The North American distribution transformers market expects stable growth, thanks largely to demand created by capacity addition and the need to replace existing distribution transformers. Most remarkably, utilities become highly energy conscious, and a large number of existing distribution transformers will be replaced with energy-efficient distribution transformers in the next few years.

New analysis from Frost & Sullivan, North American Distribution Transformer Markets, finds that the market earned revenues of over $2 billion in 2006 and estimates to reach $2.95 billion in 2013.

“The North American distribution transformer market is, to a large extent, driven by the utilities,” notes Frost & Sullivan Research Analyst Krathika Belliappa. “Utilities and other industrial and commercial end users are expected to replace existing transformers, most of which have crossed their average life span, with energy-efficient distribution transformers in order to minimize losses and the total cost of ownership.”

Utility spending on the transmission and distribution (T&D) upgrades hit an all-time high during 2006 and 2007. Investment in transmission and distribution is likely to exceed $9 billion and $7 billion, respectively. Investment among investor-owned utilities steadily increases, making up three-forth of the investment in the transmission facilities in the Unites States. Additionally, electric utility revenues continue to increase in all the residential, industrial and commercial sectors.

Despite promising trends, increase in raw material prices remains a critical restraint to the market’s growth. As the prices of raw materials such as copper, steel and aluminum increase, manufacturers are forced to pass this cost escalation to customers. Moreover, with only few suppliers to choose from, the bargaining power of raw material suppliers is very high.

“The distribution transformer market is highly fragmented and competition is intense,” says Belliappa. “Considering the minimal differentiation and lack of innovation, pricing becomes the key purchase influence.”

Moving forward, it is vital to innovate in order to tackle the challenge of skyrocketing raw material prices. With the prices of transformers increasing and competition intensifying, it is imperative for manufacturers to differentiate and strategically position themselves in the market. This will help them retain/increase market share and carve a niche for themselves.