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An electrical transformer shortage has big implications for housing, renewables

Justin Ho Sep 19, 2023
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"Typically on a utility pole they’re round, and they’re at the top of the pole," said John Kirk, managing director at Embrey, a multifamily developer based in San Antonio. Robert Nickelsberg/Getty Images

An electrical transformer shortage has big implications for housing, renewables

Justin Ho Sep 19, 2023
Heard on:
"Typically on a utility pole they’re round, and they’re at the top of the pole," said John Kirk, managing director at Embrey, a multifamily developer based in San Antonio. Robert Nickelsberg/Getty Images
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Over the last couple days, we’ve seen some downbeat news about the pipeline of new homes. The number of new home construction projects fell more than 11% in August, according to the Commerce Department. And a separate report from the National Association of Home Builders found that in September, homebuilder confidence fell for the second month in a row.

A lot of that decline is thanks to rising mortgage rates, which are weighing down housing demand. But the NAHB also found that homebuilders are facing some supply-side challenges, too. 

One big challenge is sourcing a vital component for home construction: something called an electrical distribution transformer.

You’ve probably seen one of these transformers before. A green or tan box near the sidewalk. Or those trash-can looking things attached to a utility pole.

“Typically on a utility pole they’re round, and they’re at the top of the pole,” said John Kirk, managing director at Embrey, a multifamily developer based in San Antonio.

He said electrical transformers convert the electricity from the grid into electricity you can use in a house. In other words, construction companies need new transformers or else an entire project can get delayed.

“It’s one of your top questions you ask. You want to go meet with the utility provider, and say, ‘Hey, what’s the story? What should we be expecting?'” Kirk said.

He said the wait time for a transformer has grown from three to four months, to at least a year.

They’ve been in short supply since 2018, said Rose Quint with the National Association of Home Builders. Back when the Trump Administration slapped tariffs on Chinese transformers.

“As a result of that, the number of transformers that we bring in from China has fallen by nearly 90%,” Quint said.

Meanwhile, the U.S. has also placed tariffs on the kind of steel used to build transformers domestically.

As a result?

“We have seen the price of transformers increase by 85% since roughly the first quarter of 2018,” Quint said.

That’s not only a problem for home construction. Erin McLaughlin, senior economist with the Conference Board, said we also need new transformers to modernize the electric grid. Something the Biden Administration has been trying to promote.

“All of the industrial policies, such as the Infrastructure Act, to support electrical vehicle charging stations, and also our expansion of renewable energy into the grid,” McLaughlin said.

McLaughlin said all of that will be a challenge if electrical transformers are still hard to find.

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