The grid is sold out before it is built

What happened

The latest quarterly results across the global power equipment and grid ecosystem showed sustained momentum in orders, backlog and margins.

Backlog-to-revenue ratios for leading grid manufacturers are now around 3x to 4x, implying visibility extending into 2028-2029 in several segments.

GE Vernova's Electrification division (high-voltage equipment, substations and grid systems) reported Q4-25 orders of $7.4bn versus consensus expectations of roughly $5-6bn, implying a book-to-bill ratio near 2.5x.

In Korea, LS Electric Co Ltd (high-voltage transformers and switchgear) reported record FY25 new orders of KRW3.7tn, up 30% YoY, with high-voltage transformer backlog representing more than 3.5 years of revenue at current capacity.

Hyosung Heavy Industries Corp (power transformers and grid equipment) reported Q4 orders of approximately KRW2.0tn, up 150% YoY, bringing backlog to roughly KRW 12tn, or about 2.5x expected 2026 Heavy Industries revenue.

HD Hyundai Electric Co Ltd (transformers and distribution equipment) delivered Q4 revenue growth of 43% YoY and operating margins of 27.6%, with total order backlog reaching $6.7bn, up 21% YoY.

Impact on our Investment Case

Sold out through 2029

Pricing power is visible in the numbers. Backlogs covering three to four years of revenue mean high-voltage transformer capacity is largely booked through 2028 to 2029, and when factories are this full the negotiation shifts toward delivery slots rather than discounts. Some manufacturers are even turning away lower-margin orders in order to manage lead times and prioritise higher-value projects.

This tightening is already reflected in profitability. In parts of the transformer and high-voltage equipment chain, operating margins are now well above historical mid-teens levels, with some players reaching the mid-20% range. For heavy industrial businesses, that kind of margin expansion does not happen without real supply discipline.

The key point is that today’s backlog is not just visibility. It is visibility tied to better economics, which supports more durable earnings as projects move into execution.

This backlog is different

Not all backlogs are created equal. In the solar downturn of 2011-2013, module capacity expanded too quickly, inventories surged and prices fell by more than 60%. In wind, turbine manufacturers signed long-dated fixed-price contracts in the late 2010s and then absorbed the 2021-2022 cost shock, which compressed margins. Different triggers, but the same outcome: when the environment shifted, producers had no pricing buffer and margins reset quickly.

Grid equipment operates under different constraints. High-voltage transformers and substation systems are engineered for specific sites, tied to interconnection approvals (formal clearance to connect to the transmission network) and embedded in regulated expansion plans. Once production slots are allocated and construction timelines fixed, any cancellation would delay commissioning and revenue for the end customer, which makes withdrawal unlikely. Contracts also increasingly include raw material escalation clauses, reducing the kind of cost exposure that caught wind turbine manufacturers off guard.

This is unfolding in a system where more than 2,500 GW of generation, storage and large-load projects are waiting in grid connection queues globally (roughly twice total installed U.S. power generation capacity). Order books reflect committed grid expansion within constrained systems, not discretionary demand.

The buildout is global

The grid buildout is not a single-region story driven by one policy push. China’s State Grid recently outlined roughly RMB 4tn of planned investment for 2026-2030 (~35-40% above the prior five-year period), with ultra-high-voltage transmission and distribution upgrades explicitly prioritised.

In the U.S. and Europe, transmission spending is increasingly tied to data centre expansion, electrification and energy security. These are independent investment programs, operating under different regulatory systems and timelines.

At the same time, adding transformer and high-voltage manufacturing capacity takes three to five years from planning to full production. Even as new factories are announced, new supply will enter a market where multiple demand drivers are expanding at once. The pace of this cycle is set by how fast industrial capacity can be built, not by short-term political or policy shifts.

Our Takeaway

The latest earnings season reinforces the structural imbalance we highighted in a previous note. Elevated backlogs and expanding margins confirm that grid infrastructure has become a binding constraint in the power system, not a temporary demand spike but a multi-year capital cycle centered on reinforcing and upgrading networks that were not built for today’s load profile.

While order books are already strong, we do not see this as the peak. Several leading manufacturers are increasing production capacity, and new orders are being signed at higher prices than legacy contracts. As these projects move into execution, margins should continue to benefit from that repricing. Many companies in the segment also tend to guide conservatively relative to their order visibility, leaving room for further progression beyond current guidance.

This is precisely where Power Revolution is positioned, with more than 40% of the portfolio allocated to grid infrastructure across major markets, compared with roughly 15% for many peer strategies. That overweight has already translated into roughly 30% average YTD performance across our grid holdings, and the structural drivers behind it still have meaningful runway ahead.