Transformer shortage – a threat to business continuity

Lead times for large power transformers surged from the previous 12-24 weeks to 1-3 years, while prices increased by around 70%​​. The transformer shortage affects all sectors dependent on a reliable electricity supply, especially those reliant on Large Power Transformers, which are critical for many industrial operations​.
^{Source: Wood Mackenzie, 2024; Data & analytics solutions, 2024; DOE, 2024} 

What has “transformed” the situation?  

Supply and demand—the cornerstone of economic philosophy—dictates that when demand rises, supply should naturally increase to meet it. However, the primary factor driving the transformer shortage is the limited number of manufacturers and their restricted production capacity.  

The ongoing shift to renewable energy and electrification has spiked the demand for transformers. Large step-up transformers are increasingly required to integrate renewable energy into the grid​. The COVID-19 pandemic exposed many vulnerabilities in global supply chains, especially in critical raw materials essential for transformer construction and function. These include materials such as electrical steel, zinc, copper, nickel, aluminium, and silicon​. Each of these materials are subject to supply chain disruptions, price fluctuations, and environmental regulations. Beyond post-pandemic recovery, ongoing geopolitical tensions have further strained raw material supply chains. 

Additionally, the transformer shortage is linked to the aging electrical infrastructure. Much of the existing transformer infrastructure is several decades old and urgently in need for replacement. The push for modern, more efficient transformers has also stretched transformer manufacturing capabilities​, as transformer production is complex, capital-intensive and requires skilled labour. 
^{Source: PV magazine USA, 2024); DOE, 2024; Data & analytics solutions, 2024; Thunder Said Energy, 2024} 

Preparing for Transformer Losses 

Transformer failures, though relatively uncommon, can have significant impacts when they do occur, and can arise for various reasons. For example, internal short circuits or ground faults due to insulation breakdowns or manufacturing defects can generate excessive heat, which ignites the insulating oil in oil-filled transformers. When this flammable oil burns, it generates enough pressure to potentially cause an explosion.

Oil-filled transformers are the dominant transformer type worldwide, accounting for over 80% of last year’s annual market revenue, with the remaining transformers being dry-type units. In general, dry-type transformers pose less risk of fire or explosion as they do not contain any flammable liquid, thereby eliminating that particular hazard.  

This situation presents significant safety and property damage risks. Even if a transformer fire does not spread, it will most likely consume the transformer itself, causing a business interruption.  

What strategies can companies adopt to mitigate the risks associated with transformer losses? 

Implementing robust maintenance programs is a relatively low-effort method to extend the overall lifespan of existing transformers. Predictive maintenance techniques, such as thermal imaging and dissolved gas analysis (DGA) and online measurements for oil-filled transformers, help detect potential issues before they lead to large-scale failures. Also, operator usage and load on transformers will significantly affect the lifespan. 

However, all transformers—and some of their components such as tap changers—have a limited lifespan regardless of maintenance and depending on their operating conditions. For this reason, stocking essential components and, ideally, complete spare transformers provide the best buffer against transformer losses. Engaging multiple suppliers and sourcing from geographically diverse regions can help mitigate the risk of regional supply chain disruptions and replacement/service agreement. Upgrading to more efficient transformer designs and utilising smart grid technologies can also enhance reliability and reduce dependence on older, less efficient models​. 

Protecting transformers from fires is another critical aspect, especially for oil-filled types, which pose a greater risk of fire spreading rapidly to surrounding equipment and buildings if not contained. If a transformer fire occurs, it can be extinguished using different methods. Water-based systems (e.g., deluge or water mist) are commonly used. 

Since critical transformer failures or losses can still occur despite precautions, conducting thorough risk assessments and developing business continuity plans for transformer losses will significantly minimise the expected downtime. This includes pre-planning and emergency procedures for temporary power solutions and regularly assessing rapid replacement options.  

References: 

• _{Wood Mackenzie. (2024). Supply Shortages and An Inflexible Market Give Rise to High Power transformer lead times. Retrieved from Wood Mackenzie.} 

• _{Department of Energy. (2024). DOE and Industry Team Up to Keep the Lights On for America. Retrieved from Energy.gov.} 

• _{Thunder Said Energy. (2024). Transformer Shortages: At Their Core? Retrieved from Thunder Said Energy.} 

• _{PV Magazine USA. (2024). A Look at the Great Transformer Shortage Affecting U.S. utilities. Retrieved from PV Magazine USA.} 

• _{Heritage Foundation. (2024). The U.S. Needs a Resilience Strategy for Its Transformer Shortage. Retrieved from Heritage Foundation.}