Dive Brief:

  • The U.S. Department of Energy on Thursday finalized new energy efficiency requirements for distribution transformers, which the agency said would make the nation’s grid more reliable, help deploy clean energy resources and support expanded steel production and manufacturing jobs.
  • DOE sought a middle ground with its final rule, extending compliance timelines by two years relative to its initial proposal, and adjusting efficiency targets to require less amorphous electrical steel in favor of the grain-oriented electrical steel, known as GOES, which is commonly in use now.
  • DOE proposed stricter efficiency standards for transformers in 2022, but utilities warned they would worsen an existing shortage of the devices. The final rule “is much improved over its proposal, which would have upended the entire market,” said Louis Finkel, senior vice president of government relations for the National Rural Electric Cooperative Association.

Dive Insight:

DOE’s proposed transformer efficiency rule quickly became controversial, with equipment manufacturers and utilities, and some lawmakers, warning that it would delay the clean energy transition. Timelines to acquire new distribution transformers are already running 18 months or more, they said, and requiring a rapid restructuring of manufacturing and steel supply chains would worsen the situation.  

There are more than 60 million distribution transformers mounted on utility poles nationwide, and DOE officials say installations are projected to triple by 2050 as demand for electricity rises. However, there is only one producer of GOES for distribution transformers in North America, Cleveland Cliffs in Ohio and Pennsylvania. There is also just one producer of amorphous steel cores, South Carolina-based Metglas.

DOE’s proposed rule would have required about 95% of the electrical steel in distribution transformers to be amorphous. “Our analysis shows the final standard can be met with roughly 75% of steel in distribution transformers remaining in GOES,” Energy Secretary Jennifer Granholm said in a Wednesday call with the media.

“The rule also extends compliance timelines from three years to five years,” Granholm said. “And in that time, transformer manufacturers can maintain their existing production capacity and choose how best to update their facilities and designs to meet customer needs.”

Because appliance efficiency standards are updated every six years, DOE officials say the extended compliance timeframe means manufacturers will have about a decade of product certainty. The final rule would go into effect in 2029.

Granholm said the final rule will cut nearly 85 million metric tons of carbon dioxide pollution and save Americans over $14 billion in energy costs over 30 years. The proposed rule was estimated to reduce CO2 emissions by 340 million metric tons and save $15 billion on energy costs over the same period.

DOE said it expects the rule to result in 4.6 quadrillion Btu of energy savings over 30 years, “which represents a savings of 10% relative to the energy use of products currently on the market.” 

Efficiency advocates say the final rule doesn’t do as much for consumers or the environment as it could have.

“These standards significantly reduce energy waste, but they leave much bigger savings on the table. Passing up the savings that could have been achieved has a real cost for consumers, businesses, and the climate,” Andrew deLaski, executive director of the Appliance Standards Awareness Project, said in an email.

Utilities say the rule provides certainty at a time when distribution transformer manufacturers are struggling to meet demand.

“The final rule provides stability for most of the market, while affording a more gradual shift toward tighter efficiency standards for transformers used to meet larger commercial and certain electrification loads,” NRECA’s Finkel said. “We will work closely with our members, manufacturers and suppliers to ensure implementation does not further disrupt an already strained supply chain.”

Other industry groups also welcomed the changes in the final rule.

The revised rule “helps to preserve the availability of both GOES and amorphous steel, and it provides regulatory certainty on the timeline needed to protect and expand domestic manufacturing capacity,” the Edison Electric Institute, which represents investor-owned utilities, said in a statement.

Manufacturers are still combing through the new rule for specific product requirements but when it comes to compliance “more time is better,” said Peter Ferrell, director of government relations for the National Electrical Manufacturers Association.

But regardless of specific product requirements, the rule “doesn’t really solve the supply chain issues that existed before the rule was even proposed. That still exists,” Ferrell said.

Electric utilities, homebuilders, NEMA and others have lobbied for Congress to appropriate $1.2 billion to “bolster domestic transformer manufacturing and other critical grid components” through financial, procurement and technical assistance and workforce support. That funding was not included in DOE’s FY 2025 budget request, however.

There is bipartisan support for the funding, said Ferrell, and the group hopes lawmakers can find a way to advance it. “Congress and the administration and industry have a role … help us make this less of a problem,” he said.