German industry has large untapped potential for flexible electricity use – survey

Germany's industry has significant potential to make its electricity demand more flexible, which would better suit renewable generation and could also reduce grid costs, a survey by consultancy McKinsey found. Industrial companies – including car manufacturers and pharmaceutical, chemical, paper and steel industries – could temporarily reduce their electricity consumption quickly, if necessary, with the potential cut in demand adding up to five to seven gigawatts (GW), McKinsey estimated.

This, in turn, could reduce Germany's peak load – when electricity demand is highest – by 10 to 15 percent, according to McKinsey's survey of around 400 industrial companies. For context, peak demand currently reaches around 75 GW in the country. Tapping into the potential to consume electricity flexibly could keep grids stable and reduce the need for backup capacity as renewables expand and coal is phased out.

Germany's new coalition government plans to build 20 GW of new backup gas power plants to be used at times when electricity generation from renewables is insufficient to meet demand. "If industrial companies consistently increase flexibility, the need for new gas-fired power plants, which will have to be used as a backup solution in the future, will decrease significantly," Ulrich Buhl from the Research Centre for Information Management told business daily Handelsblatt. "In our opinion, this is not sufficiently reflected in the political debate."

Some of the new gas power plant capacity is set to come online in the early 2030s. McKinsey, however, found that around 60 percent of the total flexibility potential in Germany's industry can be realised within the next three years, making it available much faster than the backup power plants.

Companies can reduce their electricity costs by ramping up production at times of low or negative power prices – which is happening more often as renewables expand – yet two-thirds of companies had not yet considered this, McKinsey found.

Most electricity systems across the world are still largely guided by demand, with generation adapting accordingly. This worked well when controllable coal and gas power plants formed the backbone of the power mix. However, as renewables – which are cleaner and cheaper, but intermittent by nature – expand, the power system requires much more flexibility, because demand will need to adapt to generation to a much larger extent.