Why investors are going gaga over solid-state transformers

It’s widely known that the electrical grid is ageing, but one component stands out. Transformers have not changed much since the earliest days of modern electricity, even though the rest of the power system has evolved dramatically.

Now, a new wave of startups is working tomodernisee the transformer, replacing legacy designs with solid-state transformer systems built on modern power electronics. These new systems promise grid operators and large energy users far more control over how and where electricity moves.

“It becomes a very powerful device, equivalent to your internet router,” Subhashish Bhattacharya, co-founder and CTO of DG Matrix, said.

Investor excitement is rising quickly, and several companies have raised large funding rounds to scale manufacturing. This week, DG Matrix raised $60 million in a Series A, while Heron Power raised $140 million in a Series B. In November, Amperesand raised $80 million as it targets the rapidly expanding data centre market.

Traditional transformers are reliable and efficient — but they are also relatively simple machines. They are largely made of copper and iron and respond passively to changes in grid conditions. In most cases, they are designed to perform a single primary function per unit.

“An old-school steel, copper, and oil transformer doesn’t have any monitoring, doesn’t have any control,” Drew Baglino, founder and CEO of Heron Power, said. In events like major surges in electricity demand or when a power plant unexpectedly goes offline, that lack of intelligence can become a weakness.

By contrast, solid-state transformer systems can incorporate power from a variety of sources — including conventional power plants, renewable generation, and batteries — and then deliver electricity as alternating current (AC) or direct current (DC) across multiple voltages. This capability allows a single solid-state transformer system to replace several devices that would otherwise be needed.

For data centres, the technology is especially appealing. Solid-state transformers can reduce the footprint of power infrastructure while giving operators much finer control over where electricity is directed and how loads are managed.

The technology is arriving at a moment when existing transformers are ageing, and demand is surging — a classic supercycle. Many transformers in operation today are several decades old, according to the National Laboratory of the Rockies (NLR; formerly the National Renewable Energy Laboratory). As demand from data centres, EV charging networks, and other growing loads rises, the NLR expects the amount of power flowing through transformers to double by 2050.

While data centres are the first market these startups are aggressively pursuing, they are also aiming for much broader adoption across the grid, which, in the U.S. alone, includes as many as 80 million transformers.

“All of the distribution transformers are ultimately going to need to be replaced. Over 50% of them are 35 years old. There’s a big need for an upgrade,” Baglino said.

Because solid-state transformers rely on silicon-based semiconductors rather than large amounts of copper and steel, they are more flexible, controllable, and can be updated through software. They also avoid the price volatility tied to copper markets.

“Power semiconductors keep getting cheaper. Steel, copper, and oil, unfortunately, are not in that situation,” Baglino said. “Commodity prices can move all over the place, and they generally move up.”

In a traditional transformer, electricity enters through copper windings wrapped around one side of an iron core. The flow of electricity creates a magnetic field in the core, which induces an electric current in a separate set of copper windings on the other side. By changing the ratio of windings between the input and output sides, the transformer either steps the voltage down or steps it up.

Solid-state transformers replace those copper windings with power electronics and semiconductors, commonly using materials such as silicon carbide or gallium nitride for frequency conversion and control. They can be built in multiple configurations, but the most complete designs generally include three major stages: a rectifier that converts AC to DC, a converter that adjusts the DC voltage, and an inverter that converts DC back into AC.

Unlike traditional iron-core transformers, solid-state transformers can also handle bidirectional power flow, which is valuable in environments that require robust backup power, including data centres.

Inside a data centre, a solid-state transformer can replace several pieces of equipment — not only the transformer that reduces grid voltage, but also other systems that bring power into the facility and manage backup power. Data centres rely on layered backup systems, and solid-state transformer designs can consolidate multiple functions into a single unit.

The technology also makes it easier to integrate behind-the-meter power generation, where energy sources are connected directly to the data centre rather than routed through the grid. Those setups typically require additional transformers, which solid-state systems can reduce or eliminate.

When paired with grid-scale batteries, solid-state transformers can also eliminate the need for uninterruptible power supplies (UPS), freeing up valuable space in a facility for additional computing racks.

“If you add up the cost of everything we’ve taken out, we’re 60% to 70% of that cost,” Haroon Inam, co-founder and CEO of DG Matrix, said.

DG Matrix has focused heavily on its Interport technology, which can route power from multiple sources to multiple loads at different voltages, and the company holds multiple patents around that configuration.

Heron Power, meanwhile, is focusing on medium-voltage power conversion for data centres, solar farms, and grid-scale battery sites. In a data centre, its Heron Link transformers can provide racks with 30 seconds of power while backup systems come online. The company said its Heron Link systems take up 70% less space than existing equipment. At solar farms, Heron Power says its transformers can handle both inverter and transformer duties for the same price.

Even so, solid-state transformers still cost more than traditional iron-core transformers in direct comparisons, making them unlikely to replace large substation transformers in the near term.

However, they are expected to gain traction sooner in locations such as data centres and EV charging hubs, where they can replace multiple systems simultaneously, delivering cost and space advantages.

Over time, if solid-state transformers scale onto the grid, they could reduce transmission and distribution costs — one of the largest drivers of rising utility bills.

Because traditional transformers are passive and cannot react dynamically, distribution networks have historically been built with significant spare capacity, Baglino said. Solid-state transformers, by responding to changing conditions and managing flows intelligently, could allow more power to move through existing lines.

“You can actually make the infrastructure more affordable because you’re putting more kilowatt-hours through the same poles and wires,” Baglino said. “That’s where intelligence, in place of passive mechanical objects that were designed 100 years ago, can make a big difference.”