Tax engineering and electrical engineering converged in 2023. Section 45X of the IRA pays domestic producers a 10 % credit on the cost of producing electrical steel and other critical components, with bonus tiers for cores assembled in qualifying facilities. The result is a procurement landscape where the bill of materials is the bid strategy, and import-arbitrage on cores no longer pencils. We unpack the take-up math GSU by GSU.
That’s the share of production cost a U.S. manufacturer can now claim as a tax credit for producing a humble transformer core on American soil. It’s the number at the heart of the Inflation Reduction Act’s (IRA) Section 45X Advanced Manufacturing Production Credit, and it’s quietly rewiring the economic logic of the entire power-grid supply chain. For an industry accustomed to two-year lead times and globalized procurement, this seemingly small figure is forcing a new conversation—one that starts in the heart of a transformer and ends with the resilience of the national grid.
The Long, Quiet offshoring
For the better part of three decades, the sourcing of critical transformer components followed a predictable script. As domestic manufacturing in heavy industry faced intense global competition, the production of grain-oriented electrical steel (GOES) and the intricate business of core cutting, slitting, and stacking migrated overseas. It was a slow, almost imperceptible shift, driven by pure cost-down pressure.
Utility and EPC procurement teams built complex supply chains that stretched across oceans. The game was simple: meet the spec, hit the delivery date, and win on price. The provenance of the GOES or the location of the core-cutting facility was secondary, if it was a factor at all. An engineer designing a 100 MVA generator step-up transformer in Texas would specify performance according to IEEE C57.12.00, but the core itself was largely a black box—a globally sourced commodity. The American industrial heartland, once the forge for the grid in places like Pittsburgh and Cleveland, watched its capacity dwindle. The supply chain became longer, more opaque, but undeniably cheaper. Until, suddenly, it wasn't.
Section 45X Enters the Chat
The IRA legislation is a sprawling document, but for power systems engineers, Section 45X is worth reading closely. The credit is designed to do one thing: incentivize the domestic production of specific clean energy components. And buried in its tables are the building blocks of the modern grid.
The legislation provides a production credit to a manufacturer, calculated as a percentage of the cost of goods sold. For our industry, the key eligible components include:
- Grain-Oriented Electrical Steel (GOES): The specialized, high-permeability steel that is essential for efficient transformer cores. Credit is 10% of production costs.
- Transformer Cores: The finished assembly of stacked or wound laminations. Credit is 10% of production costs for both wound and stacked cores.
- Conductors: The copper or aluminum windings that surround the core. The credit applies to the magnet wire itself, incentivizing its production stateside.
This isn't a rebate for the buyer or a grant for building a factory. It is a direct, dollar-for-dollar reduction in a manufacturer's tax liability based on what they *produce*. Consider a medium power transformer whose core costs $120,000 to manufacture (materials, labor, depreciation on machinery). A 10% credit is a $12,000 direct benefit. That value gives a U.S. manufacturer room to lower their price, reinvest in new core-cutting machinery, or simply enjoy a healthier margin. It makes American-made cores competitive on price for the first time in a generation. And it's working. Reports are already emerging of new investments in core manufacturing facilities in the very same Rust Belt regions that saw capacity leave decades ago.
This is a fundamental shift in procurement. The component that was once the ultimate commodity now has a tax preference. It moves the core from a simple material question to a strategic financial one. More information on the latest component specifications can be found in our liquid-filled transformers section.
The New Rules of Procurement
So the manufacturer gets the credit. Why should a utility planner or an EPC engineer care? Because it completely changes the calculus for sourcing, risk, and total cost of ownership.
The savvy professional now has a new set of questions to ask their suppliers, and the answers have direct financial and operational consequences.
1. Supply Chain Provenance is Paramount: The question
