Demand for electrical transformers, fueled in part by artificial intelligence data centers, has grown so much that a prominent investor is backing a new startup that uses a very old technology.
Ayr Energy manufactures iron-core transformers, the same core technology used in the grid for over a century. A number of other startups have emerged to dethrone the iron-clad transformer, but Ayr and its investors believe the old technology has a lot of life left in it. Judging by the company’s order book, now at $500 million, they may be right.
“We thought about multiple forms of capital when we started,” Anirudh Reddy, co-founder and CEO of Ayr, told TechCrunch exclusively. “I felt the opportunity is so great that venture capital gives us the opportunity to take those risks up front and have the ability to generate an outsized return.”
That opportunity attracted investors, including Energy Impact Partners. So far, the startup has raised $25 million in two rounds.
That’s not something you hear often about an old, essentially commoditized business. Ayr competes with giants such as GE, Siemens and Mitsubishi, which have been spinning transformers for decades.
For much of that time, demand for transformers was relatively predictable. Electricity demand in developed economies was stable and easily predictable. Then the electrification wave coincided with the AI bubble and demand shot through the roof. It is expected to double by the middle of the next decade, according to in Global Market Insights.
Incumbent suppliers, having seen bubbles pop and burst in the past, are reluctant to invest in new production lines.
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However, Reddy and his co-founders saw something else at play. “When we dug deeper, we realized that this demand is being driven by so many different drivers. It’s not just one. It could be a sustained super cycle as opposed to the little spikes the industry has seen in the past.”
Ayr works with transformer manufacturers in India, who manufacture the devices to the startup’s specifications. The designs are more modular than standard transformers, Reddy said, allowing customers to change their order later in the process.
For many of Ayr’s customers, this is helpful. Among them are renewable energy companies, independent power producers and data center developers. Equipment lead times have increased so much that many have to order well before a project is “fully baked,” Reddy said, and if things change, they could be stuck with a transformer that’s not sized right for the project. In addition, incumbents tailor their transformers to each project, making changes more difficult.
Ayr and its investors are betting that increased demand will create room for a new transformer maker. The startup hopes to use the disruption to get a foot in the door, prove itself to customers, and then develop new technologies like solid-state transformers. “That’s been our game since day one,” Reddy said.
Update 2:20 p.m. ET: Added details on Ayr funding.
