The biggest energy play no one talks about

What happened

The IEA’s new “Building the Future Transmission Grid” confirms the scale of the grid constraint problem: grid investment rose to $140bn in 2023 (up 10% YoY), but remains well below the $300bn required annually by the 2030s to expand capacity and integrate renewables at scale. With electricity demand surging, power grid infrastructure is now the biggest constraint in the energy transition.

Major shortages persist in large power transformers (LPT), which increase voltage for long-distance transmission and reduce it for safe distribution, where orders can now take 150 to 200 weeks to fulfill, compared to under 50 weeks just a few years ago. Distribution transformers mirror this squeeze; U.S. wait times have more than doubled since 2021.

High-voltage direct current (HVDC) cables are similarly constrained, and some specialized subsea lines necessary for offshore wind projects can exceed four-year lead times. These delays stem from pandemic-driven supply disruptions, a lack of new manufacturing capacity, and commodity price surges for grain-oriented electrical steel (GOES) and copper.

Meanwhile, utilities across Europe, North America, and parts of Asia are accelerating multi-billion dollar “grid of the future” projects to connect renewables and replace aging infrastructure. This wave of simultaneous spending leaves suppliers sold out through much of the late 2020s, with limited short-term relief on the horizon. As a result, equipment prices have climbed consistently, preserving strong margins for entrenched manufacturers.

This article explores the current state of the supply bottleneck, the major investments by utilities and governments driving grid expansion, and our positioning to capture the opportunities created by these constraints.

Impact on our Investment Case

Grid gold rush

As electrification accelerates, governments and utilities worldwide are pouring billions into grid infrastructure to keep up with demand. Aging networks, growing renewable capacity, and rising electricity consumption are forcing urgent upgrades, with massive investment plans already in motion.

National Grid plans around GBP60bn of transmission upgrades by 2029, nearly doubling its previous pace.

In the U.S., utilities from the Midwest to the West Coast have outlined multi-billion dollar proposals to alleviate congestion and integrate wind and solar resources. For instance, the Midcontinent Independent System Operator (MISO) is advancing on a $22bn regional transmission plan,  while California’s grid operator (CASIO) approved a $6.1bn grid project to handle growing solar capacity.

China and India continue to lead in total line-kilometers added, including high-profile ultra-high-voltage networks that connect remote renewables to major load centers.

It is estimated that close to 50 million kilometers of new or replacement lines will be needed globally by 2040, effectively doubling today’s grid. Utilities are rushing to lock in large orders for transformers, cables, and substation equipment before prices climb further, effectively front-loading their capex pipelines.

No workers, no power

The labor shortage is a growing challenge for the grid sector, particularly in roles requiring specialized expertise. Around 60% of jobs in transmission and distribution are in grid operation and maintenance, covering outage response, customer connections, and metering. In China, where grid expansion is accelerating, 42% of the power sector workforce consists of construction workers. In developed markets, however, utilities upgrading aging infrastructure face a growing shortage of electrotechnology engineers, substation technicians, and high-voltage line workers.

The problem extends beyond utilities. Manufacturers are struggling to expand production as factories run at full capacity. Skilled workers are needed for precision assembly, testing, and quality control, but hiring lags behind demand. This is making it harder to ramp up transformer and cable production, keeping supply tight and lead times long.

While automation and AI-driven manufacturing can improve efficiency, reduce downtime, and ease some bottlenecks, implementation is costly and takes years to scale. It will play a marginal role in addressing shortages and will not be a near-term solution to the current supply-demand imbalance.

Sold out until 2030

Despite announcements of new transformer factories, most capacity expansions will not be fully operational until 2026 or later, leaving a persistent shortage in the interim. Large transformers are especially constrained due to the complexity of manufacturing, extensive testing protocols, and reliance on GOES, which remains expensive and in tight supply. Cable production faces similar constraints, as HVDC and subsea cables require highly specialized insulation and precision engineering, limiting the ability to scale up quickly.

Manufacturers retain full pricing power as demand continues to outstrip supply. Backlogs for transformers and high-voltage cables now extend beyond 2029, with transformer prices expected to rise 8–10% annually. Unlike previous cycles where overcapacity eroded margins, today’s supply constraints are structural. Factories take years to scale, and lead times for critical components remain long, ensuring that demand continues to exceed supply.

This imbalance has changed the way buyers secure equipment. U.S. developers and utilities are now locking in production slots years in advance to guarantee delivery and hedge against further price hikes. Advance purchases reflect how constrained the supply chain has become, reinforcing the ability of manufacturers to dictate pricing. With limited alternatives and no quick fixes, price discipline remains intact across the value chain.

Our positioning

While the grid bottleneck is a challenge, it has opened opportunities for key suppliers and service providers with the expertise to navigate supply constraints and deliver critical infrastructure.

We maintain a strong exposure to the power grid segment (covering both transmission and distribution) at roughly 30%, compared to an average of 15% for competitors. The ongoing supply-demand imbalance and strong visibility on long-term growth make this an attractive investment opportunity.

Transformer manufacturers like GE VERNOVA INCO. and WEG are positioned to benefit from sustained demand, with multi-year order backlogs and strong pricing power supporting margins.

Engineering and grid service providers such as MasTec and MYR Group are directly executing on transmission projects, benefiting from utilities’ long-term commitments to modernization and upgrades in a labor-constrained environment.

Beyond transmission, grid flexibility is becoming just as critical. As congestion persists, investment in smart grid technology and distribution infrastructure is accelerating. Real-time monitoring, digital substations, and automation will play an increasing role, with companies like Itron Inc and Schneider Electric SE well placed to capitalize on this shift.

Our Takeaway

Grid expansion is one of the most critical investment themes of this decade. The energy transition is not limited by generation capacity. It is constrained by the ability to move power where it is needed.

The grid is a growth story as much as it is an infrastructure story. The necessity of grid upgrades gives confidence in sustained demand for the companies enabling it. We expect continued strong capital expenditure on transmission and distribution through this decade and next, relatively insulated from short-term economic cycles due to deep structural forces and policy commitments.

Supply chain shortages in transformers, cables, and skilled labor ensure that pricing power remains firmly with suppliers. Unlike renewables, where competition can drive down margins, grid infrastructure benefits from higher barriers to entry and unavoidable long-term demand. Governments and utilities have no choice but to invest.

Even Elon Musk recently emphasized that transformers are now the key bottleneck in electrification, warning that AI data centers and electric vehicle growth are accelerating electricity demand beyond what the grid can support. The real constraint is no longer chips; it is transformers.

Our positioning reflects this reality. We are exposed to the full spectrum of grid investment: securing returns from both the immediate transmission buildout and the simultaneous push for smarter, more resilient power distribution.