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Critical Site Selection Factor #10: Energy Availability and Costs

Energy availability and costs are important for every project, but especially critical for industries that consume large amounts of energy, such as manufacturing, distribution, and data centers.

Q4 2016
This series examines the top-10 location factors from Area Development’s Q1/2016 Corporate Survey that determine where our readers will locate and/or expand their facilities. Availability of skilled labor is their primary concern, followed by highway accessibility. Our readers are also concerned about prospective locations’ quality of life. Find out what else companies like yours should consider when making your next location/expansion decision.

It is beneficial to evaluate the history of rate increases, understand how energy is generated, research potential impacts of future regulatory changes, and investigate grid reliability. Energy costs can vary greatly by location; some areas are also better positioned than others in terms of future impacts on rates by environmental regulations.

Many states and localities work with their utility providers to offer low-cost energy plans that can be customized to meet the operational needs of potential new companies. Utility incentive programs include rate discounts, tax exemptions, and grants for utility infrastructure improvements.

Evaluating the energy resources/costs for an area can be a complicated process. “It takes a lot of research and analysis to complete the evaluation process,” says Larry Gigerich, executive managing director for Ginovus in Indiana. “When a client is a large energy user, we sometimes bring in an energy consultant to help us work through different options.”

States with large amounts of hydro-generated power — for example, Washington, Oregon, Idaho, Utah, Canada, and upstate New York — typically have lower blended energy rates. States in the South and Midwest continue to offer competitive electric and natural gas rates; however, a drawback is that a portion of this electricity is generated from coal, which becomes more problematic with stricter environmental regulations. As a result, these states tend offer the best incentives to lower rates, or are more willing to enter into long-term power agreements.

Business leaders recognize that the energy landscape has changed, and traditional sources to produce energy are changing due to regulatory reasons. Larry Gigerich, executive managing director for Ginovus Going Green
Companies are increasingly interested in drawing at least some of their power from renewable energy sources, primarily wind and solar. This can be for several reasons. With growing capacity and lower prices, renewable energy can be considered a hedge against oil and gas prices. It is also viewed as a more stable energy source — for example, production doesn’t come to a grinding halt like it does with a major pipeline spill.

“Business leaders recognize that the energy landscape has changed, and traditional sources to produce energy are changing due to regulatory reasons,” says Gigerich. “As a result, site selectors and corporate decision-makers are asking more questions about how utilities generate electricity so they can better understand what could happen with future pricing when new environmental standards come into play in 2022 and 2030. For example, areas that are still reliant on high-sulfur coal are at risk of greater prices adjustments in the future due to these standards.”

Companies Are Increasingly Interested in Drawing At Least Some of Their Power from Renewable Energy Sources, Primarily Wind and Solar. The other major reason for “going green” is that companies want to be good environmental stewards and be seen as caring about the environment, which resonates with consumers, who are more likely to support and purchase products from companies that utilize renewable energy sources.

Production of solar and wind energy is on the rise. Areas in western parts of the country generate large amounts of wind power and can offer lower costs. The U.S. Energy Department predicts that the cost of wind energy will drop dramatically by 2030. According to Gigerich, “Areas with significant wind, solar, and hydro-generated power are faring well, both today and also in terms of price predictability for the future.”

A corporate champion of wind energy is Amazon, which just agreed to purchase 90 percent of the output from a new 235-megawatt wind farm in Scurry County, Texas. Combined, Amazon’s wind projects in multiple states will generate more than 2.5 million megawatt-hours every year, which is intended to offset the increased energy demands on the grid resulting from Amazon’s rapidly expanding operations.

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