Domestic power equipment manufacturers, whose earnings are improving thanks to a boom in the ultra-high-voltage transformer market, have recently been ramping up investment in the distribution equipment business. They judge that demand will rise because distribution equipment has a shorter replacement cycle and a larger market size than transmission facilities.
According to the power equipment industry on the 7th, HD Hyundai Electric recently decided to build a dedicated distribution equipment campus near its newly completed medium- and low-voltage circuit breaker plant in Cheongju, North Chungcheong. HD Hyundai Electric is operating switchboard (a device that stably distributes electricity) and distribution transformer plants in Ulsan, and it is pushing a plan to relocate these facilities to Cheongju and expand their scale.
HD Hyundai Electric's sales are concentrated in ultra-high-voltage transformers. As of the third quarter of last year, the ultra-high-voltage transformer institutional sector accounted for 59.1% of total sales. Distribution equipment such as switchboards, distribution transformers, and medium- and low-voltage circuit breakers was only at the 17.6% level. During the same period, sales of ultra-high-voltage transformers rose 87.7% from a year earlier, but distribution equipment sales grew by a mere 0.1%.
HD Hyundai Electric's plan to relocate and expand distribution equipment production facilities is a strategy to diversify its business structure in preparation for a downturn in demand for ultra-high-voltage transformers.
The power business is structured in a sequence from generation (power production) to transmission (sending produced power to demand areas) to distribution (supplying transmitted electricity to corporations and households). Ultra-high-voltage transformers are power devices used to reduce losses when transmitting electricity produced at power plants over long distances. Equipment used at the transmission stage generally has a long service life and replacement cycle of 20 to 30 years.
The recent boom in the ultra-high-voltage transformer market is due to a surge in electricity demand from data centers amid the expansion of the artificial intelligence (AI) market, coupled with the arrival of replacement cycles for transmission facilities.
By contrast, distribution equipment has a relatively short service life and many more demand sources. For this reason, the industry analyzes that power equipment companies, including HD Hyundai Electric, have turned their attention to the more stable distribution equipment market before demand for ultra-high-voltage transformers declines.
Demand for distribution equipment is expected to continue growing. LS Electric predicted that after the North American power market experienced an "ultra-high-voltage boom" driven by the replacement of aging transmission infrastructure, a larger "distribution boom" will follow. The North American distribution market is projected to be six times the size of the ultra-high-voltage transformer market.
LS Electric, a strong player in distribution equipment, is also stepping up its push into the North American market. Starting on the 3rd, it took part in North America's largest transmission and distribution exhibition, showcasing UL-certified switchboard products and customized direct-current distribution systems for data centers, and began full-fledged promotion of distribution products. UL certification is one of the essential requirements for entering the North American market.
LS Electric has not posted a loss in the distribution business institutional sector over the past 20 years. In the fourth quarter of last year, sales of medium- and low-voltage transformers were 76.2 billion won, up 125% from a year earlier, while sales of switchboards and distribution equipment also rose 38% and 15%, respectively.
An LS Electric official said, "The distribution market is seeing a boom following transmission," adding, "We will further target the distribution market in our strategic markets of North America, ASEAN, and Europe by leading with next-generation high-end products."
Hyosung Heavy Industries also sees distribution as a promising field and is continually expanding the business. In particular, it is developing the distribution business focusing on premium markets such as semiconductors, the U.S. power grid, and eco-friendly segments. It also said it is steadily expanding research and development and product lineups related to eco-friendly switchboards in response to rising eco-friendly demand. Hyosung Heavy Industries holds the No. 1 market share in the domestic distribution oil-immersed transformer market.
According to global market research firm Business Research Insights, the global distribution equipment market is expected to grow at an average annual rate of 5.7% for 10 years, from $176.86 billion (about 258.99 trillion won) in 2026 to $290.15 billion (about 424.98 trillion won) in 2035.
An industry official said, "Demand for distribution equipment increases in proportion to transmission demand, so the distribution market will grow as much as the currently booming transmission (ultra-high-voltage transformer) market," adding, "Companies are trying to diversify their business portfolios with distribution equipment, which has relatively smaller volatility in sales and profit size."
Kim Gwang-sik, a Kyobo Securities researcher, said, "Because the distribution market targets individual consumers, its scale is inevitably two to three times larger and more sustainable than the transmission market, which is a key industry," adding, "LS Electric is expected to focus mainly on overseas market penetration, while HD Hyundai Electric is expected to concentrate on expanding its market share in Korea."