Grid Modernization

Stalled Transformation: Supply Chain Woes Leave Utilities Waiting for New Technology

To meet the clean energy goals set forth by the Biden administration, the U.S. will need to add an estimated 750 million solar panels, 50,000 windmills, 2,000 utility-scale battery storage systems, 32 million electric vehicles, and 380,000 public EV charging ports in the next decade. As part of electric grid upgrades and resiliency efforts, utilities will need to continue to install advanced metering infrastructure, with about 30% of utility customers yet to be connected to AMI, and other technologies including sensors and enhanced communications systems.

Many of these technologies rely on similar materials and components that are becoming more difficult — and costly — to obtain. A global slowdown in semiconductor manufacturing, coupled with lingering labor issues from the COVID-19 pandemic and a shipping backlog, have left various industries competing for a limited number of microchips amid a clogged supply chain. This is all on top of the scarce supply of distribution transformers, which are fundamental to keeping the grid modern and reliable – especially amid goals for increased electrification and community growth.

For public power utilities looking to modernize their grids or deploy any new technologies — from AMI to solar panels to battery storage systems — the lack of microchips and other key materials, as well as a swirl of geopolitical unrest, means those deployments may have to wait.

Competing for Chips

The COVID-19 pandemic brought semiconductor manufacturing to a near halt in 2020. As quarantine restrictions started to ease, the Chinese city Shanghai, which is home to some of the world’s leading semiconductor manufacturers, went back into lockdown in fall 2021. In March 2021, a cargo ship ran aground in the Suez Canal, blocking a major global shipping artery for nearly one month. The event rippled through the shipping industry, contributing to a backlog of orders that were already delayed by a lack of workers. War then broke out in Europe, energy prices spiked and the world economy started to slip. This means that all utilities and utility vendors are now competing with any industry or technology that uses a microchip.

AMI is the foundation of the modern grid, allowing utilities to provide remote electric service reconnections, improve outage times and leak detections, and allow for more flexible payment options. It also can allow for giving customers information on their energy consumption in near real-time, along with the ability react to notifications during peak-demand times when the grid is stressed.

Supply and Demand Mismatch

In December 2022, Snohomish Public Utility District in Washington state planned to begin stockpiling inventory of advanced electronic meters in preparation for installing them across its district starting in January 2023.

The PUD’s Connect Up program is an infrastructure and technology improvement project that will install 375,000 new electric and 23,000 water advanced meters at customers’ homes and businesses in its 2,200-square-mile territory, located just north of Seattle. However, the utility has only received about 100 meters so far and has been forced to push back its deployment of its Connect Up program until mid-2023.

“The whole supply chain was interrupted. From getting materials, to building components, to assembling the final meter — each step has been impacted by COVID. So, we have a lot of catching up to do,” said Kevin Lavering, program manager for Connect Up at Snohomish PUD.   

Lavering said the PUD’s meter vendor wanted to manufacture more meters to catch up with demand but couldn’t access the microchips needed for the AMI components. The microchips in AMI equipment are the same chips that work with cars, computers, and medical devices, and they are in high demand.

The U.S. Department of Commerce reported in January that the median demand for chips was 17% higher in 2021 than 2019, and buyers aren’t seeing commensurate increases in the supply. “This is a major supply and demand mismatch,” the department said in a press release.

The median inventory of semiconductor products has fallen from 40 days in 2019 to fewer than five days in 2021, the Department of Commerce said. Lavering said its vendor alerted Snohomish PUD at the beginning of 2022 that its supply of chips and other materials needed to manufacture an AMI meter was slowing down.

While it waits for more meters to arrive, Snohomish PUD continued work on two key components of its Connect Up program. Supply chain issues also delayed deploying the network communications equipment needed for the program, but the PUD has over one-third of the 141 Base Stations installed for the project, and Lavering said that piece of the project is on schedule.

The utility is also progressing with the system integration work needed for the AMI program and is testing the system, with the goal of having it ready by the second quarter of 2023.

The PUD now plans to begin installing advanced meters for residential customers in summer 2023 and commercial and industrial meters in fall 2023. In June 2023, the utility hopes to install about 40 advanced meters to begin testing its equipment in various locations around the district. Installation of advanced meters on the homes of PUD water customers should start ramping up July 2023, the PUD said.

Solar Backlogs

AMI deployments aren’t the only new technology that is being impacted by supply chain constraints. Solar power installations are running about 20% behind schedule due to the supply chain and other issues, according to the U.S. Energy Information Administration. Developers had planned to install 17.8 gigawatts of utility-scale solar photovoltaic generating capacity in 2022, according to the EIA’s June 2022 Monthly Electric Generator Inventory. However, over the first six months of the year, only 4.2 GW of capacity came online, less than half of what the industry had planned to install, EIA said.

“Our preliminary data from January through June 2022 show that PV solar installations were delayed by an average of 4.4 GW each month, compared with average monthly delays of 2.6 GW during the same period last year,” according to the EIA. In most cases, the reported delays are for six months or less, the EIA added.

Although the utility-scale solar deployment reached 17 GW of capacity in 2021, utility-scale additions are expected to fall by 14% this year, thanks to a combination of project cancellations and delays from 2022 to 2023, according to a report by the Solar Energy Industries Association and analysis from the consulting firm Wood Mackenzie. For the 2022 pipeline, developers are said to have postponed at least 8% of planned utility-scale capacity to 2023 or later and canceled at least 5% as supply chains continue to face backlogs and delays, the report said.

As if global breakdown in the supply chain isn’t enough to worry about, many utilities developing solar projects are also keeping an eye on the Department of Commerce’s investigation into whether Southeast Asian solar manufacturers, which produce about 80% of the solar panels imported into the U.S., are circumventing U.S. tariffs by using prohibited Chinese parts in their solar panel components. The department’s investigation is expected to conclude in spring 2023.

Finding Solutions

The American Public Power Association conducted an initial survey on supply chain impacts in public power in November 2021, which identified constraints among all types of components, from smart meters to bucket trucks, conduits, and bolts. A more recent survey of APPA’s members, conducted in August 2022, focused on the top concern identified by all electric utilities, which is the shortage of distribution transformers. That survey found the average lead time for transformer delivery has expanded beyond a year, up from a three-month norm that had been the average prior to the pandemic. Public power utilities have reported being quoted even longer lead times or not even getting bids from manufacturers they have relied on for years. The survey also found that one in five respondents have canceled or delayed projects due to the shortage. The demand for distribution transformers is only going to continue to grow, meaning the problem is not temporary.

In a recent op-ed, Joy Ditto, APPA’s president and CEO, highlighted how a lack of access to essential grid components is hindering clean electricity production and electrification goals. At the federal level, one solution could come from spurring manufacturing via the Defense Production Act. “A step in the right direction is first to clarify the use of the Defense Production Act, as invoked by President Biden, and to expedite the distribution of funds to use the DPA. We urge the Department of Energy to take the critical next step — convening transformer manufacturers to develop concrete solutions to the shortage so that the DPA can be used as a tool to help implement those solutions,” Ditto said in the op-ed.

Other options require the public power industry to convene to determine how it can collaborate on solutions. As such, APPA is hosting a supply chain strategic discussion immediately following its CEO Roundtable in March 2023 in Savannah, Georgia. The discussion will explore the viability of and interest among public power entities to pursue solutions such as pooling bids, developing a public power manufacturing facility, adopting increased standardization in transformer classes and styles, revamping procurement laws, and refurbishing equipment.