- Data centers are driving demand for expanded power transmission and distribution from utilities
- But they're also contributing to demand for transformers and other critical power gear in a tight supply market
- Several power component vendors are stepping up manufacturing to help ease the supply crunch
Data centers have a huge power problem. It’s not just that they need more power but they also need to get that power from where it’s generated to where they need it. The thing is, supply chain constraints are gumming up the works.
“You have these situations where we have enough generation capacity, but maybe we don’t have enough transmission capacity or distribution capacity to bring it to the data center,” Flex CEO Chris Butler recently told Fierce. “This has been primarily caused by a supply chain constraint in the power world. Transformers have been a big driver, media voltage breakers have been a big driver of that.”
Interestingly, data centers seem to be on both sides of the equation. Not only are they driving electricity demand for utilities but International Energy Agency (IEA) noted in a recent report they’re also behind the emergence of non-traditional buyers of electrical components required for power transmission.
“Data centers require substantial electrical infrastructure, including high-capacity power transformers and specialized cables,” the IEA noted. The result? Increased competition for critical electrical components in an already tight supply market. And newly implemented U.S. tariffs aren’t helping the situation.
Manufacturing ramp
But there may be some light at the end of the tunnel.
Hitachi Energy last week announced a $1 billion investment in U.S. manufacturing of critical electrical components, with $457 million going toward a new power transformer factory in Virginia. Hitachi CEO Toshiaki Tokunaga specifically stated the move would help fuel rapid data center expansions in the country.
“Power transformers are a linchpin technology for a robust and reliable electric grid and winning the AI race,” Hitachi Energy CEO Andreas Schierenbeck added. “Bringing production of large power transformers to the U.S. is critical to building a strong domestic supply chain for the U.S. economy and reducing production bottlenecks, which is essential as demand for these transformers across the economy is surging.”
Hitachi’s move followed one by fellow power supply vendor Eaton, which announced plans to spend $340 million to bring a third U.S. transformer manufacturing facility online to help meet industry and data center demand.
Delta Star Inc., MGM Transformers, JST Power Equipment and Siemens Energy are among a number of other companies similarly ramping up transformer manufacturing efforts.
Will the calvary arrive in time or will the AI bubble driving consumption burst before the new capacity is brought online? We’ll be watching closely.