US factories are struggling to get cleaner heat. These ideas may help.

American households are all too familiar with the pain of high electric bills, which are climbing nationwide. The same problem is quietly hindering the country’s factories from cleaning up their operations, too.

Hundreds of thousands of U.S. manufacturing facilities burn fossil fuels to produce the heat they need to make packaged foods, bottled drinks, construction materials, and likely everything in your bathroom cabinet. It’s why the industrial sector accounts for nearly one-third of the country’s carbon dioxide emissions from energy use.

Cleaner technologies like industrial heat pumps, electric boilers, and heat-storing batteries are already commercially available. Yet even companies that are committed to decarbonizing can find it hard to justify making the switch. The underlying problem is that in virtually every state, electricity costs more than natural gas for industrial users.

“We have to have solutions that are at the very least competitive with the existing cost of fuel,” said Neil Brown, a chemical engineer at Tennessee-based Eastman Chemical, which has over a dozen manufacturing sites in the U.S. and more abroad. ​“In some places where Eastman operates, in parts of the Southeast and Texas, it is very difficult to compete with the low cost of natural gas.”

Brown was speaking on a webinar last month held by the Renewable Thermal Collaborative and Industrial Heat Pump Alliance. The groups looked at electrifying low- to medium-temperature processes, and estimated it would add roughly 250 terawatt-hours to the industrial sector’s annual electricity demand by 2035 — or nearly 25% more power than manufacturers currently use.

On the plus side, deploying clean industrial technologies could generate around $471 billion in total economic output over the next decade, even when accounting for the lost jobs and diminished business activities of gas utilities and equipment makers, according to the groups’ June report.

But reaping those benefits will first require finding ways to drive down the cost of electricity for manufacturers. A growing number of climate and energy experts are studying that challenge and proposing solutions for policymakers and utilities to consider.

One of those strategies could be to build renewable energy projects directly beside factories.

Researchers at the University of California, Berkeley, recently modeled what would happen if factories themselves installed off-grid solar or wind projects on-site and used the clean electricity to power thermal storage systems and heat pumps. The team looked at nearly 3,600 locations across the country, evaluating land availability, solar-power potential, and local natural gas prices for each site.

Renewable-powered heat systems could economically supply up to one-third of the studied industrial heat demand by 2035, they said in an analysis announced last week.

The researchers found that such an approach would make it more cost-effective to run heat pumps than gas boilers for industrial processes below 200 degrees Celsius (392 degrees Fahrenheit) — a broad category that includes beer making, paper production, and textile manufacturing. Meanwhile, thermal batteries would offer ​“competitive or lower costs” for scorching-hot operations like glass melting and steel manufacturing.

“In states where you have very good solar quality and natural gas prices are high, like in California, it makes economic sense for the industry to do this, because they will save some money on their heating costs,” said Amol Phadke, a co-author of the report and an adjunct associate professor at UC Berkeley’s Goldman School of Public Policy.

However, even states without California’s abundant sunshine can still produce low-cost solar power, thanks to declining solar-panel prices. The vast majority of sites in the study have sufficient buildable land to install solar projects.

Phadke added that building off-grid systems would give factories faster access to renewables, since grid-tied wind and solar farms have to wait in long interconnection queues, which can delay projects for years. Ditching the utility would also let manufacturers avoid paying steep grid-delivery charges and other expenses — and sidestep competition with data center operators for power from an increasingly strained grid.

The new site-level data ​“is really helpful for project developers and technology developers to know how to prioritize their efforts, in terms of where to go and pitch industries on,” said José Domínguez, the study’s lead author and a research affiliate at the Goldman School.

Making on-grid power cheaper

The fact remains, though, that many factories will continue to rely on the electric grid in the near term. To get these facilities to consider transitioning to cleaner heat, the cost of electricity needs to come down.

The concept of electricity rate reform is gaining traction among decarbonization advocates, state policymakers, and manufacturers like Eastman as a tool for narrowing the gap between electricity and natural gas prices.

In California, Senate Bill 943 would authorize the state’s Public Utilities Commission to fix utility rates and fees to make it more affordable for large industrial and commercial customers to switch from fossil fuels to electric heat. The bill passed the Senate in May and is now headed to the state Assembly’s Appropriations Committee.

In the Upper Midwest, the utility Otter Tail Power recently developed a novel electricity tariff that is designed to improve the bottom line of thermal energy systems and to ensure they benefit everyone on the grid. The first project to take advantage of this new rate is Antora Energy​’s 5-gigawatt-hour battery in South Dakota, which turns cheap wind energy into clean industrial steam for Poet​’s nearby ethanol-production plant.

“Reforming electric rates is a good way to improve the economics of electrification while taking advantage of our clean electricity generation,” said Lauren Kubiak, a senior scientist for the Natural Resources Defense Council who works on California climate and energy policy.

Kubiak led a new study analyzing how this strategy could improve the economics for industrial heat pumps in two major manufacturing states: California and Michigan. While heat pumps are significantly more energy-efficient than gas-fueled boilers, they’re typically not cost-effective to operate in either state, given current electricity prices.

The study examined what would happen if companies paid only ​“marginal” electricity costs, which reflect the actual cost of generating and transporting an additional unit of electricity. Today, ratepayers also pay ​“non-marginal” costs that help cover things like grid maintenance and infrastructure upgrades, net-metering programs for rooftop solar, and, in California, wildfire-prevention efforts.

“In California, [marginal-cost] rates enabled heat pumps to become pretty cost-competitive with gas boilers,” Kubiak said. That’s particularly true for major subsectors that require low-temperature heating.

For Michigan manufacturers, the impact is more muted, since the state’s electricity rates are lower than California’s and don’t include as many non-marginal costs. However, charging factories marginal rates would still reduce the size of the electricity-gas cost gap, enough that layering on other industrial policies — such as a tax credit that rewards low-carbon heat production — could bridge that divide almost entirely.

In the report, Kubiak and her co-authors suggest that utilities could offer marginal cost rates only to new heat pumps that displace fossil fuel–generated heat. These rates could also be set to encourage manufacturers to use electricity during times when solar projects are producing excess electricity, or when overall grid demand is low. That should help avoid saddling other ratepayers with the non-marginal costs that these new heat pumps won’t be paying.

“Electric rate reform is a tool in our toolbox that hasn’t been used to its fullest extent just yet,” Kubiak said.