The U.S. hydropower fleet is only getting older, and with an average plant age of around 80 years, long procurement timelines are threatening rehabilitation and modernization projects that could help keep the nation’s fleet operational.
A new report from the National Laboratory of the Rockies, Large Power Transformer Supply Chain Gap Analysis and Domestic Content Strategies for Hydropower Rehabilitation: Supplemental Report, examines how the growing demand for transformers, dependence on imports, and low domestic manufacturing capacity are threatening the nation’s hydropower modernization efforts, and some unique challenges that the hydropower industry faces.
The report is supplementary to a 2024 report, the Hydropower Supply Chain Gap Analysis, which focused on improving understanding of the hydropower supply chain and developing strategies for addressing supply chain challenges.
Demand for large power transformers (LPTs) is up across the board due to grid modernization efforts. It’s an inescapable problem for hydropower facilities, which need LPTs to step up their output for high-voltage transmission.
Hydropower facilities can continue performing for a staggeringly long amount of time before retirement, which has created a double-edged sword for plant operators: hydro plants can keep chugging for decades without major rehabilitation, but this has created irregular and unpredictable forecast demand for hydropower components. These long plant lifetimes have also disincentivized investment in domestic manufacturing.
There is a “notable” lack of domestic manufacturing for key hydropower components like large turbines, hydrogenerators, and electric steel, and some components have no domestic source at all. The report argues that the U.S. hydropower supply chain will be limited in its ability to meet future energy needs if the issues of demand signals and supply chain conditions are not addressed.
With the U.S. hydropower fleet increasingly requiring modernization, including the replacement or refurbishment of transformers, procurement timelines for typical new LPTs (measured from purchase order to receipt) have grown from 12-18 months to 30-36 months, per the U.S. Government Accountability Office. Lead time can extend to up to 60 months if the project requires extra-high-voltage transformer units. LPT prices have also shot up, increasing 50% to 70% higher in 2025 compared to 2019.
The report notes that a primary bottleneck is upstream material supply. The U.S. does produce grain-oriented electric steel (which forms the magnetic core of transformers), but output is constrained in “both grade variety and total volume relative to demand,” per the report. Manufacturers have little choice other than to rely on Japan and South Korea for high-grade grain-oriented electrical steel. Cooper conductors, on-load tap changers, brushings, and insulation materials seem to be facing similar levels of import dependence. At the end of the day, more than 80% of U.S. demand for LPTs is satisfied through imports.
Manufacturers have recently been making efforts to expand domestic capacity, including facility upgrades from Delta Star, Hitachi Energy, and Pennsylvania Transformer and new capacity planned by Siemens Energy. If only the hydropower sector needed transformers, these upgrades could potentially make a noticeable dent, but given the grand scope of power grid modernization efforts and data center demand, these expansions are still insufficient to meet the rising demand of LPTs, the report argues. Only a “handful” of facilities worldwide are capable of producing the largest extra-high-voltage units above 400 MVA.
Hydropower projects face their own set of unique challenges stemming from custom design requirements, remote locations, and regulatory requirements for domestic content. Actually getting the huge, heavy, and delicate LPTs to their final location safely can be a massive portion of overall costs, with logistics representing 3%-20% of the total transformer cost depending on the region. Moving a 100-400 ton transformer from point A to B through mountain passes, waterways, and restrictive bridges can quickly create a complex and costly logistics solution.
Aside from LPTs, the availability of secondary components of pumped storage hydropower (PSH) facilities like turbines, hydrogenerators, and governors is only making the problem worse. Only several U.S. facilities are capable of forging large shafts or cast runners over 10 tons, and there are zero domestic suppliers of hydrogenerators larger than 20 MW. Additionally, electric control systems for excitation and protection are “heavily reliant” on Asian manufacturing, the report added.
The report notes that recent policy measures could help alleviate some supply chain challenges. The domestic content bonus, established by the Biden administration’s Inflation Reduction Act (IRA) and modified by the Trump administration’s Big Beautiful Bill Act (OBBBA), provides an additional 10 percentage points of credit value for projects that adequately meet domestic content requirements. Additionally, in May 2024, the Internal Revenue Service Notice 2024-41 established a safe harbor table for hydro and PSH projects to allow them to more easily qualify for that bonus credit. To qualify, projects must source all iron and steel for applicable components from the U.S., and manufactured products must meet escalating domestic cost thresholds, starting at 40% in 2024 and reaching 55% in 2029.
Generator step-up transformers were “specifically identified” as qualifying manufactured products under that framework, the report notes. Additionally, rehabilitation projects may fall under the “80/20 retrofit rule,” which enables facilities with at least 80% new investment to qualify for the bonus, although reused components are not counted as domestic content. The OBBBA also tightened restrictions for investment or production tax credits for projects beginning construction in 2026 or later, with more restrictions on procurement from “foreign entities of concern,” including China, Russia, North Korea, and Iran. However, some hydropower-specific manufactured components like turbines, generators, and governors “still lack clearly defined cost percentages in the safe harbor framework,” the report notes, which has left developers with some ambiguity.
Hydropower operators are taking some stopgap measures in the meantime, like placing transformer orders even earlier, sharing spare units, and phasing their modernization schedules. The report argues that these measures will not be enough to “fully offset the risks posed by systemic bottlenecks.” Those issues, the report says, can only be solved by building new domestic manufacturing capacity, reestablishing domestic expertise in large transformer production, and sustained effort and coordination across government, utilities, and private industry.
