Blog Post

Electrification with Clean Power Is Key for a Growing, Competitive Industrial Sector

April 23, 2024

U.S. manufacturing can continue its blistering growth while cutting carbon emissions, but only if policymakers and utility regulators act now to help industry electrify process heating.

Investments in U.S. manufacturing surged by an impressive 63% in 2023, the most substantial industrial sector expansion in nearly 75 years. Industry is likely to become the largest source of greenhouse gas emissions in the United States if new manufacturing investments are not paired with rapid deployment of decarbonization solutions.

Directly electrifying industrial process heat to avoid combustion of fossil fuels is essential. Some green hydrogen and carbon capture and storage will be needed but, due to their Read the Policy Briefexpense and other challenges, should generally be limited to applications that are hard to electrify. Especially in the case of low- to medium-temperature process heating (below 300°C), electrification technologies are commercially available today. The Department of Energy recently gave its vote of confidence, awarding more than half of a $6 billion decarbonization funding pot to electrification projects—but even this investment will only be a start.

A new ACEEE brief recommends actions that policymakers, utilities, and utility regulators can take to catalyze electrification of process heating while supporting the growth of U.S. manufacturing and strengthening the grid. 

Industrial electrification will cut planet-warming emissions and benefit industry and communities

The climate crisis makes electrification imperative—process heating in industry accounts for about 30% of the sector’s carbon emissions today—but it’s not the only reason to act. Much like an electric vehicle can cost less to own and drive over its lifetime than a car with a combustion engine, electric industrial equipment can often compete with natural gas-fueled technologies on operating costs and lead to long-term savings for manufacturers.

Electrification also creates a win-win by lowering pollution and supporting jobs. In recent years, frontline communities have increasingly sought to safeguard their neighborhoods by protesting against new industrial facilities that burn fossil fuels, and some residents choose to move away from industrial areas entirely, which may aggravate workforce shortages. But electricity-powered production offers an avenue for job creation and economic advancement without compromising the health and wellbeing of neighboring communities. 

We need to electrify as aggressively as possible. 70% of industrial process heating—all low- and medium-temperature process heating and much high-temperature process heating—should be electrified by 2050. The upfront logistical and financial challenges for industrial electrification at this scale are formidable, however. 

We can’t overcome the obstacles to electrification without robust policy support

Large-scale electrification faces many obstacles, including high upfront costs to retrofit industrial energy systems, utility rates that do not incentivize fuel switching, and the aging, unprepared utility grid. If grid planners are not prepared for industrial demand growth, there is a greater risk of adding polluting and expensive power plants to the system to meet new demand—plants that may quickly become stranded assets—and for slow timelines for upgrading transmission and distribution infrastructure to delay industrial electrification progress.

Our new brief calls for federal, state, and local policymakers, utilities and grid planners, and utility regulators to overcome these barriers by ramping up pilots and demonstration projects across all industrial sectors, providing additional government incentives to counterbalance high upfront costs, modernizing electricity rate structures, and regionalizing grid policy strategies to account for economic, regulatory, and geographic variation in energy systems.

Utility regulators have an essential role in supporting this transition

Utility regulators must be at the forefront of this important transition. They are in a key position to instruct utilities to collaborate with industries to unlock electrification at scale and to direct utilities to update planning processes to meet climate and energy affordability goals. Meeting future demand growth without increasing utility bills for other customers or reducing grid reliability will require forward-looking resource planning and fair, just, and reasonable compensation for the benefits that flexible industrial loads can provide to the grid. Here are three key actions that utility regulators can take today: 

  • Direct utilities to incorporate industrial electrification into their planning. The scope of industrial electrification is still emerging, but it is important for utilities to engage industrial customers, transmission operators, the federal government, and other state agencies (e.g., commerce and economic development) to develop realistic scenarios for size and location of these loads. Regulators should direct utilities to update their integrated resource and system plans regularly as the market evolves.
  • Review utility rates to encourage industrial electrification while adhering to cost-of-service principles. These rates should ensure that industrial customers are fairly compensated for the grid services that they can provide, including their ability to defer or avoid transmission and distribution upgrades through non-wires alternatives.
  • Review utility interconnection procedures and protocols. Industrial facilities are often ready to electrify before utilities can connect them to an updated grid. Regulators need to ensure that interconnection occurs without delay and provide certainty to the customer on schedules for establishing or expanding service.

A domestic manufacturing sector reliant on clean electricity for process heat will be better for the environment, more resilient, and more competitive. Now is the time to design the U.S. power system of the future, with policymakers at all levels supporting utilities and industries to collaboratively explore innovative solutions.

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