Power Grid Equipment Industry Explained: The U.S. View
After years of little growth in electricity demand, the U.S. grid is being asked to grow again, mainly because of data centers, and the slowest parts to expand are the physical equipment and connections. Every new power plant or large load needs transformers, switchgear, transmission lines and substations. Those are in short supply: PwC analysts cited by pv magazine say lead times for high-capacity transformers can reach four years, and prices for these components have risen about 80% over five years. Wood Mackenzie estimates U.S. demand for generator step-up transformers rose 274% from 2019 to 2025. The strain shows up in prices. In PJM, the grid operator serving 67 million people across 13 states and Washington, D.C., the auction for capacity in the 2027/28 delivery year cleared at the $333.44 per megawatt-day price cap and still fell 6,623 megawatts short of the reliability target. PJM said nearly 5,100 MW of the 5,250 MW increase in forecast peak load came from data centers. The EIA expects PJM wholesale power prices to rise 41% in 2026.
- PJM auction
- 2027/28 capacity cleared at the $333.44/MW-day cap, 6,623 MW short
- Data centers
- PJM: about 5,100 MW of a 5,250 MW peak load increase is data centers
- Transformers
- Lead times for high-capacity transformers can reach four years (PwC)
How the chain works
Generation, transformers and transmission
| Generation | Transformers and switchgear | Transmission and substations | |
|---|---|---|---|
| 2026 signal | PJM capacity price at the cap two auctions in a row | Lead times up to four years; prices up about 80% in five years | Substation transformer demand up 116% from 2019 to 2025 (Wood Mackenzie) |
| What limits supply | Turbines, permits, interconnection | Factory capacity, electrical steel, copper | Permits, rights of way |
| Who pays | Capacity and energy prices | Utilities and developers | Utility customers through rates |
| What to watch | Capacity auctions | New U.S. factories | Transmission approvals |
Demand returns to the grid
For years U.S. utilities planned for little or no demand growth. Data centers changed that. In PJM's December 2025 release on its 2027/28 capacity auction, the forecast peak load was about 5,250 MW higher than for the previous auction, and nearly 5,100 MW of that increase was attributed to data center demand.
PJM's executive Stu Bresler said the auction "leaves no doubt that data centers' demand for electricity continues to far outstrip new supply." The auction secured 134,479 MW from generation and demand response, plus 11,299 MW through utilities' own plans, but the total was 6,623 MW short of the requirement for a 20% reserve margin, leaving 14.8%.
Transformers: the equipment bottleneck
Transformers step voltage up and down between power plants, transmission lines and users. According to pv magazine, citing Reuters Events and PwC, lead times for high-capacity transformers extend to as long as four years and prices have risen roughly 80% over five years. Wood Mackenzie data show demand for generator step-up transformers up 274% and substation transformers up 116% from 2019 to 2025.
Supply is tight because transformers need grain-oriented electrical steel and copper, and U.S. makers depend heavily on imports for that steel. Manufacturers are investing: Hitachi Energy has committed more than $1 billion, including a plant in South Boston, Virginia due in 2028, and Siemens $421 million for a transformer factory in Charlotte, North Carolina.
Prices for customers
Capacity markets pay power plants to be available at peak times. PJM's 2027/28 auction cleared at $333.44 per megawatt-day, the price cap, up 1.3% from the previous auction, which was also at the cap. Cleared supply times the price totals about $16.4 billion, though not all load pays that price.
Energy prices are rising too. The EIA's October 2026 outlook expects U.S. wholesale electricity prices to average $52 per megawatt-hour in 2026, 11% above 2025, and PJM prices to rise 41%. Higher wholesale costs feed into retail bills over time.
How the U.S. view differs from the China view
The Chinese version of this page looks at the world's largest grid builder: China's state grid companies run huge, planned investment programs, and Chinese makers of transformers and ultra-high-voltage equipment are expanding exports.
The U.S. problem is the opposite: a fragmented system of utilities, grid operators and regulators, slow permitting, and limited domestic factory capacity for transformers. The shortage is less about money than about how fast equipment and connections can be built.
2025: PJM's capacity auction hits the cap again
In December 2025 PJM ran its auction for the 2027/28 delivery year. Demand forecasts had risen again, almost entirely because of data centers.
The price cleared at the $333.44 per megawatt-day cap for the second auction in a row, and supply still fell 6,623 MW short of the reliability requirement.
New supply could not come fast enough: power plants need turbines and transformers with multi-year lead times. Prices, not new capacity, absorbed the demand shock first.
- Data centers are the main source of new U.S. power demand.
- Grid equipment lead times limit how fast supply can respond.
- Capacity prices rise first; customers pay later through bills.
Common misreadings
MythThe grid can connect any new data center quickly.
RealityPJM's 2027/28 auction fell 6,623 MW short of its reliability target.
MythTransformers are a commodity product.
RealityLead times for high-capacity units can reach four years, per PwC.
MythPower prices only move with natural gas.
RealityEIA expects PJM wholesale prices up 41% in 2026, far more than the national 11%.
MythHigher prices instantly bring new supply.
RealityPJM's capacity price hit the cap twice in a row while shortfalls persisted.
Demand, equipment and policy: scenarios
| Scenario | Main effect | How it passes through |
|---|---|---|
| Data center load keeps growing | Grid operators | Higher capacity prices, more shortfalls |
| New transformer factories open | Equipment supply | Shorter lead times |
| Price cap expires | Capacity prices | Prices could rise above today's cap |
| Data centers bring own power | Grid demand | Less strain on shared grid |
| Copper and steel tariffs rise | Equipment costs | Higher transformer and cable prices |
| Transmission permitting reform | New lines | Faster connections, lower congestion |
Supply and demand by segment
| Segment | Supply rigidity | Concentration | New demand | Policy role | What to watch |
|---|---|---|---|---|---|
| Generation | High (turbines, permits) | Medium | Yes (data centers) | Very high (state, federal) | Capacity auctions |
| Large power transformers | Very high (years) | High (imports) | Yes | High (tariffs) | Lead times |
| Transmission lines | Very high (permits) | Medium | Yes | Very high | Approvals |
| Distribution equipment | Medium | Medium | Yes | High (utility rates) | Utility capex |
Supply rigidity: how long new capacity takes and whether money can speed it up. Concentration: whether output sits in a few countries or companies. The more rigid and concentrated, the more prone to shortages.
How to track it
| Indicator | What it tells you | Where to find it |
|---|---|---|
| PJM capacity auction results | Tightness of supply | PJM news releases, free |
| Wholesale electricity price forecasts | Cost pressure | EIA Short-Term Energy Outlook, monthly, free |
| Transformer lead times and prices | Equipment bottleneck | Industry reports and news coverage |
| Utility capital spending plans | Grid investment | Utility quarterly results, free |
| Gas turbines | New generation | U.S. view: gas turbines |
Sources
- PJM: auction procures 134,479 MW of generation resources (2025-12-17)
- pv magazine USA: U.S. transformer market faces severe supply constraints (2026-05-11)
- EIA: Short-Term Energy Outlook, October 2026 (2026-10-06)
Last updated 2026-10-18.