Germany and China: Transformation in industry

Germany and China: Transformation in industry
September 28, 2022 |

Load management and increased energy efficiency in industry can reduce electricity costs and CO2 emissions in Germany and China. A new EWI study also shows options for policymakers.

Load management and energy efficiency in industry could make an even greater contribution to the transformation of energy systems in Germany and China if the regulatory framework were designed differently. To this end, options exist in both markets to leverage existing potential.

This is the result of the study “A Comparative Analysis and Simulation of DSM and Energy Efficiency in Chinese and German Industry” conducted by the Institute of Energy Economics (EWI) at the University of Cologne on behalf of the German Energy Agency (dena). In it, the team analyzed the regulatory status quo, challenges for companies, and options for policy. The EWI also simulated the impact of increased load management and energy efficiency on future electricity costs and CO2 emissions in Germany and China.

Both Germany and China are aiming for climate or carbon neutrality in the medium term. However, the starting position in the two countries is different: While renewable energies in Germany now contribute an average of 41 percent to electricity generation, Chinese electricity generation is currently still mainly coal-based. However, the share of renewables in the country is now 27 percent, and generation from renewable sources is currently growing faster than generation from thermal power plants.

Figure 1: The current climate targets of Germany and China

Active load management in industry aligns electricity demand with the availability of renewables, thereby reducing greenhouse gas emissions from production. This alignment can be managed, for example, through market signals such as the electricity price. Another way to reduce CO2 emissions from industry is to make processes more energy-efficient by reducing the amount of electricity required for production.

Different conditions in Germany and China

The current conditions for industrial load management and additional energy efficiency measures differ between Germany and China. In China, policymakers have been able to increase energy efficiency in industry in recent years through a comprehensive package of measures ranging from mandatory targets to financial incentives. Load management is currently based on regulatory measures – although policymakers are also beginning to implement market-based incentives for industry.

In Germany, industry can already market its load flexibility in various ways. However, regulatory disincentives hinder the more frequent use of market-based load management. “Building market incentives and removing regulatory barriers for industrial load management hold great potential for a successful transformation of energy systems in Germany and in China,” says Dr. Philip Schnaars, Senior Research Consultant at EWI, who prepared the study/analysis together with Tobias Sprenger, Patricia Wild, and Julian Keutz.

Simulation of possible industry savings

The exact contribution that load management and energy efficiency can make depends on the technical conditions of the industrial process in question. Manufacturing processes in which electricity consumption can be postponed for a long time without a significant drop in production (e.g. in the cement industry) offer the relatively greatest potential for the use of load management.

Based on a simulation of a possible future electricity market in Germany and China, the EWI shows that the German cement industry could make the relatively largest contribution to energy system transformation via load management on the spot market, with CO2 savings of 103 kilotons in 2030. (EWI provides the simulation tool free of charge together with the study, see here.)

Ensure marketing options for load management

However, this potential can only be realized if the regulatory framework for the marketing of load management is improved. “The market design should take into account the different technical conditions of the manufacturing processes and ensure different marketing options for load management,” says Dr. Schnaars. “For example, Germany could reduce high prequalification requirements for participation in flexibility markets. It could also eliminate disincentives that arise, for example, from the current individualized network charge calculation.”

For China, the EWI team develops several options in the study to use more market-based load management. These options are each based on a market-based price signal, take into account the current design of the Chinese electricity system, and can thus provide a development path for the future Chinese electricity market. A combination of price signals and mandatory measures is particularly suitable for increasing energy efficiency in industry. For example, the price differential in already existing peak-valley pricing systems can be increased, thus strengthening the incentive for active load management.

The research was carried out under the framework of the Sino-German Energy Transition Project. As part of the Sino-German Energy Partnership under the commission of the German Federal Ministry for Economic Affairs and Climate Action (BMWK), the Sino-German Energy Transition project supports the Chinese and German think tanks to strengthen the Sino-German scientific exchange on the energy transition and shares German energy transition experiences with a Chinese audience. The project aims to promote a low-carbon-oriented energy policy and help to build a more effective, low-carbon energy system in China through international cooperation and mutual benefit policy research and modeling.

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