In mid-2020, global tier-one automotive supplier Dura was searching for a south-eastern US site to produce electric vehicle (EV) battery trays. However, delays caused by Covid-19 meant the Michigan-based company was on a tight deadline to launch its new facility.
To meet its timeline, Dura needed to find an existing building which met its requirements, within four hours’ drive of the plant where the EVs would be assembled. Luckily, help was at hand.
The Tennessee Valley Authority (TVA), a publicly-owned electric utility company, identified appropriate buildings available to lease across communities it serves in the Tennessee Valley.
Gregory Burkart, a managing director at the consultancy firm that was assisting Dura in its search, Duff & Phelps, says that TVA’s help was invaluable in creating a shortlist of locations and expediting the site visit process, which has been “critical” during the pandemic.
“TVA [also] offered low-cost electricity and a generous infrastructure grant,” he adds.
This assistance paid off, with Dura announcing in August 2020 that it would lease an existing building in Muscle Shoals, Alabama, investing $59m in manufacturing equipment and creating 279 direct jobs.
Across the 2019 fiscal year alone, TVA’s economic development team helped create or retain 66,500 jobs and brought investment worth $8.9bn to the communities it serves. But this is just one example of a utility company helping to expand business activity in the US. For Didi Caldwell, the president of site selection consultancy Global Location Strategies, utilities play an “indispensable role” in economic development.
Ron Crum, who leads the site selection practice at regional engineering firm CSRS, agrees. “Beyond the local economic development office (EDO) and state government, the utility company is probably the most valuable partner in site selection,” he declares.
So how exactly do utilities help foster capital investment and job growth in the areas they serve, and what is in it for them?
Powering economic development
Utilities are companies that enable the generation and distribution of specific services — typically electricity, natural gas and water — to their customers. While all types of utilities have an interest to promote regional economic development, it tends to be electric utilities that are the most active.
This is because any new investment within the areas they serve brings more demand for electricity, thus creating additional revenue for the utility, but also jobs and tax revenue for the local community.
Therefore, utilities offer a whole range of services to recruit new businesses into their service territory; from preparing, developing and marketing sites to project management, training, technical assistance and funding.
Tim Wells, the vice president of sales at privately-owned utility American Electric Power (AEP), says that his company engages in projects based on their “knowledge of local utility and infrastructure networks, and site availability, but can serve as a resource across the entire site selection process”.
“We are working aggressively to help our communities diversify their economies, attract new businesses and jobs, improve mobility and build a strong talent pipeline,” he adds. AEP’s economic development team works across a service territory spanning 11 states, including parts of Texas, Arkansas, Ohio and Virginia.
One essential proactive role that utilities play is in site identification within their territory. For example, North Carolina-headquartered private utility Duke Energy, helped Nestlé Purina PetCare in its US expansion plans at the end of 2020.
Duke worked with local governments to help bring two Nestlé pet food factories — one $450m investment into a former brewery in North Carolina and another new $550m facility in Ohio.
“We have a seat at that table because electricity is one of the top manageable costs for a manufacturer considering new sites,” John Geib, Duke Energy’s director of North Carolina economic development, said in a statement.
The cost of electricity can vary widely across the US, according to investment destination comparison tool fDi Benchmark, ranging from an estimated 2.88 cents per kWh in Nevada to 23.38c/kWh in Hawaii.
While a company making a decision about where to locate will approach a mix of third parties, such as site selection consultants, lawyers and government officials, utilities are often indispensable due to their expertise.
“The utility company brings technical depth … they can make or break most of our projects,” says Mr Crum, clarifying that a lot of his work is in energy intensive projects that require engineering expertise, such as refineries, petrochemical plants and data centres.
Utilities will also provide this technical assistance throughout the lifecycle of investment projects. EPB, an electric power and telecommunications company owned by the city of Chattanooga, Tennessee, helped Volkswagen set up its assembly plant in 2008, but continues to maintain its power infrastructure to this day.
“Our work begins long before a site selection process starts, and continues through construction and beyond, to ensure optimal start-up and operation conditions for our industrial and commercial customers,” says J Ed Marston, the vice president of marketing at EPB.
‘High load’ focus
As utility companies serve communities in different parts of the country and can have distinct ownership structures — being either investor-owned, publicly owned or a cooperative — their involvement in economic development can vary.
“Utilities in the south-east and Midwest tend to be the most active within economic development, but this varies relative to individual state policies,” says Mark Williams, the president of South Carolina-based site selection consultancy Strategic Development Group.
“You tend to see utilities more involved where projects have larger electric loads, such as in industrial and data centre projects,” he adds, clarifying that these tend to require large and consistent amounts of electricity.
In August 2020, TVA helped Facebook with its planned $800m data centre outside Nashville, Tennessee, partnering with solar developer Silicon Ranch to bring almost 450MW of new solar energy to supply the project.
Chris Hansen, TVA vice president for origination and renewables, said in a statement that the company had contracted 1300MW of utility scale solar in the past two years.
Greening the power
Between 1990 and 2017, electricity generation accounted for 28% of US greenhouse gas emissions, according to the Environmental Protection Agency. But with president Joe Biden in office and vowing to make the US electric grid carbon-free by 2035, utilities will be crucial to the green transition.
Ms Caldwell says that probably the most important thing that electric utilities do is “continual investing in diversifying their fuel mix”, which lowers rates and ensures the infrastructure can provide high-quality electricity supply.
Despite some improvements in the decade to 2019 — renewable energy’s share rose from 11.2% to 17.4% — fossil fuels still account for the majority (61.9%) of US electricity generation, in part due to utilities increasing their use of shale gas, according to data from the Environmental Investigation Agency.
Inbound foreign investment paints a brighter picture, however. In 2019, foreign investors announced US renewable electricity projects worth $18.6bn, compared with just $2bn for projects generating electricity from fossil fuels, according to investment monitor fDi Markets.
Supporting their communities
According to the American Public Power Association (APPA), a nationwide trade body, public power utilities annually invest more than $2bn directly back into the communities they serve.
Elaina Ball, chief executive of Fayetteville Public Works Commission, a not-for profit public power utility in North Carolina, says that local public power leadership recognises “the value of community investment and partnerships”.
“In addition to high-reliability and low-cost services, we strive to support economic development and grow our community,” she adds, pointing out that power from publicly owned utilities tends to be cheaper than from investor-owned utilities.
Utilities also play a vital role in recovery efforts from natural disasters, often being the first to enter distressed areas.
The commission responded to Hurricane Florence when it hit the Carolinas in September 2018, helping to get power up and running for the local community within two business days.
“Very little can be done until the power system is up and operational again,” says Mr Crum. “The only way an entire area that is devastated gets back on its feet is if the utility company is in there.”
Future of utilities
Beyond the need to invest into renewable energy, utilities are equally poised to play a central role in shifts accelerated by the pandemic. As office workers have pivoted en masse to working remotely, there is even more demand for broadband, cloud and data storage, meaning utilities will have to invest and support this increased capacity.
Similarly, use of automation in manufacturing will require even more electricity, while US companies reshoring facilities from abroad will need to partner with utilities in this process.
Mr Wells says that the pandemic has “amplified the importance” of reliable electricity infrastructure, adding that communities cannot compete for future investment without strong critical infrastructure in place.
“As the demand for additional renewable energy, new technologies and other energy solutions continues to grow, electric utilities will be a critical link to fulfilling customer needs,” he notes, adding that AEP is investing in EV charging stations in both Ohio and Oklahoma.
Additionally, utilities have had to facilitate investment projects and site visits remotely due to coronavirus restrictions — such as when TVA helped automotive supplier Dura in its search for a south-eastern US site.
But as things return to normal, some of these practices may remain. “In six to eight months, things will have returned mostly to where they were,” says Mr Williams of Strategic Development Group. “But I do think there is going to be more virtual interaction by the utilities moving forward.”
This article first appeared in the February/March print edition of fDi Intelligence. View a digital edition of the magazine here.