UNWINDING THE TRANSFORMER MESS

Siemens electrical power transformer

Back in April of last year, I thought that the Washington influence-industrial complex had finally come up with solutions for the Great Transformer Shortage that has been choking expansion of the electric grid. Power transformers, which are essential components of electric substations and distribution networks have been in short supply and increasingly expensive since the pandemic. Part of the supply crunch can be attributed to the rise in renewable energy installations.

The solutions would come at an excessive price, in part to the benefit of lawyers and lobbyists. Even so, it appeared that it would soon be possible for utilities and grid developers to get large power transformers delivered in months rather than years.

Foolish me. I had missed the fundamental point that DC does not see problems as things you solve, but as things you elaborate and perpetuate. Yes, this profits members of the DC policy Blob who have mortgages and tuition bills to pay. And those permanent election campaigns don’t fund themselves. Self-interest, though, is not a complete explanation.

The Blob not only seeks to meet the material needs of the political class, but to also add complexity for its own sake to any given set of issues. This increases the Blob’s sense of self-importance while delaying real solutions. And that’s how the policy response to the transformer shortage is playing out. Lead times for large transformers are stretching out even further, unless, perhaps, you know somebody.

Possibly making matters worse, one of President Biden’s last acts was to veto Nippon Steel’s acquisition of US Steel on “national security” grounds. Now Cleveland-Cliffs, the sole domestic producer of a special steel for transformers, intends to partner with Nucor, the largest domestic manufacturer, to acquire US Steel at a discount. This would further shrink the American steel oligopoly.

Last April, the Biden Administration was offering the power industry and transformer makers a special K Street cocktail of Department of Energy grant programs, “efficiency” standards for domestic transformers, and favorable rules for transmission planning. This was topped off with cost-plus “backup procurement” from the defense budget for any over-expansion of the electrical steel and transformer industries. If everyone played nice, there might also be transmission permitting reform passed in one of those notorious lame duck post-election sessions of Congress.

But no. First, the US International Trade Commission hit South Korean transformer imports with “anti-dumping” tariffs in August. The domestic transformer manufacturers whose one-third market share the ITC is “protecting” already can’t find the labor and materials to increase their production, but whatever.

Then the Biden-Democratic-green dream died from blunt force trauma in the November elections. Permitting reform was strangled in its Congressional crib by mid-December. The transmission planning rules will be reworked, eventually, by Republican regulators.

Of course, Biden’s “national security” veto of the Nippon Steel- US Steel deal is being litigated like a Tijuana mud fight, but Cliffs’ victory may well get the support of the Trump Administration. And Cliffs is the sole US producer of the Grain Oriented Electrical Steel required for power transformers.

How has that worked out for their customers among power producers and industrial users, not to mention, ultimately, the ratepayers and consumers? Well, the GOES cost in China is one-third of the US price. And Chinese transformers can be delivered in months, rather than years. If you have the nerve to order one in the face of US hostility to China, that is.

So, when, and where will utilities, independent power producers and data center developers get the power transformers they need in time to meet demand growth? And how do you build a manufacturing renaissance without the transformers needed to connect factories to the power grid?

Got me.