For several decades, the location of a factory was largely a calculation based on labor costs, market access, transportation and taxes. In many industries, a company could accept more expensive energy if, in return, it gained access to cheap labor and a sufficiently large market.
For years, energy was treated in many investment decisions as one of the cost items that could be offset by other location advantages. A factory could operate in a country with somewhat more expensive electricity if access to workers was easy, wages were relatively low, suppliers were located nearby and the government offered investment incentives. The problem arises when the difference in energy prices stops being an addition to the cost calculation and begins to change the cost of every unit of output. This applies primarily to plants where energy is not merely needed to light a production hall and power auxiliary equipment, but is a direct part of the technological process, as in the production of steel, aluminum, chemicals, glass, paper, cement and materials for the battery industry.
Data from the International Energy Agency show that this difference is already real rather than hypothetical. In 2025, electricity prices paid by energy-intensive industries in the European Union remained on average more than twice as high as in the United States and nearly half as high again as in China. In 2019, the United States’ price advantage over Europe was significantly smaller, while the difference relative to China was also considerably lower. Within just a few years, therefore, the relationship between energy costs has changed in a way that is far more significant for an investor planning a plant with a lifespan of several decades than temporary differences in labor costs.
For a company, the average price of energy in a country is not particularly important in itself. What matters is the cost of energy per unit of output and its share of total production costs. If a plant consumes 100 MWh of energy to produce a particular batch of goods, a difference of €20 per MWh means an additional €2,000 in costs. For production requiring one million MWh a year, that difference rises to €20 million. At several million MWh annually, the scale ceases to be an issue that can simply be negotiated with an operator or energy supplier and begins to influence whether a particular production line should be built in a given country at all.
Under such a model, a cheap worker does not necessarily mean cheap production. If one employee in an automated plant operates machinery consuming enormous amounts of energy, the cost of that employee’s wages may be relatively small compared with the cost of the electricity needed to maintain the entire process. Automation reinforces this effect by reducing the importance of the number of workers per unit of output while increasing the importance of the cost of machinery, energy, software, infrastructure and available capacity. The location advantage is therefore beginning to shift from the labor market toward the energy system as a whole.
Poland is right at the center of this shift
For years, Poland benefited from the traditional cost advantage of Central Europe. Relatively low labor costs helped attract manufacturing plants, logistics centers and industrial investments from companies that wanted to produce within the European Union without incurring costs characteristic of Western Europe. That argument still exists, but its importance is gradually changing. In 2025, the hourly labor cost in Polish industry was PLN 77, while labor costs in Poland were rising significantly faster during this period than in many Western European economies. Eurostat reported that across the Polish economy as a whole, hourly labor costs in the national currency increased by 8.8 percent in 2025.
This does not mean that Poland is losing its advantage in terms of employment costs. It means that this advantage can no longer be treated as permanent. If wages are rising while a company is also paying more for energy than a competitor in another country, both factors work in the same direction. In the case of a plant with a high share of labor costs, a company can try to respond to rising wages through automation, work reorganization or increased employee productivity. With energy, the options are more limited, because a factory cannot simply decide to consume half as much electricity if the production technology itself requires a certain amount of energy.
At the same time, Poland’s electricity system is undergoing a very deep transformation. Data from Polskie Sieci Elektroenergetyczne show that domestic electricity consumption amounted to around 167.5 TWh in 2025, while the capacity of renewable sources in the system continued to grow and the generation mix changed with the expansion of wind and solar power and the growing role of gas-fired generation. For industry, this means that energy availability alone is no longer sufficient information. Increasingly important is the answer to the question of whether energy will be available in the right place, at the right time, with sufficient grid stability and with the possibility of entering into a long-term contract.
This is particularly important for Poland because the country can simultaneously increase the production of cheap electricity during certain hours and still have problems delivering it to a specific industrial customer. If a factory is located in a region where the grid lacks sufficient capacity, the mere presence of wind or solar farms elsewhere in the country does not solve the problem. An investor needs a grid connection, capacity, transmission infrastructure and predictable rules governing the use of the grid. Otherwise, it may have access to cheap energy on the market but lack the ability to use it on the scale required by the plant.
The cheapest electricity is not enough. What matters is electricity available when the factory needs it
The development of renewable energy sources is also changing another element of the investment equation. The system may offer very low electricity prices during periods of high wind or solar generation, but an industrial plant cannot always adapt its production process to the hours when electricity is cheapest. A steel mill, refinery, chemical plant or certain process installations cannot simply shut down equipment for several hours and restart it later without affecting production, technological safety or the cost of restarting operations.
This is why future energy competitiveness will depend on flexibility. A factory that can shift part of its consumption to cheaper hours, store energy, use its own generation sources or enter into long-term power purchase agreements will be in a different position from a plant that must buy every megawatt-hour at the market price at the moment it is consumed. For an investor, the difference between these models can be greater than the difference in employee wages. As a result, energy storage, on-site generation, PPAs, demand management and appropriately designed grid connections are becoming part of industrial strategy rather than merely elements of energy policy.
The problem is that cheap energy without a grid can be economically useless. The International Energy Agency points out that insufficient grid capacity is becoming one of the main constraints on the development of new generation sources, storage facilities and electricity-consuming assets. Connection queues are reaching record levels, while investment in transmission networks requires years of planning and construction. In 2024, grid congestion costs amounted to around $12 billion in the United States and €4.3 billion in the European Union, showing that the problem is not simply how much energy can be produced, but also where and when it can be delivered.
For businesses, this means a change in the investment map. Until recently, it was possible to select a plot of land first and address energy supply issues afterward. For a large electricity consumer, the sequence may increasingly be reversed. The first step is to determine where sufficient grid capacity exists, what the prospects are for expanding the network and what energy can be available over a period of several or several dozen years. Only afterward can a company decide whether workers, roads, railways, ports and suppliers are located nearby.
The factory may follow the energy
This shift has a very concrete effect on the geography of industry. If energy becomes one of the main production costs, a company may be willing to move production closer to sources of cheap energy, even if this means greater distance from traditional industrial centers. The process will not look the same in every sector, because for one company the importance of energy may outweigh transportation costs, while for a manufacturer of lightweight goods, logistics and labor costs will continue to dominate.
In energy-intensive industries, however, locating near cheap energy can change the entire economics of a plant. An electrolyzer producing hydrogen, an aluminum smelter, a battery materials plant or a data center requires large amounts of electricity for many hours. If its energy costs fall by a dozen or several dozen percent, the savings can amount to millions or tens of millions of euros a year. A company may therefore accept higher labor, transportation or land costs because the difference in energy prices will be greater than the additional location costs.
This does not mean that all factories will start moving to places with the cheapest electricity. Production is a system of interdependencies in which energy is only one element. An automotive plant needs hundreds of suppliers, efficient logistics, access to highways and railways, skilled workers and proximity to customers. A chemical producer may need a port, pipelines, storage facilities and specific raw materials. The semiconductor industry needs not only energy, but also ultra-pure water, specialized suppliers, stable environmental conditions and highly specialized workers.
It is therefore not accurate to describe this as a simple transition from cheap labor to cheap electricity. It is more accurate to say that energy is joining labor as one of the main location factors, and in some industries it may become the dominant factor. For some parts of industry, the difference in energy costs will be more important than the difference in wages. For others, the importance of energy will remain secondary. Competitive advantage will depend on how large a share energy represents in the cost of a given product and how easily its consumption can be reduced.
Automation is changing the labor-energy equation
The biggest change may occur in industries where robotics and artificial intelligence reduce the role of humans in the direct production process. If a plant needs fewer and fewer workers to produce a unit of output, labor costs cease to be the most important location argument. At the same time, demand increases for the energy needed to operate machines, control systems, robots, air conditioning, cooling systems and digital infrastructure.
Under such a model, a high-wage economy can still attract manufacturing, provided it offers high productivity and cheap energy. A worker earning more may actually be cheaper for a company on a per-product basis if automation and technology enable that employee to produce significantly more than a worker at a lower-wage plant. The same mechanism works in reverse. Low wages do not automatically compensate for high energy costs if labor represents only a small share of total production costs.
As a result, some industrial investments will increasingly compare not the cost of one hour of labor, but the cost of the entire production system. The calculation will have to include the cost of energy, available capacity, cost of capital, degree of automation, worker productivity, network charges, access to raw materials, transportation and the risk of supply disruptions. This is a much more complicated equation than the traditional comparison of wages between Poland, Germany, the Czech Republic and Asia.
In practice, this also means that countries are no longer competing only for investors and workers, but for megawatts. A country that can offer a company a stable supply of electricity at a predictable price, with an appropriate grid connection and the possibility of entering into a multi-year contract, may gain an advantage over a country offering lower wages but more expensive and less predictable energy.
The biggest example of this shift may come from outside traditional industry
Just a few years ago, discussions about cheap energy and the location of factories focused primarily on steel mills, cement plants, chemical facilities and metal producers. Today, data centers are rapidly joining that group. For them, energy is not one of many elements of the production process. It is a prerequisite for the existence of the entire infrastructure.
The International Energy Agency estimates that electricity consumption by data centers increased by 17 percent in 2025 and is expected to roughly double by 2030, from 485 TWh in 2025 to around 950 TWh. Demand from data centers associated with artificial intelligence is growing even faster. In the United States, data centers are expected to account for almost half of the increase in electricity demand through 2030.
For such an investor, labor costs have a completely different significance than they do for a traditional factory. A data center can employ relatively few people compared with the value of its assets and its power consumption. In return, it needs enormous amounts of power, very high reliability, cooling and the ability to expand. In this case, locating in a region with cheap labor may be considerably less attractive than locating in a place where the necessary power infrastructure already exists.
Time is even more important. The International Energy Agency points out that building new transmission lines in developed economies can take between four and eight years, while connection queues can delay data center projects. It estimates that around 20 percent of planned data center projects could be exposed to delays related to energy infrastructure constraints. In such an environment, access to power becomes part of the investment location equation to a similar extent as access to a highway or a port.
This also changes competition between regions. A municipality with an available industrial plot does not necessarily have an attractive investment proposition. If the grid operator cannot provide sufficient capacity, the site may remain unused regardless of tax incentives, land prices or the availability of workers. In a world of growing energy demand, the advantage therefore goes not necessarily to the region with the most investment land, but to the one capable of combining land, grid infrastructure, energy sources and industrial infrastructure into a functioning system.
Europe has a problem that cheap labor alone cannot solve
Europe is in a particularly difficult position because it wants to maintain its industrial base, electrify its economy and reduce emissions, while its energy-intensive industries are already paying more for energy than many competitors. The European Commission itself points out that high energy costs affect investment decisions in sectors such as chemicals, metals, glass and paper. Under the Clean Industrial Deal, energy has therefore been treated as one of the foundations of European industrial competitiveness.
The issue is not simply about lowering bills through subsidies. A subsidy may improve a company’s situation for several years, but it does not create a lasting advantage if the underlying cost of generating energy remains high. What a company needs instead is a system in which it can purchase energy at a predictable price over the long term. This is why the development of grids, low-carbon generation, storage, interconnections, flexible demand, long-term contracts and an efficient energy market all matter.
This also explains why competition for industrial investment will increasingly concern not just price levels, but their predictability. An investor planning a factory for 25 years cannot base its decision solely on the fact that energy was cheap last quarter. It needs to know what its electricity bill could look like in five, ten and fifteen years. If the answer is highly uncertain, the cost of that uncertainty is incorporated into the project and may shift the investment toward a country that offers somewhat more expensive electricity but more stable conditions.
The European Commission is attempting to address this problem through measures concerning the development of renewable energy sources, grids, PPAs, energy storage and support for energy-intensive industries. In 2025, new instruments were launched to support PPAs and grid investments, while a state-aid framework was adopted enabling member states to support the energy costs of energy-intensive companies. The scale of these measures shows that energy costs are no longer treated solely as a problem for individual businesses and have become an element of industrial policy.
Cheap energy could become a new export advantage
The most interesting change will occur when cheap electricity begins to attract not only individual plants but entire value chains. If a region can produce hydrogen, steel, aluminum, chemicals or battery materials cheaply, the advantage does not end with one company. Additional plants may emerge around cheap energy as suppliers begin locating closer to major customers and infrastructure develops alongside the concentration of industry.
A mechanism then emerges similar to the one that created industrial clusters around ports, highways and major metropolitan areas for decades. The new center, however, may be energy infrastructure. A region with large amounts of available capacity could attract electrolyzers, data centers, materials plants, energy storage facilities and processing industries, followed by additional suppliers. The advantage begins to reinforce itself because greater demand justifies further investment in the grid and energy sources.
It is no coincidence that the growing importance of cheap energy is accompanied by the growing importance of the raw materials needed to generate and transmit it. The International Energy Agency forecasts that copper demand by 2040 will be around 30 percent higher than today under the stated policies scenario, partly because of grid expansion and industrial electrification. In the case of lithium, demand is expected to increase fivefold, while demand for graphite and nickel is projected to double. Energy and raw materials are therefore no longer separate issues, because the development of one system creates a need for investment in the other.
This means that future economic advantage may emerge in places that are not obvious industrial centers today. What will matter are regions that simultaneously have access to energy, grids, raw materials, ports or railways, and technical expertise. The mere presence of a cheap energy source is not enough if the electricity cannot be delivered to the plant. A grid alone is not enough if energy is expensive. A factory alone is not enough if it lacks workers with the right qualifications. Competitive advantage will emerge at the intersection of these elements.
What this means for countries such as Poland
Poland has both an opportunity and a very specific problem here. On the one hand, it is located in a country that has benefited for years from substantial inflows of industrial investment and still has a large manufacturing base, a large workforce, developing infrastructure and access to the European Union’s single market. On the other hand, the advantage based on relatively lower labor costs will gradually weaken as wages rise and some new investments become increasingly automated.
If Poland wants to maintain its role as one of Europe’s main locations for industry, it therefore needs to answer the question of how much energy it can offer new plants and at what price. It is not enough to declare the expansion of renewable energy, because an investor needs a specific grid connection and a specific amount of capacity. Nor is it enough to increase generation capacity if the grid cannot transmit electricity to industrial regions. Finally, it is not enough to build the grid if industrial electricity prices remain permanently higher than those of major competitors.
For Poland, the ability to connect new energy sources with industry will be particularly important. If the development of wind and solar power, storage and other sources goes hand in hand with grid expansion, some companies may gain access to energy at costs that improve their competitive position. If, however, energy sources are developed without adequate transmission and distribution infrastructure, part of the potential advantage will remain unused. For an investor, the difference between these two scenarios could mean a decision worth hundreds of millions of euros.
It is also important to remember that industry does not need only low-carbon energy. It needs predictable energy. If a company is to reduce emissions while continuing to produce around the clock, it must be able to balance demand even when the wind is not blowing and solar generation declines after sunset. This is why future energy competitiveness will depend on the entire system, including generation sources, storage, grids, cross-border interconnections, demand management and dispatchable sources.
Cheap labor will still matter, but its role is changing
It would nevertheless be wrong to conclude that labor costs are becoming irrelevant. In many sectors, they will remain one of the fundamental location factors. Service centers, labor-intensive industries, parts of logistics, assembly and consumer goods manufacturing will continue to seek locations where appropriate labor quality can be combined with competitive employment costs. The problem is that an increasing share of the modern economy is becoming less labor-intensive and more capital-intensive, energy-intensive and digital.
The nature of the worker required by industry is also changing. An automated plant may employ fewer people but require more automation specialists, programmers, engineers, maintenance specialists and energy experts. In such a model, the number of available workers matters less than their productivity and skills. A region with expensive labor can remain competitive if it offers people capable of operating advanced processes and infrastructure that allows their work to be used effectively.
The new geography of industry will therefore not be a division between countries with cheap labor and countries with cheap electricity. A more likely division will be based on which regions can offer cheap and stable energy, high labor productivity, efficient infrastructure and access to markets. In such a system, labor costs will remain an important parameter, but their significance will increasingly be measured alongside the amount of energy available per worker and the value of output generated by each employee.
Access to power could become the greatest asset
The most underestimated change is that investors will increasingly ask not how much a megawatt-hour costs, but whether they can obtain the required power capacity. Two locations may have similar electricity prices but completely different investment value if one can provide 300 MW of capacity within a few years while the other needs a decade to expand its grid. For a data center, steel mill or large chemical plant, this difference may be more important than the price of land or local labor costs.
This is already visible in the data center market, where projects are competing for access to existing energy infrastructure. The International Energy Agency points out that grid constraints are becoming one of the most important physical brakes on the sector’s development. Companies are therefore increasingly looking for locations not only where customers and fast telecommunications connections are available, but also where sufficient amounts of electricity can be obtained and expanded as demand grows.
The same mechanism will spread into industry. A large factory may have an excellent logistics location, access to workers and attractive tax incentives, but if it lacks sufficient grid capacity, the investment cannot proceed. In a world of growing electrification, energy infrastructure is therefore beginning to perform a function similar to that of transportation infrastructure in the previous industrial era. A highway allows goods to be delivered, a railway makes it possible to transport raw materials, while the electricity grid makes it possible to operate some of the new industries in the first place.
This could lead to a very concrete change in economic policy. Countries and regions will have to stop competing solely through tax breaks, land prices and investment grants. For many projects, providing a grid connection, expanding the network, ensuring long-term energy availability and enabling stable contracts will be more valuable than a one-off subsidy. If an investor is to spend €1 billion on a plant, a difference of several million euros in taxes may be less important than the risk of years of uncertainty over its energy bill.
The new map of competitive advantage is only beginning to take shape
In the coming years, competition between economies will increasingly resemble a race to control the entire energy value chain. What will matter is where energy can be produced, where it can be transmitted, where it can be stored, where grid capacity exists and what contractual terms can be offered to industry. Only against this backdrop will it be possible to assess whether a country is genuinely attractive to investors or merely looks attractive on paper because of cheap land and available workers.
For Poland, this is particularly important because its previous model of industrial growth relied heavily on a combination of access to the single market, relatively competitive labor costs and rising productivity. That model is not disappearing, but its next stage will require a greater supply of energy available at competitive prices. If Poland succeeds in combining the development of energy sources with grid expansion and large industrial consumers, it could use the energy transition to build a new competitive advantage. If it does not, some new investments may flow to locations where energy is more readily available and cheaper, even if labor costs are higher.
The question of whether cheap electricity will become more important than cheap labor is therefore, in essence, a question about what production will look like after the next wave of automation and electrification. In the most energy-intensive industries, the answer may already be shifting toward energy, while in other sectors the two factors will continue to compete within a much more complex calculation. The greatest advantages will belong to locations that can offer not merely a cheap megawatt-hour or a cheap worker, but energy, power capacity, grids, skills, infrastructure and predictable costs at the same time. It is precisely this combination of factors that will increasingly determine where factories, data centers and new industries are built and where investment sites remain empty, waiting for an investor.
The key data on the difference in energy costs between the EU, the United States and China come from the IEA’s latest analysis, which shows that a very large gap in prices for energy-intensive industry persists. Data on labor costs in Poland and their growth rate come from Eurostat. The discussion of grids and data centers is based on IEA analyses published in 2026. The European Commission also identifies access to affordable energy as one of the fundamental conditions for the competitiveness of European industry.
