Transformer industry investment opportunities:

Transformer industry investment opportunities:

 distribution network to see the sea, the main network to see the extra high voltage

China’s new capacity expansion, energy-saving transformation demand continues to exist, the United States supply shortage is expected to bring out of the sea view.

In the distribution transformer, domestic demand, including power generation and electricity load enhancement brought about by the new expansion demand, as well as energy-saving transformation demand.

New demand: public distribution field, electricity consumption and the highest electricity load accelerated growth, bringing new expansion demand for distribution transformers, while a large number of new energy storage devices, flexible loads, microgrids and other flexible and controllable resources access to the power system regulation ability to improve the requirements. In the industrial/power generation sector, as wind power, photovoltaic and other generating units are connected to the power grid from the distribution side, the demand for new distribution transformers may be boosted for transmitting power to end-users.

Demand for energy-saving renovation: According to the Transformer Energy Efficiency Improvement Plan (2021-2023), which was jointly formulated by the Ministry of Industry and Information Technology (MIIT), the General Administration of Market Supervision (GAMS), and the National Energy Administration (NEA) in 2020, the proportion of high-efficiency and energy-saving transformers (power transformers with Class 1 and 2 energy-efficiency standards) operating on the grid will be increased by 10% by 2023, and new high-efficiency and energy-saving transformers in that year will account for more than 75% of the total.

Internationally, the U.S. is experiencing a more severe transformer shortage, with average delivery times extending to more than one year and prices quadrupling from 2020 levels, according to the U.S. Economic Review in the second quarter. Superimposed on the accelerated investment in renewable energy and electrification, the old transformer renewal demand, domestic transformer out of the sea view is expected to improve.

The main reason for the tight supply is the tight raw materials and shortage of manufacturing workers. Transformer core raw material supply chain (oriented silicon steel) shortage problem is serious, although President Biden liberalized part of Europe, Japan imports of tariffs, but tariffs on China still exists; at the same time have welding, coil winding, transformer testing and other related skills shortage of local skilled workers.

Renewal and Iteration Demand: 70% of U.S. grid access and transmission and distribution facilities are aging; according to a report released by the U.S. Department of Commerce in 2020, the average service life of a transformer in the U.S. has reached 30-40 years, far exceeding the expected life expectancy of 25 years.

Additional Expansion Demand: renewable energy and electrification investments are accelerating, and funding from the Bipartisan Infrastructure Act (including $62 billion for the Department of Energy only) accelerates the deployment of commercially available clean energy, clean transportation, and grid modernization technologies, as well as investments in related clean energy infrastructure, domestic manufacturing and supply chain capabilities, and workforce needs. The Inflation Abatement Act program provides $370 billion in incentive funding for the deployment of commercial and emerging clean energy technologies.

In the U.S. market, incremental demand up to 69kV is expected to be made up by Chinese capacity against a backdrop of tight supply. The U.S. Department of Energy imposed an import ban on Chinese transformers of 69kV and above, which was subsequently lifted, but still retains the cautionary statement that “it is necessary to ensure the security of the U.S. high-capacity power system”.

Based on policy constraints, the report that China’s transformer exports to the U.S. market, the main point of focus on the distribution level, the U.S. domestic supply of distribution transformers under the background of supply tension, China’s production capacity to accelerate the sea, to further access to the growth of space.

Main network transformer

Competitive pattern is excellent, UHV supporting main network construction is expected to enter the growth of “long cycle”.

According to the report forecast, 2023-2025 will enter the peak period of ultra-high voltage construction. The accelerated construction of UHV, in order to enhance the transmission capacity of important corridors and key cross-sections, it is expected that the delivery end and the receiving end of the high-voltage/ultra-high-voltage substations will be expected to grow accordingly.

Extra-high voltage projects at the sending end and receiving end need to access the AC power grid, in order to undertake the transmission of power landing, such as 1100kV extra-high voltage DC project sending end need to access the 750kV AC power grid, the receiving end of the low-end access to the 1000kV AC power grid, the high-end access to the 500kV AC power grid. In addition, in order to improve the reliability of power supply to the receiving end of the grid, Longdong-Shandong project, for example, according to the planning, will be at the receiving end of the Taishan 500kV substation to increase a main transformer, 500kV planning line out 8 back, 220kV planning line out 12 back.

Wind and light large base project transmission channel is still a gap, it is expected that after 2024, the UHV project still has a “long cycle” attribute, corresponding to the main network transformer supporting the construction demand is expected to continue to grow.

According to the second batch of large base project list, the second batch of wind and light large base 145 transmission channel is still a gap. In addition, the third batch of wind base project list is still not fully announced, but taking into account the existing transmission channel, is expected to continue to approve the construction of new UHV projects. To the second batch of wind big base, for example, the total project size of 455GW, of which fourteen five built 200GW, 150GW, to 11GW wind +4GW thermal power corresponding to a DC line calculation, the second batch of big base channel demand 12-14, according to the stock and has been planning line judgment, fourteen five outgoing channel stock 4 shortfalls.

In addition, 2023 photovoltaic cost decline, large base construction speed up, fourteen five years during the second batch of large base transmission channel demand more necessary and urgent.

Therefore, the main network transformer to form a stable competitive pattern of high voltage level, demand for following the construction of ultra-high voltage “long cycle” growth.

China’s transformer industry is relatively fierce competition, differentiated by voltage level, more than 220kV main network transformer market participants are relatively fewer, better competition pattern.

China’s low-end transformer market competition is fierce, with 110kV transformer product production capacity of more than 100 companies, with 220kV transformer production capacity of more than 20 companies, and the production of 500kV grade above the transformer enterprises through technology and production capacity to build a very high barriers to entry, the market pattern tends to stabilize.