Reshoring and Onshoring Manufacturing: How to Lock In Energy Costs Before You Build

The reshoring of US manufacturing is one of the defining economic stories of the 2020s. The combination of IRA and CHIPS Act incentives, geopolitical supply chain risk consciousness born from the COVID pandemic and US-China trade tensions, rising overseas labor costs, and a genuine reassessment of "just-in-time" procurement philosophy has catalyzed $200+ billion in announced domestic manufacturing investments since 2022.

Semiconductor fabs in Arizona. EV battery gigafactories in Tennessee and Kentucky. Solar panel manufacturing in Ohio and Georgia. Pharmaceutical API production returning from India. Medical device assembly from Mexico. Steel minimills in the Gulf Coast. The diversity of reshoring activity reflects how broadly the calculus shifted — and how much capital is now flowing into greenfield and brownfield manufacturing facilities across the United States.

What gets far too little attention in the site selection analyses that accompany these investments is energy cost. When energy represents 10-25% of manufacturing operating costs — and when that percentage can vary by 50% or more depending on site location and procurement strategy — a site selection process that optimizes on labor cost and incentive packages but ignores energy economics can produce a facility that operates at a structural competitive disadvantage for its entire useful life.

This guide puts energy cost where it belongs in the reshoring and onshoring site selection analysis: as a core strategic variable with state-specific data, procurement options, incentive stacking opportunities, and a clear framework for locking in energy costs before the first shovel goes in the ground.

Why Manufacturing Energy Costs Are the Hidden Site-Selection Variable

The Scale of the Opportunity and Risk

A mid-size manufacturing facility consuming 50 million kWh per year faces dramatically different energy economics depending on where it's located:

Kentucky site: Average commercial rate ~$0.07/kWh → Annual electricity cost: $3.5 million

New York site: Average commercial rate ~$0.13/kWh → Annual electricity cost: $6.5 million

That $3 million annual gap compounds over a 20-year plant life to more than $60 million in energy cost differential — before considering natural gas costs, demand charge structures, or procurement optimization.

For energy-intensive manufacturers (chemicals, metals, food processing, semiconductor fabs), the stakes are even higher. A 200 MW semiconductor fab at $0.07/kWh versus $0.12/kWh faces a $87.6 million annual energy cost difference.

Why Energy Often Gets Minimized in Site Selection

Several factors contribute to energy being underweighted in site selection:

Headline rate anchoring: Site selection teams often compare published "average commercial rate" data from EIA or utility rate cards, which can miss: demand charge structures, time-of-use tariffs, available economic development rates, transmission infrastructure costs, and renewable energy compliance obligations.

Incentive package focus: When states compete for marquee manufacturing investments, they lead with tax incentives, workforce training grants, and infrastructure support. Energy discussions are often relegated to "we'll figure it out later."

Procurement planning lag: Greenfield sites have a 2-5 year lead time from site selection to operations. Energy procurement is often treated as something to address when the facility is ready to take power — missing the significant opportunity to lock in favorable rates during construction.

Regulatory uncertainty discounting: Some analysts discount energy cost as a static variable when it's actually dynamic — rate cases, capacity auction results, and renewable compliance requirements can change costs materially over a 20-year facility life.

State-by-State Energy Cost Comparison for New Manufacturing Sites

The following comparison addresses commercial electricity rates with manufacturing-relevant context. All rates are directional 2026 ranges — actual rates depend on utility territory, load characteristics, and negotiated terms.

Regulated Low-Cost States (Southeast and Central)

Kentucky: Among the lowest commercial electricity rates in the US, typically $0.06-0.09/kWh for large industrial loads. Coal-heavy generation mix from Kentucky Utilities (LG&E/KU) and Big Sandy Electric. House Bill 230 (2022) crypto/data center tax exemptions signal state's openness to high-load manufacturing. IURC-regulated; economic development rates available for 1 MW+ new manufacturing loads. Favorable labor costs and central logistics position.

Tennessee: TVA (Tennessee Valley Authority) federal power dominates; electricity delivered through local power companies (LPCs) at $0.08-0.10/kWh commercial. TVA's economic development programs (IncentRate, Economic Development Rate) provide rate reductions for new manufacturing operations meeting job creation and capital investment thresholds. Strong automotive and advanced manufacturing cluster.

Indiana: Regulated by IURC; Duke Energy Indiana and AES Indiana (Indianapolis Power & Light) primary utilities. Commercial manufacturing rates $0.08-0.11/kWh; Economic Development Rate available for large new industrial loads. Significant manufacturing base; Central Time zone supports shift operations.

West Virginia/Virginia (Appalachian Power): Apalachian Power territory offers competitive rates $0.07-0.10/kWh for industrial customers; AEP's industrial economic development program; proximity to Appalachian coal generation.

Deregulated Mid-Cost States

Texas: ERCOT competitive market offers commercial manufacturing rates typically $0.07-0.10/kWh (all-in with transmission/distribution). Competitive procurement across multiple retail suppliers; no state income tax; abundant land and infrastructure. Increasingly relevant for advanced manufacturing, EV battery assembly, solar panel manufacturing (multiple announced projects). Summer peak demand exposure is real (see ERCOT resilience considerations).

Ohio: PJM market territory with competitive retail suppliers; commercial manufacturing rates $0.07-0.09/kWh for large industrial loads. AEP Ohio, Ohio Edison/FirstEnergy serve different regions; automotive manufacturing cluster in northern Ohio.

Illinois: ComEd (northern IL) and Ameren Illinois (central/southern) serve PJM territory. Commercial rates $0.09-0.12/kWh; competitive retail market available. CEJA legislation mandates significant renewable portfolio expansion by 2035. Advanced manufacturing cluster in Chicago metro.

Pennsylvania: PECO, PPL, West Penn Power, Duquesne Light — competitive retail market. Commercial manufacturing rates $0.09-0.12/kWh. PJM capacity charges among the highest nationally; proximity to port infrastructure attractive for import-substituting manufacturers.

High-Cost Caution States

New York, New Jersey, Connecticut, Massachusetts: Commercial electricity rates of $0.12-0.18/kWh — 60-100% above Southeast rates — make energy a significant competitive burden for energy-intensive manufacturing. Strong workforce, university research ecosystems, and proximity to Northeast consumer markets may justify siting specific operations here, but the energy cost must be explicitly valued in the model.

Summary Table

State	Typical Mfg Rate	Market Type	Economic Dev Rate	Notes
Kentucky	$0.06-0.09	Regulated	Yes	Lowest US rates
Tennessee	$0.08-0.10	Regulated (TVA)	Yes (TVA IncentRate)	Auto/mfg cluster
West Virginia	$0.07-0.10	Regulated	Yes	Low cost but infrastructure
Texas	$0.07-0.10	Deregulated	Limited	ERCOT competitive market
Ohio	$0.07-0.09	Deregulated	Yes	Auto/manufacturing base
Indiana	$0.08-0.11	Regulated	Yes	Central location
Illinois	$0.09-0.12	Deregulated	Yes	RE compliance escalation
Pennsylvania	$0.09-0.12	Deregulated	Limited	Highest PJM capacity costs
NJ/NY/NE	$0.12-0.18	Deregulated	Limited	Premium markets

Understanding how electricity deregulation works in each state context is essential for accurately modeling procurement options and costs.

Construction-Period Procurement: Letters of Intent and Forward Contracts

The window between site selection and first production is a critical — and frequently wasted — procurement opportunity. Energy markets move continuously; prices favorable at site selection may have moved significantly by plant startup.

Letters of Intent (LOIs)

Retail electricity suppliers can issue Letters of Intent providing conditional price commitments to start of service, often extendable for 12-24 months into the future. An LOI at today's market price, executed during site selection, preserves the pricing environment that made the energy economics favorable.

LOI conditions typically include:

Indication of intended rate (fixed price per kWh, all-in)
Contract term at start of service
Volume estimate (based on projected facility consumption)
Expiration of the LOI commitment (typically 60-90 days from execution unless extended)

LOIs are not binding supply contracts — they commit the supplier to offer the indicated pricing if the conditions are met, not to deliver. But in a rising market, having an LOI from multiple suppliers at today's rates provides real value at plant startup.

Forward Contracts for Large Industrial Loads

Very large manufacturing loads (5 MW+) may be able to execute forward delivery contracts with retail suppliers for power to begin at a future date. These binding forward contracts lock in price and terms before the facility is operating — effectively securing the energy economics that justified the site selection.

Forward contracts require the facility to have an LOA (Letter of Authorization), an established account number, and often a utility interconnection agreement. For large loads, the retail supplier bears price risk during the forward period and will require credit evaluation.

Construction Power Procurement

The construction phase itself requires significant electricity — lighting, HVAC for curing and equipment testing, welding operations, HVAC equipment commissioning. Construction power is typically taken under a temporary service agreement from the local utility, but for large sites, competitive supply for construction power (particularly where the construction load exceeds 1 MW) may offer savings.

Reviewing advanced contract structures that can be applied to construction-period procurement and bridged to operational contracts provides continuity of energy cost management from groundbreaking through first production.

Stacking Federal Tax Credits, IRA Funding, and Local Energy Incentives

For reshoring manufacturers, the IRA created an unprecedented stack of energy-related tax credits that, combined, can materially improve project economics.

Advanced Manufacturing Production Credit (Section 45X)

45X provides a production tax credit for qualifying clean energy component manufacturing:

Solar cells: $0.04/watt-DC
Solar wafers: $12/m²
Solar modules: $0.07/watt-DC
Battery cells: $35/kWh of capacity
Battery modules: $10/kWh of capacity
Inverters: $0.065/watt
Wind components: 2% of cost

For manufacturers of these components, 45X provides direct tax credit revenue that improves project economics dramatically — and makes US manufacturing competitive with subsidized foreign production.

Qualifying Advanced Energy Project Credit (Section 48C)

The Advanced Energy Project Credit provides a 30% ITC for investments in facilities that manufacture clean energy technology or industrial decarbonization technology. Phase 2 of the 48C program ($10B) includes awards for manufacturing facilities focused on:

Clean energy component manufacturing
Industrial processes using clean energy technologies
EV and EV component manufacturing

Application required; DOE reviews and allocates credits.

On-Site Renewable Energy for Manufacturing

Manufacturers building new facilities can layer on-site solar, wind (if site permits), and battery storage ITCs (30%+ with adders) to reduce net energy cost and demonstrate supply chain sustainability:

Solar on rooftops and parking canopies: 30% ITC + domestic content adder (10%)
Battery storage for demand management: 30% ITC standalone
CHP for process heat + electricity: 10% ITC

State and Local Energy Incentives

Beyond federal credits, states competing for manufacturing investment often offer:

Property tax abatements on energy infrastructure
Sales tax exemptions on manufacturing electricity purchases (many states)
Economic development rate riders from utilities
Workforce training grants that reduce transition costs associated with new energy technology operations

For a reshoring project in Kentucky or Tennessee, stacking the 45X production credit + Section 48C investment credit + state property tax abatement + sales tax exemption on electricity + TVA IncentRate can reduce the effective energy infrastructure cost to remarkably favorable levels.

Conclusion

Energy cost is not an afterthought in reshoring and onshoring site selection — it's a defining competitive variable that compounds over the life of a manufacturing facility. The state and utility territory you choose, combined with the procurement strategy you execute and the incentives you stack, can determine whether your reshored facility operates profitably or struggles against foreign competitors with lower energy costs.

The businesses that approach reshoring energy strategy correctly — integrating energy cost modeling into site selection, executing construction-period LOIs, layering available federal and state incentives, and establishing competitive supply contracts before production begins — will hold a durable cost advantage over those that treat energy as an afterthought.

Commercial Energy Advisors works with manufacturers evaluating US sites to model energy cost scenarios, identify economic development rate opportunities, structure pre-operational procurement, and maximize incentive stacking. Our services are provided at no cost to commercial clients.

Call 833-264-7776 or contact us today to request an energy cost analysis for your reshoring or expansion project.

Frequently Asked Questions

How much can electricity costs vary between US states for manufacturers?

For large industrial loads, commercial electricity rates range from approximately $0.06/kWh in Kentucky to $0.15+/kWh in New York and New England — a factor of 2.5x or more. For a facility consuming 50 million kWh/year, this translates to $3-7.5M in annual electricity cost variance, or $60-150M over a 20-year facility life.

What is an LOI in energy procurement for manufacturing?

A Letter of Intent is a conditional pricing commitment from a retail electricity supplier indicating what rate they will offer for future supply upon start of service. For greenfield manufacturing facilities, an LOI executed at site selection preserves favorable market pricing through the construction period.

What federal tax credits are available for reshoring manufacturers?

Key IRA credits include: 45X Advanced Manufacturing Production Credit (per-unit credit for clean energy components), Section 48C Qualifying Advanced Energy Project Credit (30% ITC for clean manufacturing facilities), and energy-related ITCs (30% for on-site solar, storage, and CHP).

Is it better to site a new manufacturing facility in a regulated or deregulated state?

Both have advantages. Deregulated states allow competitive procurement and price negotiation with multiple suppliers. Regulated states may offer economic development rates through direct utility negotiation. Low-cost regulated states (Kentucky, Tennessee) often have lower baseline rates than comparable deregulated states. The analysis should compare the specific available rates under both structures for each candidate site.

Can I lock in electricity rates before my manufacturing facility is operational?

Yes, through two mechanisms: (1) Letters of Intent provide conditional price commitments from suppliers that can bridge from site selection through plant startup; (2) Forward delivery contracts available for large loads (5 MW+) can lock in price for future delivery. Both require working with suppliers experienced in greenfield procurement.

What sales tax exemptions are available on manufacturing electricity purchases?

Manufacturing electricity purchase tax exemptions vary by state. Many states (Kentucky, Texas, Indiana, Ohio, Georgia, and others) provide full or partial sales tax exemptions for electricity used directly in manufacturing processes. These exemptions can reduce effective electricity cost by 5-10% and should be factored into site selection comparisons.

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