China Inside America's Grid

Large power transformers — the massive devices that step voltage up and down at substations throughout the transmission network — are among the most critical and most difficult-to-replace components in the American grid. A single large power transformer can weigh 400 tons, cost several million dollars, and take 12 to 18 months to manufacture and deliver. The United States has limited domestic manufacturing capacity for the largest units.

Chinese manufacturers, including TBEA Co. and China XD Group, have supplied large power transformers to American utilities. The extent of Chinese-manufactured transformers in the U.S. grid is not comprehensively documented in public sources, but government assessments have identified it as a concern. A 2019 executive order signed by President Trump prohibited the acquisition, importation, transfer, or installation of bulk-power system electric equipment from foreign adversaries, with China specifically in view.

The concern is not only that Chinese-manufactured transformers could contain hidden vulnerabilities — though that concern has been raised — but that dependence on Chinese manufacturing for critical grid components creates supply chain risk. If a major grid event required rapid replacement of large transformers, the United States would be dependent on foreign manufacturers, including Chinese ones, to supply them.

The Department of Energy has taken steps to address this vulnerability, including funding for domestic transformer manufacturing capacity and restrictions on the procurement of Chinese-manufactured equipment for critical grid applications. The pace of those efforts has been a subject of debate among grid security professionals.

Solar inverters — the devices that convert direct current from solar panels into alternating current compatible with the grid — are a second category of Chinese-manufactured equipment with significant grid penetration. Chinese manufacturers, including Huawei, Sungrow, and Ginlong (Solis), supply a substantial share of the global inverter market and have sold into the American market.

Huawei, which is on the U.S. Entity List and subject to export restrictions, has been effectively excluded from the American inverter market for new installations. However, Huawei inverters installed before those restrictions took effect remain in operation at American solar facilities. Sungrow and other Chinese inverter manufacturers that are not subject to the same restrictions continue to sell into the U.S. market.

The security concern with inverters is more acute than with passive equipment like transformers. Modern inverters are networked devices — they communicate with grid management systems, respond to grid conditions, and can be updated remotely. A compromised inverter, or a fleet of compromised inverters, could theoretically be used to destabilize grid frequency or disrupt power flow. The distributed nature of solar installations means that Chinese-manufactured inverters are present across thousands of sites throughout the country.

The Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corporation (NERC) have both identified distributed energy resource security — including inverter security — as a growing concern. Mandatory reliability standards for distributed resources have lagged behind the pace of deployment.

Beyond physical equipment, Chinese companies have had a presence in the software and operational technology that manages grid operations. Energy management systems, supervisory control and data acquisition (SCADA) systems, and advanced metering infrastructure all represent potential vectors for access to grid operational data and, in some cases, operational control.

The concern is not primarily that Chinese software companies have directly supplied American grid operators — the major grid management software vendors are predominantly American and European. The concern is more diffuse: that components within those systems, or within the industrial control systems that interface with them, may contain Chinese-manufactured hardware or software elements that have not been fully audited.

The Cybersecurity and Infrastructure Security Agency (CISA) has issued multiple advisories regarding vulnerabilities in industrial control systems used in the energy sector, some involving equipment with Chinese manufacturing connections. The challenge of securing operational technology in critical infrastructure — systems that were often designed before cybersecurity was a primary consideration — is a recognized and persistent problem.

Executive Order 13920, signed in May 2020, declared a national emergency with respect to threats to the bulk-power system and prohibited transactions involving bulk-power system electric equipment designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction of a foreign adversary. China was the primary target, though the order applied to all foreign adversaries.

Implementation of the order proved more complicated than its signing. The Biden administration suspended the order in January 2021 pending review, then issued a replacement order in April 2021 that directed the Department of Energy to develop a supply chain risk management program for the bulk-power system. That program — the Prohibition Order process — has proceeded slowly, with utilities and equipment suppliers navigating a complex review framework.

The practical effect has been to create uncertainty in the market for grid equipment rather than a clean prohibition on Chinese-manufactured components. Utilities seeking to procure equipment must navigate a review process whose outcomes are not always predictable, and the domestic manufacturing alternatives for some categories of equipment remain limited.

Grid-scale battery storage — large installations of lithium-ion batteries that store energy for dispatch when generation is insufficient — is the fastest-growing segment of the American grid. Chinese manufacturers, including CATL and BYD, dominate global battery cell production and supply a significant share of the battery systems being deployed in American grid storage projects.

CATL, the world's largest battery manufacturer, has supplied battery systems to American grid storage projects through American integrators and project developers. The company is not on the Entity List, though it has been the subject of congressional scrutiny and proposed legislation that would restrict its participation in federally funded projects.

The IRA's domestic content requirements and FEOC provisions create incentives for battery storage projects to use non-Chinese battery cells to qualify for tax credits. However, the upstream supply chain for battery materials — lithium, cobalt, manganese, and the processed materials derived from them — remains heavily Chinese-influenced regardless of where cells are ultimately manufactured.

The challenge of addressing Chinese presence in the American grid is compounded by the grid's scale, complexity, and the long service lives of its components. A transformer installed in 2010 may remain in service until 2040. An inverter installed in 2018 will operate for 20 years. The Chinese-manufactured equipment already in the grid cannot be quickly or cheaply replaced.

The near-term policy response has therefore focused on two tracks: restricting new procurement of Chinese-manufactured equipment for critical applications, and developing mitigation measures — network segmentation, monitoring, and incident response capabilities — for equipment already in place. Neither track fully resolves the underlying vulnerability.

The longer-term challenge is building domestic manufacturing capacity for the equipment categories where the United States is most dependent on Chinese supply. That effort — for large power transformers, for inverters, for battery systems — is underway but measured in years and decades, not months. In the interim, the American grid will continue to contain Chinese-manufactured components whose security implications are the subject of active government attention.