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Energy Costs Come to the Forefront

The shift away from carbon-emitting fuels and the unexpected spikes in natural gas pricing in 2022 have made industrial customers increasingly sensitive to energy costs in their location decisions.

Q1 2023
One of 2022’s corporate site selection survey factors, energy costs, ranks high at #8, and the outlook for 2023 suggests that this issue will continue to be important as a deal-closing item for large industrial projects. Even as electric utilities continue to manage through historic supply chain constraints, incremental generation shifts away from carbon-emitting fuels, and the unexpected spikes in natural gas pricing in 2022, industrial customers are increasingly sensitive to energy costs in their location decisions. For many of these customers, annual electricity costs may outweigh any other business case line item — more than taxes, labor, logistics, or site costs — and even a $.01/kWh difference between two utilities may result in a multimillion-dollar difference annually between finalist locations.

Industrial customers are increasingly sensitive to energy costs in their location decisions. In order to minimize risk, my clients are digging into the details of utility projections more than ever before, asking questions about rate structure, demand management, fuel costs and futures projections, fixed pricing options, taxes and fees, and long-term energy mix — in addition to energy availability, reliability, and availability of carbon-free or renewable sources. Utility pricing models, unique to each state and subject to often opaque regulation, make sorting through such comparisons a complex endeavor, and having a responsive and knowledgeable economic development utility team is critical to getting to a bottom line.

Utility partners have always been a critical part of the economic development team to attract new business to communities and states, but looking ahead, they will play an even bigger role in 2023 to win (or lose) large industrial site selection projects.

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