The power sector in the United States, just like every other industry, has been deeply affected by COVID-19. Last month, the Energy Information Administration (EIA) reported expectation of major delays, even cancellations of, planned generation projects in 2020. On May 1st, as utilities and other stakeholders cope with current conditions, the oval office issued an executive order, sending tremors throughout the power sector. This executive order targets the critical nature of equipment deployed in the power sector of United States indicating that unrestricted supply of electrical equipment from foreign vendors can pose a serious threat to country’s power grid and consequently its economy. The executive order not only addresses the procurement of new equipment but also includes all previously installed equipment.
Under this executive order, Secretary of Energy has been authorized to compile a list of “pre-qualified” vendors who can supply equipment to the power sector and Identify equipment already installed by “prohibited suppliers” and devise a systematic replacement strategy. To better understand the implications, it is important to first know the power grid of the US and simply put, it can be segmented into two parts: Transmission and Distribution. The Transmission network, also known as a bulk-power system, acts as a mesh of highways designed to transport electricity for long distances (several hundred miles) using high capacity overhead transmission lines, sub-sea and underground cables across states or counties. The Distribution network does the same thing, just at a local level, within cities and municipalities while using low- and medium-capacity overhead lines and underground cables. Bulk-power system (BPS) acts a backbone and its equipment is considered highly crucial for national security. Any malicious activity in BPS can potentially paralyze the whole electricity network. Especially when internet connectivity has become a norm and every device has the capability to communicate with other devices in the system and more importantly can share information with some central server. Therefore, this executive order is only focused on the supply of electrical equipment for BPS of Unites States.
Are there any foreign vendor supplying equipment to the BPS of United States? The answer is a big YES! In fact, foreign players have higher market share in supply of critical power equipment than the local manufacturers. These foreign manufacturers are either importing electrical equipment or in some cases they are manufacturing inside the country. An example of foreign dominance in BPS are Large Power Transformers (LPTs). These play a pivotal role and any attack, of physical or cyber in nature, can cause massive blackouts. For example, in 2013, a sniper attack on 17 transformers in California substation caused an alarming situation as it took out power to parts of Silicon Valley. In the light of vital role of transformers in the BPS, it would make sense to have local players cater most of the demand. The reality though is completely different as LPT supply in the US is heavily dependent on foreign players for many years. Imports of LPTs in the US grew by 200% from 2005 to 2011. In fact, the situation worsened to the extent that local manufacturers filed a petition to impose heavy import duties (anti-dumping duties) on suppliers from South Korea. Beyond transformers, foreign players are supplying equipment for many other industries in BPS of United States.
Overall, in BPS market of United States, there are Korean, Japanese, Chinese and European players who have significant market shares. Getting approved for a “pre-qualified list of vendors” is not an uncommon event for these companies as every T&D utility has its own list of approved vendors. However, this vendor approval criteria will be different as no certification, compliance to technical standard, or even higher quality would be enough to get the approval. As directed by the executive order, the Secretory of Energy will determine if procurement of BPS equipment designed, developed, manufactured, supplied, or invested in by a foreign adversary poses an undue risk of sabotage. In other words, any foreign player could find itself outside the list of “pre-qualified” suppliers if so determined by executive departments like Office of Management and Budget, Secretary of Defense, the Secretary of Homeland Security, the Director of National Intelligence etc.
“This would mean foreign manufacturers cannot be sure any more about their market positioning in the USA, and depending on the country of origin, can simply be “disqualified” from tenders worth millions of dollars from one of the largest BPS equipment markets of the world. Considering the existing impact of Covid-19 on the manufacturers, this event can be an even more significant blow to their finances”.
Link to press release: here