The Role of Process Flexibility for Faster Decarbonization of Industrial Energy Demands

Abstract

To limit the rapidly increasing global warming, we need to decarbonize fossilbased processes fast. The industry sector accounts for 38 % of global final energy consumption, and around half of this is still based on fossil fuels. Thus, decarbonization of the sector is essential to the green transition. Electricity will play a key role in this transition, both through the direct electrification of processes and indirectly, such as in hydrogen production via electrolysis. The massive increase in electricity demand in all sectors is expected to be met by renewable generation, primarily solar and wind. However, the increased dependency on variable generation will require substantial demand-side flexibility, shifting from today’s situation, where this flexibility has been provided by dispatchable thermal and hydropower generation. Despite the anticipated massive increase in industrial electricity demand, the sector’s flexibility potential and impacts on the power system have received little attention. Specifically, the role of industrial flexibility is often excluded or simplified through parametric representations in top-down large-scale energy system models and policy discussions. While earlier works have investigated the possible economic benefits of flexible operations within single industry actors, the combined flexibility potential of multiple industries for power system balancing has yet to be thoroughly investigated. This thesis investigates the technical and economic potential of flexible process operation in various industries, including both heavy energy-intensive industries and light industries. Using optimization modeling with detailed, bottom-up assessments of inherent process flexibility, the thesis aims to answer the overarching research question on how process flexibility can contribute to accelerating industry decarbonization. Different elements and associated challenges to this research question are investigated in the six research papers on which this thesis is based. The papers focus on various price signals, costs, industry types, grid limitations, and coordination mechanisms. The research findings reveal that the technical potential for industrial flexibility is significant, yet current economic incentives are insufficient to motivate extensive demand-side flexibility. Light industries can benefit from reducing variability in load, cutting peak capacity investments and grid tariff costs. On the other hand, heavy industries with predominantly steady loads have a technical potential to reduce their electricity demand considerably for shorter periods but with marginal or negative economic benefits. Such potentials may prove valuable in relieving constrained power grids or mitigating short-term power generation shortages in variable renewables-dominated areas. In both light and heavy industries, the achievable cost savings from price arbitrage often do not exceed the additional investment costs required to enable flexible operation. Although activating industrial flexibility is costly, the costs are comparable to those of alternative grid reinforcement measures. Inherent process limitations of the industries are also found to significantly influence the cost of flexibility, underscoring the need to consider these process-specific limitations when assessing flexibility costs of different industry subsectors. The findings of this thesis imply that incorporating industry flexibility is important for low-carbon energy systems with higher variability. However, to activate this flexibility, stronger economic incentives are necessary, as well as raised awareness of its technical potential. Developing new approaches to coordinate industrial flexibility with the broader energy system could accelerate decarbonization by increasing the capacity of power grids. Additionally, adapting electricity demand to variable renewable generation or overall grid load may reduce indirect emissions from the industry sector, thus increasing the pace of decarbonization of the entire energy system.