More Than Meets the Reliability Eye: Transformers, Gas Generation and Prime Optimization

Grid reliability is at risk as electricity demand surges. The North American Electric Reliability Corporation’s (NERC) 2024 assessment warns of capacity shortfalls with firm generation lagging. New gas plants can help, but turbine and transformer backlogs threaten delays. Natural gas remains the backbone of firm generation, but if turbine and transformer shortages delay capacity expansion, regions already at risk may struggle to meet demand surges.

MISO, ERCOT, and PJM face the greatest risks. Despite increased production, supply bottlenecks may persist until 2026–2027. Stakeholders should plan for delays, factor them into project schedules, and secure equipment reservations early.

Connecting the Dots: Turbine Types, Transformers and Grid Roles

Electric reliability depends on more than just generation—it requires the infrastructure to convert, transport, and integrate power into the grid. Gas turbines, which provide firm generation capacity, must be supported by large power transformers to deliver electricity to transmission networks.

There are three main types of gas turbines that play different roles in power generation:

• Heavy-Duty Gas Turbines – Used in baseload and peaking plants, ranging from 200 MW to 1,600 MW.
• Industrial Gas Turbines – Smaller-scale units, often used in cogeneration and backup applications, typically 50 MW to 300 MW.
• Aeroderivative Turbines – Quick-start peaking units, providing grid flexibility.

Different types of transformers serve distinct functions throughout the power system, but their core purpose is to either “step up” voltage for long-distance transmission or “step down” voltage for consumer delivery. Since our focus is on connecting generators to the grid, we specifically examine Generator Step-Up (GSU) transformers, which increase the voltage of electricity produced by power plants to match high-voltage transmission systems.

NERC’s Grid Reliability Assessment: Where the Risk Is

Grid reliability risks are growing, with NERC’s Long-Term Reliability Assessment identifying multiple regions at elevated or high risk of power shortages in the coming years.

NERC evaluates reliability risk by assessing whether a region can meet demand growth while ensuring grid stability. It categorizes risk into three levels:

• High Risk – projected firm capacity shortfall even under normal conditions, making blackouts a real possibility.
• Elevated Risk – enough capacity currently, but shortages could occur during extreme weather or peak demand periods.
• Normal Risk – sufficient generation to meet demand, even under stress conditions, with minimal risk of shortages.

Exacerbating this challenge is the surging electricity demand from data centers, which require highly reliable, uninterrupted power.

As shown in the map below, many large-scale data centers are concentrated in areas where NERC has flagged reliability concerns. The good news? These regions also have significant natural gas infrastructure, which is well-positioned to support new dispatchable generation—but only if supply chain constraints on turbines and transformers are addressed.

The Waiting Game: Major Manufacturers and Measuring Delays

The gas generation market is dominated by GE Vernova, Siemens Energy and Mitsubishi Power, which had 55GW, 40GW and 15GW, respectively, under construction globally as of August 2024 according to data from the Global Energy Monitor. While these companies also manufacture transformers, Hitachi Energy is the world’s largest transformer producer.

Just this week, on March 11, GE Vernova’s CEO stated that the backlog of orders for gas turbines, power transformers, and switchgear now extends into 2028. While Siemens has not specified a timeframe for its backlog, its Q3 2024 earnings report showed record order intakes for gas services, with orders more than doubling year-over-year.

To address the gas backlog, GE stated in its Q4 2024 earnings call that it has “expansion plans to produce 70 to 80 heavy-duty gas turbines per year beginning in the second half of 2026, up from 48 this year,” and would “ramp to ship approximately 20 gigawatts annually starting in 2027.” Mitsubishi and Siemens are also expanding output.

For transformers, in February 2024, Siemens noted that only 20% of U.S. large power transformer demand is met by domestic supply, with lead times of up to five years. Meanwhile, in November 2024, Hitachi Energy’s CEO warned that utilities looking to purchase a transformer could face wait times of up to four years unless reservations were made in advance.

To expand capacity, Hitachi has been increasing investments, including a $155 million expansion of transformer manufacturing facilities in Mexico, Virginia and Pennsylvania announced in September 2024, with more under consideration. Siemens also committed to a $150 million investment to boost transformer production in Charlotte, North Carolina.

The Road Ahead: Planning for an Uncertain Grid

All things considered, too much demand is a good problem for the Natural Gas industry to have. But NERC’s warnings, combined with surging AI-driven demand and persistent supply chain bottlenecks, highlight the need for early action from stakeholders — plan for delays, secure reservations early if possible, and monitor AI-driven power demand. If anything is certain about power markets, it’s that they remain unpredictable. Grid risks, supply chain disruptions and AI efficiency advancements could alter projections, but one constant remains: firm generation and infrastructure readiness are key to maintaining reliability.

If you need insight into how reliability considerations could impact your projects or specific regions, please contact us.