US power companies face long waits for transformers amid data center surge

(Reuters) – Skyrocketing demand from artificial intelligence data centers is exacerbating shortages of critical grid equipment like transformers across the U.S., driving up costs, stretching out wait times and spurring utilities and developers to lock in orders far in advance.

Transformers, which step up or step down electrical voltage, have experienced persistent shortages over the last five years, as demand began to rebound faster than supply due to COVID-19-related lockdowns.

Supplies are being squeezed even further by the rapid buildout of AI infrastructure, experts say. Lead times, or the time taken between an initial order and its delivery, for some high-voltage transformers have increased to multiple years from around a year in 2020 and 2021.

“Equipment availability is becoming the biggest concern for developers as they value time to market so highly,” said Ben Boucher, senior analyst with consultancy Wood Mackenzie.

While large power transformers are experiencing the most pronounced market shortage, data center construction is driving demand for equipment such as circuit breakers and switchgear, which are set to face larger market deficits, he added.

Delays in obtaining equipment are further complicating the power industry’s dash to bring online more supplies to meet accelerating data center demand and quell rising prices.

Last month, for instance, federal regulators ordered grid operators to investigate new protocols to quickly connect data centers and other large energy users.

Lengthy Wait, Higher Prices

U.S. data center capacity is set to reach 110 gigawatts (GW) in 2030, up from around 24 GW currently, and will consume eight times more electricity than electric vehicles over the period, according to an analysis from Wood Mackenzie.

Data centers’ share of the electrical equipment market could swell to 40% under accelerated scenarios, from just shy of 2% in 2020, the consultancy firm said.

Generator step-up transformer lead times surpassed 160 weeks by the first quarter of 2026, compared with an average of 143 weeks in 2024, while for high-voltage circuit breakers, they climbed to 125 weeks in the second half of last year, versus 77 weeks in 2023, according to Boucher.

The spike in demand is also driving prices higher. Transformer costs could increase by 4% to 10% over the next year, depending on the type, he added.

While long-term supply agreements can help ease the strain, “they don’t solve everything, particularly for smaller utilities that don’t have the scale,” said Louis Finkel, senior vice president of government relations with the National Rural Electric Cooperative Association.

Buying Equipment Five Years Ahead

Utilities and developers have responded by purchasing equipment well in advance, refurbishing older transformers, asking customers to prepay for equipment with long lead times and diversifying sourcing, among other measures, to tackle the challenges.

California‘s Roseville Electric Utility used to procure equipment for projects about a year out, said CEO Dan Beans, but is now operating on a three-year timeline to lock down all the supplies it needs.

But with large transformers for substations taking more than 3 years to arrive, the utility is buying equipment for projects it knows are coming 5 years in advance, he added.

Developers are increasingly sourcing from multiple suppliers across different geographies, so they are not dependent on a single region or manufacturer, and locking in deliveries with long-term agreements, said Miska Pukkila, senior manager of strategic sourcing with Wärtsilä Energy Storage.

As transformer shortages grew more acute, the pool of suppliers bidding to sell to Roseville Electric Utility shifted overseas, with about three-fourths of bids now coming from foreign sources such as China and South Korea, said Beans.

Domestic suppliers, he noted, typically quote longer lead times and higher prices than their overseas counterparts.

In some cases, utilities and developers are also offering more favorable payment terms or paying upfront to secure earlier production slots and shorten lead times, according to Pukkila.

In the longer term, utilities and the industry are looking to counter long equipment lead times – as well as other project delays, such as lengthy queues to connect to the grid – by delaying power plant retirements and expanding domestic manufacturing capacity for these components.

(Reporting by Kavya Balaraman; Editing by Liz Hampton and Sriraj Kalluvila)