More than meets the eye

The latest shortage in the great electrification of everything arms race

• the latest in the NEED MORE POWER saga

• a 2-3 year backlog for 400-500 ton piece of transmission equipment . . . what’s the big deal?

• the latest entry in the reindustrialized bull run

• there’s always manufacturing in the China-stand

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Need more power transformers

Everyone knows at this point that GenAI is doing a number on electricity demand.

After decades of basically flat electricity consumption, AI comes along and says “if you give us a whole lot more electricity, we can do all kinds of computational wonders.”

And so we have, or we’ve tried to. We’re building or retrofitting as many data centers as we can, stuffing them full of Nvidia GPUs, and telling the utilities to flip the switch.

The Data Centers Need More Power!

Of course, it’s not so easy as flipping a switch. Adding new sources of power generation is expensive, time-consuming, and fraught with peril and uncertainty, especially considering recent antipathy to more traditional sources of new power (i.e. “fossil fuels”) and longstanding antipathy to less traditional sources of new power (i.e. nuclear).

Not to mention that we need the skilled tradespeople to do the work, and of course it’s not just a question of building data centers and power plants. You can generate all the electricity in the world, but you gotta be able to store it, and the grid has to be able to get it where it needs to go.

And again, after decades of being a very sleepy part of the economy, “the electrification of everything” is bringing urgency to parts (until recently) unknown.

Mostly, this has gone off without any notable hitches, because America and the invisible hand is remarkable like that.

A 2-4 year backlog

But there’s always wrinkles, and the latest wrinkle (which is actually something RW flagged before) is that we don’t have enough transformers.

So much energy and no way to control it:¹

FT

Demand for industrial-scale transformers has taken off like a rocketship, and isn’t expected to slow anytime soon.

Transformers had long been readily available within six to eight months when manufacturers suffered from a glut for years, but demand [] has suddenly rocketed . . .

Utilities wanting to buy the key piece of electrical infrastructure would now have to wait three to four years if they have not reserved one already, said Schierenbeck, formerly CEO of German energy company Uniper.

The wait time for a new transformer is now 3-4 years, instead of 6-8 months.

I’ve heard anecdotally that because data centers are hogging all the supply, the wait time is even worse for more conventional users, like plain vanilla real estate developers.

Apparently, according to the FT, the push for green energy has especially taxed transmission equipment because solar and wind sources tend to be farther away:

the expanding share of renewables in the electricity mix in some markets requires more transmission equipment because they are often located far from users and produce power from more dispersed sources than traditional electricity plants.

Idk. Maybe? Sounds plausible.

I certainly suppose all this hardware shortage is good for Hitachi $HTHIY, who is apparently the market leader in making these things.

The hottest new sector to watch

In general, it continues to be a good run for pretty much anyone in the business of building, refitting, powering and/or cooling data centers.

There’s now yet another entry in the reindustrialized bull run.