The United States is experiencing simultaneous growth in transformer replacement and incremental demand, driven by related policies promoting investment in electrical grid infrastructure. In 2021, the global transformer market reached $37.3 billion, with the U.S. accounting for approximately 17%, amounting to $6.3 billion. Three factors—replacement demand, new demand, and policy incentives—are expected to drive the growth of the U.S. transformer market:

1. Replacement Demand: The aging of transformers in the United States is severe, with around 70% of distribution transformers exceeding 25 years in service, and approximately 15% surpassing 40 years. Frequent power outages due to equipment/technical issues result in nearly two-thirds of transformer demand stemming from yearly replacement needs.

2. New Demand: The substantial growth in renewable energy generation and electrification in the transportation sector in the United States in recent years necessitates corresponding upgrades and expansion of transmission and distribution networks, thereby driving new demand for transformers.

3. Policy Support: From 2018 to 2022, the compound annual growth rate of investment in the North American grid reached 6.97%. Policies such as the bipartisan infrastructure bill are expected further to stimulate investment in electrical infrastructure, including transformers.

Challenges and Opportunities for China Transformer Manufacturers in Overseas Markets

China manufacturers face challenges such as dispersed electrical grids, high certification barriers, and policy restrictions when expanding overseas. Specifically, the U.S. electrical grid is relatively dispersed, posing higher market penetration challenges. Moreover, the certification process for transformer products in the U.S. market is characterized by high technical thresholds, lengthy procedures, high costs, and a strong emphasis on environmental protection. Additionally, the United States imposes restrictions on the importation of power transformers from China with voltage levels of 69kV and above.

The potential long-term shortage of transformers in the United States presents historic opportunities for Chinese manufacturers. China transformer manufacturers possess technological advantages, cost-effectiveness, and response speed, leading them to accelerate their international expansion efforts. From 2021 to 2023, China's exports of transformers to the United States saw a compound annual growth rate of 44%. However, since 2020, China's share of transformer exports to the United States has remained below 10% of total imports, indicating significant potential for growth in other import regions. The potential substitute space for other import regions in 2023 is close to $5.2 billion.