Empowering Industry through Energy Flexibility – Q&A with Raphaël Gras

What trends do you see affecting industrial companies in the energy transition?

The European industry today is experiencing a sea change with the shift away from fossil fuels toward electrification. 

However, the EU power system currently doesn’t make this process easy for industrials. Compared to the US or Asia, European companies are exposed to structurally higher electricity prices and have been hit harder by recent external shocks. 

Meanwhile, insufficient grid capacity, combined with a backlog of administration, has made it challenging to meet demand for new grid connections. All of this makes the electrification of industries difficult and costly. 

Yet, industrials have been extremely active in adapting, essentially around three dimensions: direct procurement of renewable electricity (Power Purchase Agreements or PPAs), energy efficiency programs, and investment in on-site energy production & storage. 

How can flexibility help industrials address these challenges in the short-term?

Many industrial processes are flexible in their electricity consumption. They can be temporarily reduced or rescheduled without impacting production outputs. 

This can be leveraged to balance demand and supply on the electricity grid. In practice, if an imbalance happens, industrials would adjust consumption based on a signal from grid operators — and grid operators would remunerate them for doing this!

Some programs are backup reserves for extreme cases, meaning that grid operators will very rarely send activation signals. This means you get paid with minimal disruption to processes. But there are also ways to increase revenues with more activations in other programs. 

These revenues from grid services end up in the plant’s financial statements or investment cases, eventually reducing the average cost of each MWh to run electric assets. This is a key lever to improving the competitiveness of electrification compared to fossil fuels. 

For example, many businesses are already replacing gas boilers with electric boilers to produce heat. They are a great fit to provide grid services, making them both a profitable investment for businesses and a cleaner alternative to gas.

Why are we now at a decisive moment in Europe for Industrial Flexibility?

We are approaching key tipping points in the penetration of intermittent renewables in the European grid. In 2023, roughly 30% of electricity in Europe came from wind and solar. In some countries, like the Netherlands, the installed capacity of solar generation is reaching the same level as peak demand. This creates enormous challenges to the system.

Electricity in Europe is traded on markets, and its price varies every hour based on the balance of supply and demand. Historically, demand was the main reason for prices to change during the day because generation from coal or nuclear was always available. But now, with such a large amount of wind and solar energy, the weather has become the main driver of price.

The implication for industrial consumers is that the ones that can best anticipate electricity prices, consume more when it is abundant and less when it’s scarce, will have lower bills. They will also have lower carbon footprints. In the end, they will build a competitive edge through energy.

What concrete use cases industrial companies implement to strive under this new energy paradigm?

We will shift towards an increasingly proactive use of flexibility. To benefit from the price variability that intermittent renewables bring, you need to plan electricity consumption accordingly.

This is what we call load-shifting or load management. In practice, it means phasing consumption based on electricity prices during the day. It is already a common practice among large energy consumers like industrials. But with increased volatility, price forecasting is requiring unprecedented levels of sophistication.

In parallel, industrials must build as much buffer as possible in the electricity consumption of their processes to increase their ability to be flexible. This can be done with investment in dedicated assets, particularly thermal storage or batteries. Here, digitisation can also help to plan operations dynamically to maximise flexibility.

The good thing is that these actions are synergistic with grid services. For example, you can use thermal storage combined with electric boilers to increase revenues from grid balancing. This creates a virtuous cycle of lower electricity costs and increased revenue, further reinforcing the competitive position down the line. 

What are the key enablers of greater flexibility in future?

Well, first, we need to ensure that industrial consumers are exposed to the hourly price signal to incentivise them to be flexible. So, dynamic and spot-indexed electricity contracts must continue to be rolled out. Energy suppliers will have to innovate to offer a broader range of options, matching the diversity of industry needs.

Then, we need to foster entrepreneurship in the flexibility services space. In Europe, we have the chance to benefit from an ecosystem of over 100 flexibility services providers that have been extremely innovative in the last two decades. However, they still face many regulatory barriers to participating in all energy markets in a non-discriminatory way. These barriers need to be lifted.

Eventually, we need to reinforce the link between energy management and sustainability. In Europe, lower electricity prices often mean a lower carbon footprint from the electricity supply. Reducing emissions is also a key stake for industries. We must increase transparency and awareness of how renewable energy works and how being flexible enough to consume it can make industries win in all dimensions.

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