0:04:08.760 Sure, So I worked in the assembly line in a 0:04:09.040 --> 0:04:11.960 facility in the middle of Spain close to Almagro, where 0:04:11.960 --> 0:04:15.520 I'm from, for six weeks, just assembling very small transformers, 0:04:15.560 --> 0:04:18.800 so these ones would go inside swimming pools or maybe 0:04:18.839 --> 0:04:21.680 inside lifts. Yeah, most people that are listening don't know 0:04:21.720 --> 0:04:25.120 about there's transformers everywhere on electronics and also on the 0:04:25.120 --> 0:04:27.000 power system, as we'll say later. 0:04:27.160 --> 0:04:29.600 So it was very nice to work in a factory. 0:04:30.000 --> 0:04:32.279 So the transformers that we're here to talk about today 0:04:32.400 --> 0:04:36.440 are very large transformers, yes, specifically used within the grid. 0:04:36.560 --> 0:04:38.840 So tell us a little bit about the transformers we're 0:04:38.839 --> 0:04:41.680 specifically going to talk about in the context of the US, 0:04:41.720 --> 0:04:45.640 and we'll get to the supply constraints. What are the transformers, 0:04:45.680 --> 0:04:48.680 what are they called, and actually, really importantly, why are 0:04:48.760 --> 0:04:51.320 they such a critical part of clean energy rollout? 0:04:51.640 --> 0:04:54.280 So transformers are pretty much everywhere on the grid because 0:04:54.279 --> 0:04:58.279 the most efficient way to transport power is at high voltages. 0:04:58.360 --> 0:05:00.880 So the transformer is just a pecific way that would 0:05:00.920 --> 0:05:03.640 convert the power from low voltage too high so that 0:05:03.640 --> 0:05:07.679 we can transport it during great distances with very low 0:05:07.760 --> 0:05:11.839 power losses. So it's about system efficiency and low losses basically. 0:05:12.040 --> 0:05:15.160 And you have different voltages in the line, so every 0:05:15.160 --> 0:05:18.160 time you change voltage, you need a transformer. So yeah, 0:05:18.160 --> 0:05:21.280 they are pretty much everywhere. In the report, I focus 0:05:21.320 --> 0:05:23.320 off on the very large ones, as you said, so 0:05:23.360 --> 0:05:26.320 the ones that will go between a power plant and 0:05:26.400 --> 0:05:29.760 the high voltage transmission line or at the substations that 0:05:29.800 --> 0:05:33.800 would convert the voltage down to more manageable voltages for consumption. 0:05:34.240 --> 0:05:37.360 Everything is made of something, certainly, that's why b and 0:05:37.400 --> 0:05:41.560 EF covers commodities. It is the beginning of everything you 0:05:41.680 --> 0:05:44.120 end up seeing in the transition, and this is no exception. 0:05:44.480 --> 0:05:47.120 So what are some of the critical materials that are 0:05:47.160 --> 0:05:50.400 required in order to create a transformer? 0:05:51.120 --> 0:05:54.360 Yeah, that's a great question. So transformer is basically made 0:05:54.400 --> 0:05:58.880 of commodities. The most important party is electrical still, which 0:05:58.920 --> 0:06:01.200 is part of the core, and I guess you'll want 0:06:01.200 --> 0:06:03.480 to dig into that later because it was listed at 0:06:03.480 --> 0:06:06.039 one of the nearer critical materials by the US Department 0:06:06.040 --> 0:06:08.120 of Energy in July. But it also has a lot 0:06:08.120 --> 0:06:11.200 of copper and steel and insulation materials. So yeah, the 0:06:11.200 --> 0:06:14.039 price of the transformer is massively influenced by the price 0:06:14.040 --> 0:06:15.560 of these commodities, obviously. 0:06:16.080 --> 0:06:18.720 So let's have a bit of a vocabulary lesson then here, 0:06:18.760 --> 0:06:23.080 because within steel, there are three different types that go 0:06:23.160 --> 0:06:26.520 into this transformer. Yeah, so this is the goes or 0:06:26.560 --> 0:06:27.200 as it goes. 0:06:27.400 --> 0:06:29.400 Yeah, Yeah, I call it goes. 0:06:29.839 --> 0:06:33.120 The nose and the amorphous steel. 0:06:32.880 --> 0:06:33.760 And the amorphous stel. 0:06:33.839 --> 0:06:34.080 Yeah. 0:06:34.240 --> 0:06:36.479 But I think it would be really well helpful for 0:06:36.520 --> 0:06:38.919 me and hopefully for our listeners. To better understand what 0:06:39.000 --> 0:06:41.960 these three different types of steel that make up the 0:06:42.200 --> 0:06:45.640 overall steel requirements for transformers. So let's start with the 0:06:45.680 --> 0:06:48.839 goes the goes what is a stand for? And yeah, 0:06:48.839 --> 0:06:50.960 where does it come from? And let's go into that. 0:06:51.279 --> 0:06:54.919 Yeah, so goes On knows they're both flat rolled product, 0:06:55.200 --> 0:06:58.599 which means they're produced us seeing like hot and cold 0:06:58.800 --> 0:07:02.320 processes that make it a role like aluminium foil, but 0:07:02.360 --> 0:07:05.719 obviously not aluminium foil, because this is something different is 0:07:05.920 --> 0:07:09.000 still and it has a small percentage of silicon. And 0:07:09.040 --> 0:07:12.120 then with the ghost, there's an additional process called a 0:07:12.200 --> 0:07:16.400 kneeling to orient the particles so that the magnetic field 0:07:16.400 --> 0:07:19.600 inside the transformer can be can be better transmitted. Basically, 0:07:19.720 --> 0:07:22.720 so the ghost and from grain oriented electrical steel, and 0:07:22.840 --> 0:07:26.200 it refers to these particles that are oriented and that 0:07:26.280 --> 0:07:29.640 can transport the magnetic field so that the transformer works better. 0:07:29.800 --> 0:07:33.280 In the nose, it is non oriented electrical steel, so 0:07:33.360 --> 0:07:37.800 the particles are not oriented obviously, and they don't work 0:07:37.920 --> 0:07:41.080 as good in the transformers because the losses are like 0:07:41.120 --> 0:07:43.600 three to five times bigger because of this lack of 0:07:43.680 --> 0:07:48.360 particle orientation. So yeah, all the ghosts demand is basically transformers, 0:07:48.400 --> 0:07:50.720 and because the large ones, there's such a big part 0:07:50.760 --> 0:07:53.040 of it, that is the core that like, yeah, large 0:07:53.040 --> 0:07:57.520 power transformers basically make the demand for ghosts. Nose is 0:07:57.560 --> 0:08:00.520 also is used in all types of motors, electric motors 0:08:00.520 --> 0:08:04.400 and moving parts, so there's a big demand rising due 0:08:04.440 --> 0:08:07.280 to IVY uptake in general, but it's also used in 0:08:07.320 --> 0:08:10.680 power generators and yeah, any moving motor basically. 0:08:10.920 --> 0:08:12.680 And then there's a MorphOS steel. And I know what 0:08:12.720 --> 0:08:14.600 the word of morphus means, but what is in a 0:08:14.680 --> 0:08:15.480 MorphOS steel? 0:08:16.480 --> 0:08:20.440 So amorphos steel is a very niche, niche material actually, 0:08:20.600 --> 0:08:23.200 but it has some properties that can be used in 0:08:23.360 --> 0:08:26.720 very small transformers. And in fact, the US is thinking 0:08:26.720 --> 0:08:29.360 about a standard that would instead of using goos or 0:08:29.560 --> 0:08:32.880 high permeability goes for some of the transformers, they want 0:08:32.880 --> 0:08:36.320 to use amorpho steel because it's slightly more efficient than 0:08:36.360 --> 0:08:38.720 the ghost. But that of course means that then the 0:08:38.760 --> 0:08:42.120 transformer designs have to change. We think that in the 0:08:42.200 --> 0:08:47.000 US there's like twelve million metric tons produced per year 0:08:47.240 --> 0:08:50.840 of gooss. Well there's like forty five thousand produce of 0:08:50.840 --> 0:08:53.959 amorphous steel. So obviously, well, if you want a lot 0:08:53.960 --> 0:08:56.640 of transformers to use these materials, there's a big need 0:08:56.720 --> 0:08:57.240 for scale. 0:08:57.600 --> 0:09:00.400 Also, let's talk about among these, which one is in 0:09:00.880 --> 0:09:02.400 or do we think will be in the future. In 0:09:02.440 --> 0:09:05.880 the scarces supply where we're seeing a real gap in 0:09:05.960 --> 0:09:09.199 terms of ramping up supply for this increased demand. Is 0:09:09.240 --> 0:09:11.800 it goes, the nose, Morphy steel are all of the above. 0:09:12.080 --> 0:09:14.680 The reason why we talk about nose is because the process, 0:09:14.760 --> 0:09:18.160 the fabrication process is super similar with ghosts, so you 0:09:18.160 --> 0:09:21.240 could upgrade a nose factory into goes and make it 0:09:21.360 --> 0:09:24.480 useable in transformers. You cannot use noses in transformers as 0:09:24.480 --> 0:09:26.880 it is because it has bigger losses and nobody wants 0:09:26.880 --> 0:09:28.960 bigger losses in the power system. That's why we have 0:09:29.000 --> 0:09:31.560 transformers in the first place. So the good thing about 0:09:31.600 --> 0:09:34.480 goes is that in the flatterol product you can then 0:09:34.800 --> 0:09:36.800 stack them and produce. 0:09:36.760 --> 0:09:38.640 Huge transformers with that. 0:09:39.040 --> 0:09:42.040 While I'm morpho, still you cannot stack it, so that's 0:09:42.080 --> 0:09:45.880 why you're using it for a very small transformer. There's 0:09:45.920 --> 0:09:48.800 different classes of goals as well, and we want the 0:09:48.880 --> 0:09:51.880 super high quality, high permeability ones because that's the one 0:09:51.880 --> 0:09:54.760 that is going to have lower losses, and there's been 0:09:54.800 --> 0:09:58.080 a high supply issue of goals in the US for 0:09:58.160 --> 0:10:00.160 a very long time because they only produce yeah, two 0:10:00.280 --> 0:10:02.400 million tons a year or something like that. So there 0:10:02.480 --> 0:10:05.079 used to be two domestic players of goals in the US, 0:10:05.200 --> 0:10:07.400 and then the US decided to set up a new 0:10:07.440 --> 0:10:10.439 standard so that the goals would be of higher permeability, 0:10:10.679 --> 0:10:13.640 and that led to the closing of one facility and 0:10:13.679 --> 0:10:17.440 then more imports of this high quality material instead of 0:10:17.440 --> 0:10:21.079 producing domestically. To be fair, producing it is very expensive 0:10:21.160 --> 0:10:23.600 and very hard, and there's a very high failure rate 0:10:23.640 --> 0:10:26.280 and low yielding. So it's an expertise that not many 0:10:26.320 --> 0:10:30.360 companies have. But there's very little domestic capacity in the US. 0:10:30.720 --> 0:10:32.720 So I would love to know where in the world 0:10:32.760 --> 0:10:36.080 transformers are manufactured and really where they're coming from. Is 0:10:36.120 --> 0:10:39.079 this increasingly a domestic market in the US, or is 0:10:39.120 --> 0:10:41.200 it offshore or near shore? 0:10:41.520 --> 0:10:44.440 Well, we do think that domestic manufacturers in the US 0:10:44.440 --> 0:10:48.000 are increasing their capacity slowly because there's in a surge 0:10:48.080 --> 0:10:51.800 in domestic demand, so they're coming more and more from 0:10:51.800 --> 0:10:56.080 the US, But historically they've run at fourty percent capacity, 0:10:56.280 --> 0:10:59.960 and the import penetration rate for these particular transformers round it, 0:11:00.960 --> 0:11:02.679 so mostly from abroad. 0:11:03.040 --> 0:11:05.800 Today, the biggest exporters. 0:11:05.160 --> 0:11:09.040 To the US are Mexico and Canada, and that's because 0:11:09.240 --> 0:11:13.680 labor can be cheaper. There's been less uncertainties about policies, 0:11:13.960 --> 0:11:18.440 trade restrictions, and import standards. There's been, honestly, so much 0:11:18.480 --> 0:11:22.360 going on since twenty ten to today that manufacturers felt 0:11:22.400 --> 0:11:25.320 that they had more of an incertentive to invest in 0:11:25.360 --> 0:11:27.680 Mexico and to invest domestically. 0:11:27.920 --> 0:11:30.960 And then historically they haven't come from any of these places. 0:11:31.040 --> 0:11:34.400 They had been imported from quite far away. What has 0:11:34.520 --> 0:11:37.840 historically been the transformer market. And really when did we 0:11:37.920 --> 0:11:41.439 see it change to being a North American market servicing 0:11:41.520 --> 0:11:44.120 North America versus imported on. 0:11:44.080 --> 0:11:45.199 A ship from far away. 0:11:45.559 --> 0:11:48.920 Sure, so there was a big part of large power 0:11:48.960 --> 0:11:52.240 transformers that were imported from South Korea, and the US 0:11:52.400 --> 0:11:56.839 started some investigations on these, which led to at least 0:11:56.920 --> 0:12:02.160 humanae power transformers may building up in the States, And 0:12:02.520 --> 0:12:06.600 right after they approved the anti dumping order, humandised production 0:12:07.000 --> 0:12:11.600 just substituted the South Korean imports with their local production. 0:12:12.000 --> 0:12:14.960 So in that sense, I guess that order worked, but 0:12:15.040 --> 0:12:18.080 that doesn't mean that it made it easier for local players, because, 0:12:18.120 --> 0:12:21.000 as I said, capacity was still forty percent, and imports 0:12:21.040 --> 0:12:24.400 were still very high. And Yeah, in fact, some plants 0:12:24.400 --> 0:12:28.560 closed in twenty seventeen so well after this anti dumping order. 0:12:28.800 --> 0:12:32.160 So it's just been a tough place and with many 0:12:32.280 --> 0:12:33.880 changes year after year. 0:12:34.240 --> 0:12:38.400 So historically transformers were coming from South Korea to the 0:12:38.520 --> 0:12:41.360 United States to meet the existing demand, which we do 0:12:41.400 --> 0:12:43.280 see and will come to this which we do see 0:12:43.320 --> 0:12:46.400 increasing in the future. Yeah, and we're seeing some changes 0:12:46.800 --> 0:12:49.520 in the last few years, not just in this industry, 0:12:49.640 --> 0:12:53.000 but in other parts of the energy value chain of 0:12:53.080 --> 0:12:56.720 production facilities moving nearer or near shoring. So in this 0:12:56.800 --> 0:13:01.560 circumstance Mexico or also Canada, with that production moving nearby, 0:13:02.120 --> 0:13:06.240 what has that done? Has that increased decreased not only 0:13:06.600 --> 0:13:10.960 costs but also the availability of supply because you mentioned 0:13:11.240 --> 0:13:13.760 that this is actually a really tough business to be in, 0:13:14.040 --> 0:13:16.640 that there's a lot of waste, it's highly technical, and 0:13:16.679 --> 0:13:20.480 that there are some concerns around long term demand. Has 0:13:20.520 --> 0:13:23.480 it made it more expensive and has it made it 0:13:23.520 --> 0:13:28.280 more difficult to attain the transformers with the supply chains 0:13:28.320 --> 0:13:31.000 having moved a little closer to Mexico and Canada, has 0:13:31.000 --> 0:13:32.720 that been good or bad for the US? 0:13:33.080 --> 0:13:36.320 Well? Since Mexico and US are trade freely. For the US, 0:13:36.600 --> 0:13:40.960 importing should then be a national security risk or anything 0:13:41.000 --> 0:13:41.320 like that. 0:13:41.480 --> 0:13:45.120 However, for the ghost part of it, which is. 0:13:45.080 --> 0:13:46.880 You know, fifty percent of the cost, a lot of 0:13:46.880 --> 0:13:50.359 the weight, Mexico and Canada do not have domestic production facilities, 0:13:50.400 --> 0:13:54.400 which means they're importing all these metal from other places. 0:13:54.520 --> 0:13:57.640 And forty six percent of the tones that Mexico imported 0:13:57.679 --> 0:14:01.000 in twenty twenty two so last year were from China, 0:14:01.280 --> 0:14:04.360 and nine percent of the tones that Knada imported of 0:14:04.400 --> 0:14:06.839 goes last year were also from China. So this is 0:14:06.880 --> 0:14:09.800 obviously not ideal for the US. If they are really 0:14:09.840 --> 0:14:14.040 concerned about supply issues with China, the priority should be 0:14:14.080 --> 0:14:16.320 to ensure there's domestic capacity. 0:14:16.640 --> 0:14:19.120 Can you also talk a little bit about the import 0:14:19.160 --> 0:14:22.560 tarraff that was brought into place during the Trump administration, 0:14:22.640 --> 0:14:24.120 specifically with four steel. 0:14:24.400 --> 0:14:27.720 Yeah, Section two to two of the US Trade Expansion Act. 0:14:27.920 --> 0:14:30.480 It's a tariff of twenty five percent on steel that 0:14:30.680 --> 0:14:33.680 was applied during the Trump administration, and that applied to 0:14:33.720 --> 0:14:36.480 a lot of products still and of course because ghost. 0:14:36.280 --> 0:14:38.120 Is a part of STEL, it also applied to ghosts. 0:14:38.240 --> 0:14:42.440 There's a small loophole in this supply chain because what 0:14:42.600 --> 0:14:45.920 goes into transformers is basically goes but just cut with 0:14:46.480 --> 0:14:50.040 some laser machines. So it's very specific. But is the 0:14:50.160 --> 0:14:52.240 raw material. It's the same, nothing is done to it, 0:14:52.400 --> 0:14:55.560 just cut. So when these startiffs came in place, we 0:14:55.680 --> 0:14:58.960 saw a drop in importance of gosts of the raw 0:14:59.000 --> 0:15:03.160 material in a flatterol shape and an increase of just 0:15:03.240 --> 0:15:06.240 the raw material cut because it was on there. Another 0:15:06.760 --> 0:15:11.600 hts growth for imports so they wouldn't suffer the twenty 0:15:11.640 --> 0:15:16.440 five percent tariffs and steel. So that puts some gutters 0:15:16.480 --> 0:15:19.320 in the US out of business or they force them 0:15:19.360 --> 0:15:22.160 to move to Mexico or Canada because goos is like 0:15:22.240 --> 0:15:25.440 sixty percent of the price of the lamination that goes 0:15:25.440 --> 0:15:27.600 into a transformer, and if you apply a twenty five 0:15:27.600 --> 0:15:30.520 percent of that, you're just hurting the local businesses. 0:15:32.480 --> 0:15:34.960 Let's talk a little bit about the future demand for 0:15:35.040 --> 0:15:39.080 these very large transformers that are used for the grid. Yeah, 0:15:39.120 --> 0:15:41.240 and before we actually go into some of what our 0:15:41.280 --> 0:15:43.360 models are telling us we think the demand could be 0:15:43.400 --> 0:15:45.480 in the future, can we talk a little bit about 0:15:45.520 --> 0:15:48.280 the different things we think are impacting demand. What are 0:15:48.280 --> 0:15:50.760 the different variables that you've had to look at to 0:15:50.840 --> 0:15:55.560 try and essentially quantify what that growth will look like. 0:15:56.080 --> 0:15:59.040 As I said earlier in the episode Transformers, I put 0:15:59.120 --> 0:16:02.280 next two generations places so that you can increase the voltage, 0:16:02.560 --> 0:16:04.760 next to demand places so that you can lower it down. 0:16:05.040 --> 0:16:09.520 New generation projects such as renewable projects, which you know 0:16:09.560 --> 0:16:12.040 are part of net zero targets, and all these things 0:16:12.160 --> 0:16:14.960 are going to be a surge in transformer demand. They 0:16:15.000 --> 0:16:17.160 all have to have them, yeah, exactly, the need they 0:16:17.240 --> 0:16:20.000 need a transformer, all of them. And then the US 0:16:20.000 --> 0:16:22.920 greed is starting to get at old. So according to 0:16:22.920 --> 0:16:25.080 the US Department of Energy, the average say, is of 0:16:25.120 --> 0:16:28.320 a transformer is already around forty years, which is the 0:16:28.400 --> 0:16:32.280 recommended replacement AIDS according to many manufacturers. So that means 0:16:32.280 --> 0:16:34.160 they have a lot of transformers on the grid already 0:16:34.200 --> 0:16:36.280 that are getting old and they have to replace them 0:16:36.320 --> 0:16:40.000 because if they fail and they cannot transport the grid, 0:16:40.120 --> 0:16:42.680 that's going to be critical for you know, the affected 0:16:42.720 --> 0:16:45.840 areas for either the power that is generating or the 0:16:45.920 --> 0:16:49.080 demand that is connected to that particular transformer and then 0:16:49.160 --> 0:16:53.600 system reinformer. So the bigger grid gets, the more interconnected 0:16:53.680 --> 0:16:55.680 you need it to be. So we made some assumptions 0:16:55.720 --> 0:16:57.960 on okay, if we have to raise the demand, the 0:16:58.200 --> 0:17:00.320 generation plans by these match and the demands in terms 0:17:00.320 --> 0:17:03.480 about these moths, how many reinforcements we need to make, 0:17:03.920 --> 0:17:06.119 and how many of them will contain transformers. 0:17:06.440 --> 0:17:10.720 So there's this convergence between wanting to create security of supply, 0:17:11.119 --> 0:17:14.919 continuing to keep the existing infrastructure up to date so 0:17:14.960 --> 0:17:18.360 that it works properly. And what we see is increased 0:17:18.400 --> 0:17:21.679 demand for new projects coming online. So what does that 0:17:21.800 --> 0:17:24.840 mean then for the future demand of transformers and where 0:17:24.840 --> 0:17:25.680 do we see it going. 0:17:26.119 --> 0:17:29.960 So most of the demands, according to our calculations, are 0:17:30.000 --> 0:17:35.200 from replacements of an aging assets and system reinforcements. There's 0:17:35.200 --> 0:17:38.080 a big part, well you know this better than me. 0:17:38.280 --> 0:17:41.159 NA has these two scenarios, the economic transition scenario and 0:17:41.200 --> 0:17:44.280 the net zero scenario, So we basically calculated the demand 0:17:44.400 --> 0:17:48.080 under both and an economic transition scenario, most of the 0:17:48.119 --> 0:17:51.680 demand for transformers comes from replacements and system reinformers. In 0:17:51.760 --> 0:17:54.560 the net serio scenario, the proportion is slightly higher for 0:17:54.680 --> 0:17:57.359 new connected projects, which would make sense because we need 0:17:57.400 --> 0:17:59.840 a lot of renewals to get to net zero fast. 0:18:00.440 --> 0:18:04.080 Really, simply put there isn't enough supply to reach future demand. 0:18:04.880 --> 0:18:06.919 So one would think then if you believe that there 0:18:06.960 --> 0:18:10.480 is the invisible hand of capitalism, the companies would want 0:18:10.480 --> 0:18:12.680 to go into the space and this would then be profitable. 0:18:12.760 --> 0:18:16.399 Why are there not companies jumping at the opportunity. Surely 0:18:16.440 --> 0:18:18.480 there is some growth, but why do we think there 0:18:18.520 --> 0:18:22.880 isn't enough growth in the transformer production space to meet 0:18:22.920 --> 0:18:23.560 future demand. 0:18:24.400 --> 0:18:27.119 Yeah, that's a really good question and one I've asked 0:18:27.119 --> 0:18:32.399 myself when I was doing this research. Making a transformer 0:18:32.520 --> 0:18:34.840 takes a very long time. It takes from five to 0:18:34.880 --> 0:18:37.480 twelve months if you don't have any waiting time or 0:18:37.480 --> 0:18:40.479 an equus or anything. What we are seeing now is 0:18:40.520 --> 0:18:43.080 that the waiting time that their manufacturers are giving is 0:18:43.119 --> 0:18:46.800 around from two to four years, sometimes five years. Obviously, 0:18:46.840 --> 0:18:49.719 project developers are seeing this and they are getting their 0:18:49.800 --> 0:18:51.879 orders in advance to make sure, you know, they can 0:18:52.000 --> 0:18:54.000 connect their solar firm or their wind. 0:18:53.800 --> 0:18:55.240 Firem on time and these things. 0:18:55.359 --> 0:18:58.679 Obviously, when transformer makers get some orders for like in 0:18:58.760 --> 0:19:02.439 five years time, are skeptical of like is the demand 0:19:02.520 --> 0:19:05.239 really rising or is it not? 0:19:06.080 --> 0:19:08.440 Are they just trying to secure what they need because 0:19:08.440 --> 0:19:12.240 their backlogs in the existing system, so they're having difficulty 0:19:12.400 --> 0:19:13.800 also looking at future demand. 0:19:14.000 --> 0:19:14.880 Yeah, exactly. 0:19:15.400 --> 0:19:20.160 They are extremely cautious, and they see that they have 0:19:20.400 --> 0:19:23.240 a big back logo for others, and they are willing 0:19:23.480 --> 0:19:26.760 to increase their capacity from the historical forty percent to 0:19:26.840 --> 0:19:31.240 maybe one hundred slowly. They are keen to release their bottleleggs, 0:19:31.680 --> 0:19:34.480 but they not all of them, are keen to build 0:19:34.480 --> 0:19:38.240 a new transformer manufacturing plant and to just romp up 0:19:38.359 --> 0:19:40.000 production on a larger scale. 0:19:40.080 --> 0:19:42.439 Because this is the review that once we replace the 0:19:42.480 --> 0:19:45.800 existing infrastructure, which is a known quantity, and then add 0:19:45.840 --> 0:19:49.960 the additional supply that is forecasted, then it will sort 0:19:50.000 --> 0:19:52.480 of die down and essentially there won't be as much 0:19:52.520 --> 0:19:55.399 demand until the next group of transformers gets to the 0:19:55.520 --> 0:19:58.600 end of their useful life, and that could be forty 0:19:58.640 --> 0:20:01.240 years from now. So is the review that this could 0:20:01.240 --> 0:20:04.560 be a short term spike in demand, and therefore, if 0:20:04.560 --> 0:20:06.840 you're in this business, it may not be worth. 0:20:06.680 --> 0:20:10.560 It if you're asks develop suppliers, transformer suppliers. 0:20:10.600 --> 0:20:12.399 That's what they will tell you, because. 0:20:12.160 --> 0:20:16.879 I've asked them, I've talked to some of them, Yeah, 0:20:16.920 --> 0:20:20.920 and they are really skeptical. They I've told you about 0:20:20.920 --> 0:20:23.399 how tough business was. I've told you they were running 0:20:23.400 --> 0:20:25.760 a forty percent capacity. They don't want to make a 0:20:25.840 --> 0:20:29.000 huge investment for nothing, which I think is fair enough. 0:20:29.040 --> 0:20:30.760 If I were them, I would also want to be 0:20:30.880 --> 0:20:34.360 super sure that if I'm building a new factory, it's 0:20:34.400 --> 0:20:34.720 going to. 0:20:34.680 --> 0:20:37.040 Be called presumably quite expensive. 0:20:36.680 --> 0:20:39.320 Exactly it's going to be utilized for more than a 0:20:39.320 --> 0:20:42.359 couple of years. There's a couple of transformer manufacturers that 0:20:42.440 --> 0:20:45.800 have decided to expand operations though, so some of them 0:20:45.840 --> 0:20:48.520