Transformer costs must typically run at $8/kVA to earn a 10% IRR constructing a new transformer manufacturing facility, across capex costs, materials costs, specialized labor costs, and all built-up from first principles in this economic model. We have also screened 25 leading companies in transformer manufacturing.
What is a transformer? A transformer is needed to step up or down the voltage at every inter-connection point in the grid, to an exact, pre-specified level. The demand for transformers grows by 2.5-3x in capacity terms and by 30x in unit terms, as part of electrification mega-trends, underway in the energy transition.
Transformers are becoming a key bottleneck in the energy transition. Our 15-page report explores transformer shortages, their resolution and whether a boom-bust cycle is underway.
The economic costs of transformer manufacturing are built up from first principles in this model. New transformer facilities take 2-3 years to construct, and their capex costs (in $/kVA of output) can be estimated as a function of facility output (in MVA) or floor space (in m2). Capex/capital comprises c25% of the cost of transformer manufacturing.
Materials comprise c40% of the costs of transformer manufacturing, especially electrical steel, copper and insulating mineral oils. The data-file shows how the mass of transformers varies with their power rating, and then how masses break down across these materials.
Monthly pricing is tracked for electric steel and transformer imports in the data-file. Hence these variables can be stress-tested.
Labor comprises c25% of transformer costs, as the average unit requires around 45 man-hours per MVA. Particularly specialized labor is needed for designing highly-customized transformers, core assembly and coil winding: the precise number of coils wrapped around each core determines the change in the voltage.
Please download the data-file to stress test transformer costs. Our base case numbers require pricing of $8/kVA at the manufacturing facility gate, to earn a 10% IRR. Add another $2-3/kVA for fully installed costs on site. But variations in pricing and utilization rates can easily double IRRs or wipe them out entirely.
The space is also competitive. Leading players include capital goods conglomerates such as Hitachi Energy, Siemens, GE, Schneider, which may be able to market end-to-end integrated solutions to customers. But there has also been a rush of new Chinese players. So the transformer industry may require further consolidation, which is starting. 25 transformer manufacturers are screened below.
The transformer market, companies and costs are tabulated in this data-file as a useful reference for decision-makers. Our overview of the transformer industry is published here, our top conclusions on power grids are published here, and we think that 2025/26 will be marred by transformer shortages.