Demand for transformers, fueled in part by AI data centers, has grown so much that one prominent investor is backing a startup using very old technology.
Ayr Energy manufactures transformers with iron cores, the same basic technology used in the power grid for more than a century. Although many other startups have emerged to take over iron-core transformers, Air and its investors believe the old technology still has plenty of life left in it. Judging by the company’s order book, which currently exceeds $500 million, they may be right.
“When we started the business, we were considering multiple forms of capital,” Ayr co-founder and CEO Anirudh Reddy told TechCrunch exclusively. “We felt there was a huge opportunity for venture capital to give us the ability to take on those risks upfront and generate huge returns.”
This is something you don’t hear a lot about older businesses that have essentially become commoditized. Ayer competes with major companies such as GE, Siemens and Mitsubishi, which have been making transformers for decades.
During that time, demand for transformers was relatively predictable. Electricity demand in developed countries was stable and easily predicted. Then the wave of electrification coincided with the AI bubble, and demand exploded. According to Global Market Insights, it is expected to double by the middle of the next decade.
Existing suppliers have experienced bubbles inflating and bursting and have been hesitant to invest in new production lines.
But Reddy and his co-founders realized something else was going on. “As we dig deeper, we find that this demand is being driven by so many different factors. It’s not just one thing. It could be a sustained supercycle, as opposed to the short-term spikes the industry has seen in the past.”
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Ayr is working with transformer manufacturers in India and manufactures devices as per the start-up’s specifications. Reddy said the design is more modular than typical transformers, allowing customers to make changes to their orders later in the process.
For many of Ayr’s customers, this is helpful. These include renewable energy companies, independent power producers and data center developers. With equipment lead times so long, many companies have to order long before a project is “fully baked,” Reddy said, and if circumstances change, they could end up using the wrong size transformer for the project. Additionally, incumbent companies adjust transformers for each project, making changes difficult.
Ayer and its investors are betting that a surge in demand will free up space for new transformer manufacturers. The startup hopes to use the disruption to get its foot in the door, prove itself to customers and roll out new technologies such as solid-state transformers. “That was our game plan from day one,” Reddy said.
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