Industrial overcapacity can enable seasonal flexibility in electricity use

TL;DR

This paper explores how industrial overcapacity in energy-intensive industries like aluminum can be leveraged to provide seasonal flexibility in electricity use, aiding decarbonization efforts.

Contribution

It evaluates the cost-benefit of using overcapacity for flexible electricity use, demonstrating potential system-wide savings and operational benefits in China's aluminum industry.

Findings

Overcapacity enables seasonal operation of aluminum smelters during winter peaks.

Potential to reduce decarbonized electricity system costs by 23-32 billion CNY/year.

Creates labor complementarities between aluminum and thermal power sectors.

Abstract

In many countries, declining demand in energy-intensive industries (EIIs) such as cement, steel, and aluminum is leading to industrial overcapacity. Although industrial overcapacity is traditionally envisioned as problematic and resource-wasteful, it could unlock EIIs' flexibility in electricity use. Here, using China's aluminum smelting industry as a case study, we evaluate the system-level cost-benefit of retaining EII overcapacity for flexible electricity use in decarbonized energy systems. We find that overcapacity can enable aluminum smelters to adopt a seasonal operation paradigm, ceasing production during winter load peaks that are exacerbated by heating electrification and renewable seasonality. This seasonal operation paradigm could reduce the investment and operational costs of China's decarbonized electricity system by 23-32 billion CNY/year (11-15% of the aluminum smelting industry's product value), sufficient to offset the increased smelter maintenance and product storage costs associated with overcapacity. It may also create labor complementarities between the aluminum and thermal power sectors.