WASHINGTON, July 9 — Skyrocketing demand for artificial intelligence (AI) data centres is exacerbating shortages of critical grid equipment, such as transformers, across the United States (US), driving up costs, lengthening wait times, and spurring utilities and developers to lock in orders far in advance.
Transformers, which are used to step up or step down electrical voltage, have experienced persistent shortages over the last five years, as demand began to rebound faster than supply due to COVID-19-related lockdowns.
Experts say that supplies are being further squeezed by the rapid buildout of AI infrastructure. Lead times, or the time taken between an initial order and its delivery, for some high-voltage transformers have increased to multiple years from around a year in 2020 and 2021.
"Equipment availability is becoming the biggest concern for developers as they value time to market so highly," said consultancy Wood Mackenzie's senior analyst Ben Boucher.
He added that while large power transformers are experiencing the most pronounced market shortage, data centre construction is driving demand for equipment such as circuit breakers and switchgear, which are set to face larger market deficits.
Delays in obtaining equipment are further complicating the power industry's dash to bring more supply online to meet accelerating data centre demand and quell rising prices.
Last month, for instance, federal regulators ordered grid operators to explore new protocols to quickly connect data centres and other large energy users.
Lengthy wait, higher prices
A Wood Mackenzie analysis indicated that US data centre capacity is set to hit 110 gigawatts (GW) in 2030, up from around 24 GW currently, consuming eight times as much electricity as electric vehicles over the period.
It noted that data centres' share of the electrical equipment market could swell to 40 per cent under accelerated scenarios, from just shy of two per cent in 2020.
Boucher said that generator step-up transformer lead times surpassed 160 weeks by the first quarter of 2026, compared with an average of 143 weeks in 2024, while high-voltage circuit breaker lead times climbed to 125 weeks in the second half of last year, versus 77 weeks in 2023.
The spike in demand is also lifting prices. Transformer costs could increase by around four per cent to up to 10 per cent over the next year, depending on the type.
While long-term supply agreements can help ease the strain, "they do not solve everything, particularly for smaller utilities that do not have the scale," said the National Rural Electric Cooperative Association's senior vice president of government relations Louis Finkel.
Buying equipment five years ahead
Utilities and developers have responded by purchasing equipment well in advance, refurbishing older transformers, asking customers to prepay for equipment with long lead times, and diversifying their sourcing, among other measures, to tackle the challenges.
California's Roseville Electric Utility used to procure equipment for projects about a year out, said its chief executive officer Dan Beans, but is now operating on a three-year timeline to lock down all the supplies it needs.
But with large transformers for substations facing a three-year waiting time, he said the utility is buying equipment for projects it knows are coming five years in advance.
Wärtsilä Energy Storage's senior manager of strategic sourcing Miska Pukkila said that developers are increasingly sourcing from multiple suppliers across different geographies, so they are not dependent on a single region or manufacturer, and locking in deliveries with long-term agreements.
As transformer shortages grew more acute, Beans said the pool of suppliers bidding to sell to Roseville Electric Utility shifted overseas, with about three-fourths of bids now coming from foreign sources such as China and South Korea.
Domestic suppliers typically quote longer lead times and higher prices than their overseas counterparts.
Pukkila observed that in some cases, utilities and developers are also offering more favourable payment terms or paying upfront to secure earlier production slots and shorten lead times.
In the longer term, utilities and the industry are looking to counter long equipment lead times — as well as other project delays, such as lengthy queues to connect to the grid — by delaying power plant retirements and expanding domestic manufacturing capacity for these components.
