Transformer troubles: manufacturing and policy constraints hit US transformer supply

Transformers are critical to power infrastructure, serving as the backbone of electricity transmission and distribution systems. They efficiently step up voltage from generation sites for long-distance transmission, minimising energy loss, and step-down voltage for safe distribution to end users. They range from power transformers and generation step-up transformers (GSUs), which are typically higher-voltage units used at generation sites, to lower-voltage distribution transformers, such as pad-mount and pole-mount transformers. 

The US transformer market has been struggling, however. Amid a continued supply shortage, experts from our Supply Chain Analytics team recently took a look at how transformer market conditions and lead times have evolved, exploring market expectations for the coming years and assessing ongoing challenges and demand trends. Fill in the form on this page to download a complimentary extract from our recent Supply Chain Analytics market update and read on for a brief introduction. 

The root causes 

Since 2020, US transformer demand has surged due to a 7% rise in electricity consumption, reversing a 1% decline between 2010 and 2020. This growth has been driven by rapid data-centre expansion, a near doubling of manufacturing construction spending thanks to the tax incentives of the 2022 Inflation Reduction Act, and widespread electrification. 

Added to this, a 2024 Department of Energy study found that 55% of in-service distribution transformers (around 40 million units) were more than 33 years old, well beyond their expected service life, while an increase in extreme weather events was heightening grid reliability risks. This surge in transformer demand has created a significant supply deficit, with domestic manufacturing capacity unable to keep pace. 

Utilities are, therefore, increasingly turning to the import market to meet project timelines. Today, imports account for an estimated 80% of US power transformer supply and 50% of distribution transformer supply. This growing dependence on foreign-sourced equipment highlights the scale and speed of demand growth across the industry. 

This trend is most evident in power transformers and generation step-up transformers, where US demand is estimated to have increased 116% and 274%, respectively, since 2019. Even distribution transformers, which comprise nearly 98% of transformer demand on a unit basis, have seen notable increases, with growth ranging from 30% to 80% depending on specification. 

Key market developments 

The surging demand has plunged transformer markets into a significant deficit with supply unable to keep up with the burgeoning demand. Wood Mackenzie estimates that, power transformers and distribution transformers are currently in a supply deficit of 30% and 6%, respectively, based on annual supply and demand estimates. 

The market imbalance has increased competition for available production slots, leading to a significant rise in both lead times and prices in most transformer categories. Since 2019, unit costs have risen by 45% for generation step-up transformers, 77% for power transformers and 78–95% for distribution transformers depending on specification, though higher-voltage units have seen larger US dollar-based cost escalations due to heftier baseline costs. 

These recent market trends have underscored the deep supply-chain challenges facing the transformer sector, from raw-material shortages and technical labour limitations to the evolving US policy landscape. A key issue since the COVID-19 pandemic has been the volatility of the market for grain-oriented electrical steel (GOES), for which prices have reached all-time highs. The US relies on a single domestic supplier of GOES, AK Steel, forcing many original equipment manufacturers (OEMs) to source raw GOES or semi-finished transformer cores abroad. 

Another issue has been the specialist technical labour required to manufacture transformers. OEMs have cited labour shortages as a key reason for not scaling up output to meet the growth in demand. Copper windings, meanwhile, have emerged as another potential bottleneck to transformer production, due to their highly technical manufacturing process and niche specifications, and the US government’s 50% copper tariffs likely to worsen the issue. 

Manufacturing constraints are not the only limitation on manufacturing investment, however. The domestic sector is also cautious about expanding capacity due to uncertainties surrounding the sustainability of US demand growth, especially as the “One Big Beautiful Bill” is expected to reduce clean energy investment. What is more, the lack of US transformer market standardisation creates additional holdups, as utilities frequently demand customised components, even for smaller transformer parts, further restricting manufacturing output. 

Market expectations 

Transformer costs are likely to continue to increase with the imposition of US trade tariffs, as the industry is highly dependent on imports for both finished equipment and underlying components and commodities. Not only will the average cost per transformer increase significantly due to the tariffs, but lead times will escalate as imports from certain high-tariff countries become cost prohibitive. 

Many of the largest transformer OEMs have announced capacity expansions since 2023 to address the shortage in the Norther American market – some US$1.8 billion to date. However, the rate of demand growth will require even more investment to rebalance the market. 

Read more 

To read about our expectations for the US transformer market in more detail, fill in the form on this page for a complimentary extract from our market update. 

Plus, find out how our Supply Chain Analytics offering can help uncover impactful cost savings, performance improvements and operational efficiency opportunities across your organisation.