The other green-energy grid crisis - Greater Cincinnati Automobile Dealers Association

The other green-energy grid crisis

A lack of transformers has led to a housing shortage, frequent power outages, and dependence on China

By Allysia Finley

Empty dirt lots are scattered across American cities where developers once planned to build new homes. The problem isn’t that builders can’t find workers or obtain permits. They lack the electric transformers required to connect homes to the grid.

“We were so concerned about things like lumber and appliances, and those all help. But then all of a sudden it was this power transformer—you can’t get them,” a home builder in Greenville, S.C., told a Fox affiliate in March. “We have 106 town-home sites and so we’ve only been able to get the first six going.”

Transformers step up or step down electrical power that passes through transmission and distribution lines. According to the American Public Power Association, 1 in 5 housing projects has been delayed or canceled owing to shortages. The pandemic dearth of semiconductors, appliances and cars eased as demand ebbed and supply increased, but don’t expect this one to let up anytime soon.

Thank President Biden’s green-energy policies, which are increasing demand for transformers and the specialized electrical steel to manufacturer them while creating enormous market uncertainty. The lack of transformers is exacerbating the country’s housing shortage and causing longer and more-frequent power outages.

Broadly speaking, there are two categories of transformer. Large power transformers, which are located at substations and weigh hundreds of thousands of pounds, step up voltage from power generators and step it down for distribution. These are crucial for building out the transmission system to carry renewable energy from rural areas to population centers. Currently it takes utilities from 20 to 39 months to procure them.

Smaller distribution transformers step down voltage to levels that homes and businesses can safely use. These are necessary for connecting homes, businesses and electric-vehicle charging stations to the grid. Until recently, they were easy to obtain and replace but wait times now exceed 18 months.

Both types are made with electrical steel, also a key input in electric-vehicle motors. Yet the U.S. is dependent on a single domestic manufacturer for the electrical steel used in electric vehicles and transformers—Cleveland-Cliffs—and it can’t meet growing demand from the power industry and automakers seeking to electrify their fleets.

Domestic transformer manufacturers can and do import steel but have to pay a 25% tariff even as they struggle to compete with lower-cost foreign manufacturers. The U.S. is increasingly relying on imported transformers, including from China, which presents cybersecurity risks.

U.S. officials seized a Chinese-manufactured transformer in 2019 because they suspected it had back doors embedded in its hardware that could be exploited by hackers. For this reason, President Trump in May 2020 issued an executive order banning Chinese-made equipment from the bulk-power system and required the Energy Department to “identify, monitor and replace as appropriate” equipment that might present national-security risks. Mr. Biden reversed the order shortly after entering office, perhaps because he knew Chinese-manufactured transformers would be necessary to build the administration’s zero-carbon grid.

Demand for transformers is growing worldwide as low-income countries develop their power grids and wealthier ones go green. The U.S. now finds itself in the difficult position of having to compete with other countries for transformers and electrical steel at the same time as the Inflation Reduction Act subsidies supercharge demand.

But forget about building out the grid. We can’t even maintain the one we have. An Energy Department report last year warned that most large power transformers will soon need to be replaced. The average age is 40 years, and normal life expectancy under ideal conditions is 20 years. Aging transformers “cause higher failure risk,” the report notes.

Altogether this means the risk of blackouts is increasing—not only owing to shortages from unreliable renewables but also to failure of aging equipment. Distribution transformers are often damaged in natural disasters, and utilities say the lack of replacements delays power restoration after outages.

The Biden administration plans ensure that such problems can and will get worse. The Energy Department in January proposed efficiency standards for distribution transformers that would require an “amorphous steel” not readily available in the U.S. Climate activists lobbied for the new standards because they say more-efficient transformers will reduce power losses and the need for fossil-fuel generation.

That’s debatable. What isn’t is that the standards “would upend the market and manufacturing process” for electrical equipment, as automakers, utilities and home builders noted in a May 22 letter to Mr. Biden. As a result, “plans to expand domestic steel capacity and manufacturing of critical electrical equipment, such as transformers, are now in flux.”

Last week 47 senators—including 13 Democrats such as Pennsylvania’s John Fetterman and Wisconsin’s Tammy Baldwin—wrote to Energy Secretary Jennifer Granholm warning that her proposed rule “could put the administration’s electrification goals at risk by exacerbating an existing grid vulnerability” and threaten national security.

Mr. Biden’s climate policies are working at cross purposes, which might be comical if the consequences weren’t so grave.