Key facts
- Demand for AI data centers is causing shortages of critical U.S. power grid equipment, especially transformers.
- Lead times for some high-voltage transformers have extended to multiple years, up from about a year in 2020-2021.
- Data center capacity in the U.S. is expected to reach 110 GW by 2030, significantly increasing electricity consumption.
- Transformer costs are projected to rise by 4% to 10% in the next year.
- Utilities and developers are securing equipment orders up to five years in advance and sourcing from overseas suppliers.
- Industry is exploring delaying power plant retirements and boosting domestic manufacturing to address lead times.
Skyrocketing demand for artificial intelligence data centers is creating significant strain on the U.S. power grid, exacerbating existing shortages of critical equipment like transformers. This surge in demand is driving up costs and extending lead times for essential components, forcing utilities and developers to secure orders years in advance.
Transformers, crucial for regulating electricity voltage, have been in short supply for the past five years due to a rebound in demand outpacing supply following COVID-19 lockdowns. The rapid buildout of AI infrastructure is intensifying this squeeze, with lead times for some high-voltage transformers now stretching to multiple years, compared to around a year in 2020 and 2021.
Experts note that equipment availability is a major concern for developers highly valuing time to market. Beyond large power transformers, the demand for data center construction is also increasing the need for circuit breakers and switchgear, which are projected to face larger market deficits. These delays complicate the power industry's efforts to increase supply and manage rising prices.
According to Wood Mackenzie, U.S. data center capacity is expected to reach 110 gigawatts by 2030, consuming eight times more electricity than electric vehicles over the same period. The consultancy estimates that data centers' share of the electrical equipment market could swell to nearly 40% under accelerated scenarios, a significant jump from just under 2% in 2020.
Specific lead times illustrate the growing challenge: generator step-up transformer lead times are projected to surpass 160 weeks by the first quarter of 2026, up from an average of 143 weeks in 2024. For high-voltage circuit breakers, lead times climbed to 125 weeks in the latter half of last year, compared to 77 weeks in 2023. This increased demand is also expected to lift transformer costs by 4% to 10% over the next year.
Utilities and developers are employing various strategies to cope, including purchasing equipment well in advance, refurbishing older transformers, and diversifying sourcing. Roseville Electric Utility, for example, has extended its procurement timeline to three years and is now buying equipment for projects five years out. Many are sourcing from overseas suppliers, such as China and South Korea, which often offer shorter lead times and lower prices than domestic manufacturers. Some are also offering favorable payment terms or paying upfront to secure earlier production slots.
In the longer term, the industry is considering delaying power plant retirements and expanding domestic manufacturing capacity to address the extended equipment lead times and other project delays, such as grid connection queues.