Feb 22, 2024 · 35m · catalyst
The electric transformer shortage
0:00 / 0:00
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Host Shayle Kann and ERMCO CEO Tim Mills examine the structural causes behind the severe US distribution transformer shortage, exploring manufacturing hurdles, rising electrification demand, and the regulatory challenges impacting the power grid.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Shayle holds 29.8% of the talking time here. How this is scored →
Shayle as informed peer 5.3 Guest teaching 5.1 Guest disagreement 1.1 Shayle pushing back 1.4
speaking balance: gold is Shayle, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 12:57 Clarifying that the crisis is toilet-paper style hoarding, not a chip shortage
Tim directly reframes the discussion away from upstream component shortages, arguing utilities engaged in panic ordering like consumers hoarding toilet paper during early COVID.
Hardest push from Shayle ▶ 10:08 Probing whether manufacturers were overly hesitant due to past housing crashesShayle directly challenges the supply-side narrative by proposing that manufacturers were caught flat-footed because they feared repeating the 2007-2008 housing collapse overexpansion.
Biggest teaching moment ▶ 23:27 Explaining the operational crisis of DOE amorphous steel mandatesTim breaks down the physics of no-load losses and explains how pending DOE efficiency regulations freeze capital expenditure because existing production lines cannot easily switch to amorphous metal.
Shayle holds their own ▶ 2:12 Host detailing specific 100-to-125-week equipment lead times across the power sectorShayle demonstrates comprehensive industry knowledge by citing exact lead-time statistics for power transformers and generator step-up units, establishing rigorous framing for the interview.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Shayle as informed peer | Guest teaching | Guest disagreement | Shayle pushing back | Why |
|---|---|---|---|---|---|---|
| Host Overview of the Persistent Transformer Supply Crisis | 6 | 4 | 1 | 1 | Shayle opens with detailed domain context on 100-to-125-week lead times for power and generator step-up transformers before prompting Tim to categorize the equipment tiers across the grid. | |
| Historical Supply Norms Versus Current Multi-Year Delays | 5 | 4 | 1 | 1 | Tim explains historical 12-to-14-week lead times versus current multi-year backlogs, with Shayle translating the data into 4x-to-10x multiples and probing historical cyclicality. | |
| Demand Drivers: Electrification, Grid Investment, and Storms | 6 | 5 | 2 | 3 | Shayle probes whether manufacturers underinvested due to being burned by the 2008 housing crash and questions EV demand growth. Tim reframes the crisis using a toilet-paper panic analogy rather than a microchip shortage. | |
| Bottlenecks in Manufacturing Expansion and Rural Labor | 4 | 6 | 1 | 2 | Shayle presses on why manufacturers cannot quickly double capacity, prompting Tim to detail the structural hurdles of rural manufacturing labor pools, $100M capex requirements, and tooling lead times. | |
| Sponsor Messages: Bloom Energy, Engie, and Energy Hub | 6 | 6 | 1 | 1 | Following midroll sponsor spots, Shayle brings up domestic grain-oriented electrical steel bottlenecks and DOE efficiency rules. Tim details the metallurgy of no-load losses and the dilemma between investing in grain-oriented versus amorphous steel lines. | |
| Price Inflation and Economic Pressures on Utilities | 5 | 5 | 1 | 1 | Shayle asks about transformer price spikes and long-term resolution. Tim outlines 75% to 100% price increases passed on from raw material inflation, while highlighting ERMCO's acquisition expanding capacity by 85,000 units. | |
| Technological Innovation: Power Electronics and Grid Optimization | 5 | 6 | 1 | 1 | Shayle inquires about next-generation technologies like solid-state transformers. Tim explains power electronics and ERMCO's low-voltage engine program capable of trimming grid peak load by 3-4%. |
Statements from this episode (16)
Kann: Power transformer lead times reach up to 125 weeks
“Transformer lead times have remained extraordinarily high, and in fact have generally gotten worse since the problem started in twenty-twenty. By some estimates, we're seeing up to a hundred week plus lead times for some power transformers, two years, maybe ev…”
Mills: In 2018, distribution transformer lead times were 12 to 14 weeks
“In 2018, I think most customers, most utilities, Felt really, really comfortable with the distribution transformer supply chain. They'd pick up the phone, or they'd, they'd shoot over a PO, and in anywhere from 12 to 14 weeks, that transformer was showing up o…”
Mills: Pole-mount transformer lead times are normalizing but remain up to a year
“The single-phase pole-mount transformers, the gray ones that are up on a utility pole, I think the supply chain there is getting closer to being caught up, right? And so lead times are normalizing. They still might be upwards of a full year just because of the…”
Mills: Pad-mounted transformer lead times reach as long as two years
“But those pad bound transformers, both single phase and three phase, still pretty darn long. I've seen things as long as two years right now on either.”
Mills: US transformer manufacturing capacity was likely flat from 2007 to 2021
“My gut tells me if you looked at the total capacity in the U.S. For building a transformer in 20 or 2007 versus 20 21, it was probably constant.”
Mills: Early US transformer shortage was driven by utility panic-buying
“But this wasn't, this was not the microchip problem, right? That was preventing automobiles from being produced, where, where literally you couldn't get the Componentry, the necessary input to produce the output. This was the toilet paper example, right? Where…”
Mills: Storm-driven transformer replacement demand rose sharply after 2017
“We went back and looked historically, like, what was the demand on a transformer because of storm response? And we recognized that the level of, you know, kind of natural disaster from 20 17 forward was much more severe than the level of natural disaster pre-t…”
Mills: Most transformer manufacturing is in rural areas with scarce labor
“Most of the transformer manufacturing is happening out in rural America, smaller communities there's just not a ton of excess labor sitting out there.”
Mills: Building a new transformer plant costs $100M and takes 1-2 years
“And then if you really had no equipment availability, and you had to add a new facility or a new line, you're talking hundreds of millions of dollars, well, hundred million dollars of investment in order to get that facility stood up. And then the lead time to…”
Mills: Cleveland-Cliffs is the only US grain-oriented steel maker
“It's a very specialized steel, and in the United States, there's literally one manufacturer that makes grain-oriented steel, and that's Cleveland Cliffs. And their plant is essentially operating at a hundred percent capacity.”
Mills: 95% to 98% of US transformers use grain-oriented steel
“The problem is about, I'm guessing, 95 to 98% of all the transformers that are being produced in America are using grain-oriented steel.”
Mills: DOE will compromise on proposed transformer efficiency standard
“They asked for public, the Department of Energy asked for public comment, and I think there was enough out there and enough concern expressed that I suspect a compromise position is going to come out. I don't think what they had originally released will actual…”
Mills: Distribution transformer prices surged 75% to 100% over two years
“Pricing has increased a lot over the last couple of years. I would say on average, 75 to a hundred percent increase in price.”
Mills projects distribution transformer prices will rise 0% to 5% in 2024
“Right now I'm projecting a, you know, a flat to a five percent increase in twenty-twenty-four.”
Mills: Three-phase transformer shortage will last another 12 to 24 months
“I think the single phase pole problem is nearing the end of the line.
and then I think the single phase pad and three phase problem is probably going to be a little bit painful for the next 12 to 24 months, but then I think we're going to get to a period of s…”