Between Demand From AI & EVs and DoE's New Transformer Regs There Isn't Going to Be Enough Electricity to Run Our Bright New Electrically Powered Future

Politicians and bureaucrats are pushing us towards an electrically powered transportation future. EVs are where the automotive world is heading. At the same time we are promised that Artificial Intelligence will lead us all into a brave new world where we are told that we won’t even have to think. So far, though, it seems like we will have to think even harder to come up with a prompt that won’t elicit a politically corrected answer.

The problem is that the United States’ electrical supply architecture, let’s call it the grid, can barely supply current (pun intended) needs, let alone support our transportation needs and the increasing needs for running the computers needed for AI.

Simultaneously, Washington is mandating changes in the way that the transformers used to distribute electricity on the grid are manufactured that could further jeopardize the grid’s stability and will certainly end the jobs for thousands of Americans, putting us even more dependent on China for manufacturing.

A short word about electromagnetism and transformers is in order.

If you move a magnet past a coil of electrically conductive wire, you generate a current in that wire. It works the other way too, thank God, or the modern world wouldn’t exist. If you put a current through a wire wrapped around a steel or iron core, that turns the ferrous material into a magnet. If you manually spin a DC motor, it becomes a generator.

Remember making an electromagnet in junior high by wrapping insulated copper wire around a steel nail and connecting it to a battery or some other source of electricity?

A transformer adds a second coil and when an alternating current goes through one coil, every time the current changes direction, the magnetized core then generates a current in the other coil. The ratio of the turns of one coil to the other determines how much the transformer will step up or step down the voltage.

In North America, household electrical “mains” voltage is a nominal 110 volts. Where you live it might be as high as 120 or so. In other places it’s 220-240.

It’s more efficient to transmit electricity at high voltage, though, about 400KV (400,000 volts). Most generating plants, however, put out about 12KV so first large step-up transformers are used to raise the voltage for transmission to to local distribution substations, where step-down transformers take it down to 13KV. Transformers on utility poles in your neighborhood further step it down to 240 volts, which is is supplied to your home with three wires: +120V to ground, -120V to ground, and ground. That way you can have both 120 and 240 volt appliances in the same house. Connect one hot and ground for 120, and both hots for 240.

New regulations phase out the use of “amorphous” steel in transformer cores. The change is said to yield a relatively minimal, 5%, increase in efficiency and there only a single American manufacturer of amorphous transformer cores.

It’s interesting that while the energy needs of cryptocurrency “mining” have been a topic in the media, the fact that AI requires massive amounts of computational power has been pretty much ignored.

I understand that many people don’t understand basic concepts about energy. I’m not very sharp on thermodynamics myself. Still, it surprises me when people think, for example, that there is no increased energy cost when you put a tray in the freezer to make ice cubes. The heat in that water has to go someplace and you’re creating an increased load on the system to move that heat and that translates into more electricity used.

You can’t run a car with a motor powered by a generator driven by a fan that spins as the car moves through the air. That’s called a perpetual motion machine and they will never exist.

One would think, though, that when people use a photo or video editor and they hear the cooling fan for the CPU on their computer kick on, they would understand that computers use electricity and the more computing they do, the more electricity they will use.

An entire warehouse-full of server computers needed to process and generate AI requires a lot more electricity than your laptop or home computer.

Oddly, about the only person who has been warning about all this, is the person who has been most prominent in promoting electric cars, Elon Musk. In a dial-in question and answer period in connection with the Bosch Connected World Conference, Musk brought up the fragile nature of the grid and how transformer issues are only going to make things worse.

"I've never seen any technology advance faster than this…

"The artificial intelligence compute coming online appears to be increasing by a factor of 10 every six months. Like, obviously that cannot continue at such a high rate forever, or it'll exceed the mass of the universe, but I've never seen anything like it. The chip rush is bigger than any gold rush that's ever existed.

"I think we really are on the edge of probably the biggest technology revolution that has ever existed. You know, there's supposedly a Chinese curse: 'May you live in interesting times.' Well, we live in the most interesting of times. For a while, it was making me a bit depressed, frankly. I was like, 'Well, will they take over? Will we be useless?' But the way I reconciled myself to this question was: Would I rather be alive to see the AI apocalypse or not? I'm like, I guess I'd like to see this. It's not gonna be boring..

"The constraints on AI compute are very predictable... A year ago, the shortage was chips; neural net chips. Then, it was very easy to predict that the next shortage will be voltage step-down transformers. You've got to feed the power to these things. If you've got 100-300 kilovolts coming out of a utility and it's got to step down all the way to six volts, that's a lot of stepping down.

"My not-that-funny joke is that you need transformers to run transformers. You know, the AI is like... There's this thing called a transformer in AI... I don't know, it's a combination of sort of neural nets... Anyway, they're running out of transformers to run transformers.

"Then, the next shortage will be electricity. They won't be able to find enough electricity to run all the chips. I think next year, you'll see they just can't find enough electricity to run all the chips.

"The simultaneous growth of electric cars and AI, both of which need electricity, both of which need voltage transformers – I think, is creating a tremendous demand for electrical equipment and for electrical power generation."

Utility industry trade groups have raised alarms about the new transformer regulations:

DOE proposed new energy-efficiency standards for distribution transformers in December, and today will host a discussion of the possible changes with stakeholders. In recent days, utility groups have filed comments with the DOE and the U.S. Department of Justice sounding alarm.

The changes “could significantly impact national security and grid reliability,” a group of utilities and other stakeholders wrote DOE on Wednesday. The group includes: the American Public Power Association, Edison Electric Institute, GridWise Alliance, Leading Builders of America, National Association of Home Builders, National Electrical Manufacturers Association and the National Rural Electric Cooperative Association.

“The proposed rule would require manufacturers to transition to a different type of steel, which is largely untested, less flexible, and more expensive,” the coalition warned.

NRECA and APPA separately sent a letter to DOJ on Feb. 10 warning the proposal “risks putting the domestic electrical steel market in a precarious state.”

DOE’s proposal would impact three categories of distribution transformers, requiring them to include amorphous steel cores that are more efficient than those typically made of grain-oriented electrical steel. The rule would come into effect in 2027, aiming to reduce greenhouse gas emissions and potentially saving consumers approximately $15 billion over 30 years.

“Most distribution transformers today use outdated technology that wastes electricity before it even gets to our homes and businesses,” deLaski said in a statement. The new standard “would ensure all new models minimize waste and use materials with a robust long-term supply, making electricity supply both more affordable and more reliable.”

Opponents of the new rules say they worry about the availability of the new transformers, as well as their cost.

“We have serious concerns about whether the only domestic producer of amorphous steel cores today would even be able to meet electric utilities’ demand for distribution transformers,” the utility coalition told DOE.

In a rare show of bipartisanship in Washington, Senators Sherrod Brown and Ted Cruz have introduced legislation that would block the rule from taking effect. From the American Manufacturing Association:

But a bipartisan bill aims to fix the rule and stabilize domestic transformer manufacturing.

Distribution transformers are an essential part of our modern electrical grid, performing the final voltage transformation needed to carry electricity from the distribution grid to our homes and businesses. They’re mounted on utility poles or locked in steel cases somewhere near you right now, keeping your lights on. But a new Department of Energy rule could jeopardize our electrical grid’s reliability and create backlogs of two or more years for new distribution transformers.  

In December 2022, the Department of Energy (DOE) published a proposed rule that would require all distribution transformers to shift from industry standard grain oriented electrical steel (GOES) cores to amorphous steel cores for a marginal increase in energy efficiency. The change would come at the cost of our electrical grid’s dependability and chip away at our American manufacturing base.  

Currently, more than 95% of the domestic transformer market and manufacturers’ production lines are tooled for GOES designs. Already, the transformer manufacturing industry is struggling to meet significant demand increases and grappling with continued supply chain snarls for transformer components.

Should the DOE rule go into effect in 2027, there is only one small domestic producer of amorphous steel in the United States that can provide materials for the transformers, and its production relies on imported foreign substrates. The vast majority of amorphous steel is produced offshore, meaning that our nation’s electrical grids will depend on foreign suppliers.

“Any outcome that would make the grid reliant on Amorphous Metal that is either imported or produced from imported ingots would be disastrous for the United States,” Cleveland-Cliffs President and CEO Lourenco Goncalves said, highlighting that the reliability of America’s electric grid supply chain is a national and economic security imperative.

It’s estimated that shifting supply chains to meet the DOE amorphous steel standard would lead to a minimum manufacturing production delay of 18 months to two years. Meanwhile, the transformer manufacturing industry is already experiencing delays due to supply chain shortages.

There is an alternative to the DOE’s proposed rule that still moves the industry to modernize. Sens. Sherrod Brown (D-Ohio) and Ted Cruz (R-Texas) introduced the Distribution Transformer Efficiency & Supply Chain Reliability Act of 2024 on Jan. 18. If passed, the legislation would block the DOE rule from taking effect and create new energy efficiency standards at levels that would preserve market opportunities for GOES and amorphous steel.

“This time of year, Ohioans know all too well how important reliable electricity is. When storms knock out transformers and power lines, it takes too many communities too long to get the power back on,” Brown said. “Transformers are crucial to our electric grid, and too many power companies and co-ops are forced to wait too long to get new transformers when they stop working. A reliable supply of efficient transformers, made with American materials, is critical to keeping the power on and keeping energy costs under control for Ohioans.”

“The Department of Energy’s proposed rule is a misguided effort to improve efficiency,” Cruz said. “We all agree that efficient energy is a good thing that benefits consumers, but by effectively forcing the distribution transformer industry to change the type of steel it uses almost overnight, DOE’s rule would actually jeopardize electricity distribution for millions of Texans and Americans, with potentially disastrous results during extreme weather.”

The DOE is expected to finalize its proposed rule for distribution transformers this spring.