California’s power system has an infamous problem. Solar projects produce more electricity than is needed during the day but too little to satisfy demand at night. So the state’s major utilities are developing new electricity rates to encourage their largest customers to shift to using more power during those hours of sunny abundance.
The undertaking is meant to cut utility bills and curb carbon emissions across the grid. But climate advocates say it also could be a crucial tool for tackling another energy challenge in the state: industrial electrification.
Some 36,000 manufacturing facilities operate in California, and many use large amounts of fossil gas to produce everything from cheese, olive oil, and canned fruit to cardboard, medicines, and plastic resins. Switching to electrified processes would significantly and immediately slash emissions from many factories, experts say. Yet industrial firms are generally hesitant to change — and sky-high power bills are a major reason why.
“It’s been a huge barrier to electrification for manufacturers,” said Teresa Cheng, California director at the decarbonization-advocacy group Industrious Labs.
Industrial customers in California pay over 19 cents per kilowatt-hour for electricity, which is more than twice the national average. They also pay demand charges based on their peak power usage during the month. These costs can represent around 30% or more of a facility’s utility bill — effectively penalizing companies for increasing their electricity use, Cheng said. Meanwhile, industries still pay relatively less for fossil gas.
This dynamic threatens to undermine the state’s broader efforts to get factories off fossil fuels, she added. California’s industrial sector uses one-quarter of all the fossil gas burned in the Golden State, and it contributes over 20% of the state’s annual greenhouse gas emissions, along with health-harming pollution.
In recent years, state lawmakers and regional regulators have adopted policies to push manufacturers to electrify their equipment. Last October, Democratic Gov. Gavin Newsom signed a law, Assembly Bill 1280, that expands incentive programs to help manufacturers install industrial heat pumps, thermal storage systems, and other clean technologies. In Southern California, the air-quality district in 2024 passed a landmark rule that’s expected to drive adoption of electric boilers and water heaters in the smog-choked region.
“There’s a very strong climate policy from the top down that recognizes that industrial decarbonization is a big part of California’s success,” said Anna Johnson, state policy manager at the American Council for an Energy-Efficient Economy.
Still, “there hasn’t yet been a really concerted effort to address the operating costs,” she added. “We want to see a clear path for manufacturers both to replace outdated equipment with more efficient, cleaner, and safer equipment, and then also for them to be able to operate economically afterwards.”
Just this week, though, California state Sen. Josh Becker introduced a bill that aims to tackle that missing piece. Senate Bill 943 proposes making changes to electricity rates to help manufacturers and large commercial companies switch to electricity for industrial heat.
Reimagining utility rates to unlock cleaner, cheaper power
Both Johnson and Cheng contributed to a recent report by the American Council for an Energy-Efficient Economy, Industrious Labs, the Sierra Club, and Synapse Energy Economies that outlines strategies for updating industrial rates to accelerate electrification.
Their analysis is meant to inform California’s three biggest utilities as they devise new rate options for large customers. The concepts, however, could apply to other parts of the country that have plenty of intermittent renewables, like Texas and the Midwest “wind belt,” and regions where industrial electricity is far more expensive than fossil gas, such as the Upper Midwest and Northeast, Johnson said.
California is facing both realities.
Great Job Maria Gallucci & the Team @ Canary Media for sharing this story.
