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There have been growing concerns about vulnerabilities in the U.S. power grid lately. Cyberattacks are on the rise across industries, and the energy sector is no exception.

Recently, there have even been reports of physical attacks via vandalism at power substations.

But there’s another risk to the U.S. power grid and the source is a familiar one: supply chain challenges.

More specifically, it’s a shortage of distribution transformers that’s had utilities recently sounding the alarm.

In the following video published in mid-2022, Joy Ditto, then President and CEO of the American Public Power Association (APPA) is joined by Gary Gibson, General Manager of City Utilities of Springfield, Missouri to discuss supply chain issues in the energy sector.

Source: American Public Power Association on YouTube

As with many supply chain challenges related to finished goods, a shortage of critical components and raw materials often play a critical role.

In this case, one is grain oriented electrical steel (GOES).

But before we dig into shortage dynamics, let’s take a quick look at what distribution transformers are and what they actually do.

What Are Distribution Transformers?

In an article for EE Power, writer Alex Roderick describes distribution system transformers within the context of the overall power grid.

“The utility power transmission and distribution system begins at the point of power production and normally ends at a building metered service entrance point, which is where the building distribution system begins,” he writes. “A utility power transmission and distribution system consists of transmission substations (step-up transformers), transmission lines, distribution substations (step-down transformers), and distribution lines.”

“The transformer is an electrical device that changes the voltage from one level to another by using electromagnetism,” according to Roderick. “In electrical distribution systems, transformers are used to safely and efficiently increase or decrease voltage. …”

More specifically, Energy Education describes them like this: “A distribution transformer is the type of transformer that performs the last voltage transformation in a distribution grid. It converts the voltage used in the transmission lines to one suitable for household and commercial use, typically down to 240 volts.”

Energy Education also notes that if transmission lines run above ground, distribution transformers are pole mounted—but they are pad mounted if these lines run underground.

Calls for Action

In mid-November of last year, leaders from the National Rural Electric Cooperative Association (NRECA), American Public Power Association (APPA), Edison Electric Institute (EEI), National Association of Home Builders (NAHB), Leading Builders of America (LBA), and Associated General Contractors of America (AGC) sent a letter to federal lawmakers about the shortage of distribution transformers and an appropriations request for “$1 billion this year for implementation of the Defense Production Act (DPA) to specifically address the supply chain crisis for electric distribution transformers.”

“Throughout 2022, the electric sector and representatives from residential and commercial building sectors have been calling attention to the unprecedented supply chain challenges both industries have been facing in procuring equipment used to maintain and grow the electric grid,” the letter said. “Specifically, electric utilities continue to have significant problems in procuring basic equipment – particularly distribution transformers – needed to operate the grid, provide reliable electric service, and restore power following severe storms and natural disasters. In housing construction, this is further exacerbating their ability to address the housing affordability crisis facing our nation.”

To address the “threats to reliability,” the letter described the formation of an industry “Tiger Team” by the Electricity Subsector Coordinating Council (ESCC) to assess the supply chain crisis.

Results of the Tiger Team assessment included:

  • “…the electric industry has been able to report and confirm what individual utilities and the housing industry have been saying since late last year: that construction and electrification projects are now being deferred or canceled and that they are concerned about their ability to adequately respond to major storms due to depleted stockpiles.”

  • “…current transformer production is not meeting demand and that demand is expected to continue to increase in the coming years.”

The group also noted that between 2020 and 2022, average lead times “to procure distribution transformers across all segments of the electric industry and voltage classes rose 443 percent.”

They said orders that could previously be filled in two to four months now take over a year and referred to the lag time as “a serious threat to reliability.”

According to the letter, the Tiger Team recommended that the federal government prioritize addressing “labor shortages and material availability,” since they represent “the most immediate short-term barrier to more manufacturing output.”

Longer term recommendations included increasing manufacturing capacity and “investing in domestic production of grain oriented electrical steel (GOES), a key transformer component.”

In early December, U.S. Congressman Sean Casten (IL-06) announced that he and eight of his colleagues sent a letter that voiced similar concerns and urged the Chairs and Ranking Members of the House and Senate Appropriation Committees “to include $2.1 billion in Disaster Supplemental Funding to address the severe and ongoing supply shortage of electrical transformers and complementary grid security technologies through the Defense Production Act (DPA).”

“From our ability to protect against cyber-attacks, intentional electromagnetic pulse (EMP) attacks or a naturally occurring geomagnetic disturbance, to our capacity to respond to foreign supply-chain disruptions, the current shortage puts America’s national security at risk, weakens the resilience of our electrical grid, and jeopardizes our decarbonization goals,” the lawmakers wrote.

The full text of the letter provided additional details:

“The transformer shortage is the result of a number of overlapping dynamics, from the recent COVID19 supply shocks to the decades-long trend of outsourcing manufacturing abroad. A Department of Energy (DOE) report published in February 2022, found that only eight U.S. companies produce transformers, supplying just one-fifth of domestic inventories.”

The Challenges with GOES

One focus of the report, Electric Grid Supply Chain Review: Large Power Transformers and High Voltage Direct Current Systems, is on large power transformers (LPT), which are used to “step up voltage to decrease the power losses from electricity transmission, and to step down voltage for distribution at lower, more usable voltage levels.”

The Executive Summary notes that “raw material suppliers for grain-oriented electrical steel (GOES), continuously transposed conduction (CTC) copperwire, and insulating materials have a significant influence on final LPT availability and price.”

Of these, the report refers to GOES and LPT manufacturing as the “two weakest segments” within the LPT supply chain.

“There is only one GOES manufacturer in the United States and this company is unable to meet domestic demand with highest quality and comparable prices with imported GOES,” according to the report.

Citing additional factors that could impact the LPT supply chain, the report points out another complicating dynamic: competition with NOES.

“Adding more complexity is the emerging electric vehicle (EV) application that consumes non-oriented electrical steel (NOES) which reduces GOES supply because both materials come from the same manufacturing facilities,” the report says, also noting that investments in NOES for EV is a growing global trend.

“The short-term opportunity to reduce LPT supply chain vulnerability is to improve domestic GOES production capability,” according to the report.

A related section of the report captures the extent of GOES challenges.

“GOES is a major weak link in the LPT supply chain with an insignificant domestic market, an insignificant global market demand, the inability to compete with the global market, the lack of technology or material substitutions, and shrinking supply due to other competing applications,” the report says.

Specific details of these dynamics are available in the full report.

A Proposal for New Efficiency Rules

One recent wrinkle that may offer several benefits—including addressing some of the GOES challenges—relates to a proposal by the Department of Energy (DOE) for new efficiency rules for distribution transformers.

According to the DOE announcement published on December 28, the new rule would “strengthen grid resiliency, cut carbon emissions, and deliver up to $15 billion in savings to the nation.

“The U.S. Department of Energy (DOE) today proposed new energy-efficiency standards for three categories of distribution transformers to improve the resiliency of America’s power grid, lower utility bills, and significantly reduce domestic carbon-dioxide (CO2) emissions,” the statement said. “DOE’s proposal represents a strategic step to advance the diversification of transformer core technology, which will conserve energy and reduce costs. Almost all transformers produced under the new standard would feature amorphous steel cores, which are significantly more energy efficient than those made of traditional, grain-oriented electrical steel. If adopted within DOE’s proposed timeframe, the new rule will come into effect in 2027.”

In addition to outlining the expected energy savings and reduced CO2 emissions enabled by the new standards, DOE also described the impact of reducing reliance on GOES.

“…as the supply of traditional, grain-oriented steel tightens, DOE is focused on diversifying domestic steel production where capacity can be expanded, such as in the production of amorphous steel used in advanced transformers,” the statement said. “In support of these efforts, DOE is also finalizing the implementation guidance for the distribution transformer and extended product system rebate programs established by the Energy Act of 2020 and funded by President Biden’s Bipartisan Infrastructure Law. This rebate program encourages the replacement of energy-inefficient distribution transformers and extended product systems with more-efficient replacements.”

DOE also provided a description of the distribution transformers referred to in the new proposal.

“A distribution transformer is a device used to change the voltage of electrical power,” DOE explained. “A common sight on utility poles in neighborhoods throughout the country, these transformers lower the voltage of electrical power before distribution to the customer. …Current efficiency standards apply to liquid-immersed, low-voltage dry-type, and medium-voltage dry-type distribution transformers. DOE’s proposed rule would amend the energy conservation standards for all three categories.”

On Thursday, February 16, 2023, DOE will host a public meeting to solicit feedback on the proposed rulemaking from stakeholders.

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