Can industrial overcapacity enable seasonal flexibility in electricity use? A case study of aluminum smelting in China

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, 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 exacerbated by heating electrification and renewable seasonality. In the 2050-net-zero scenario, the seasonal operation paradigm can reduce China’s electricity system investment and operational costs by 15-72 billion CNY/year (or 8-34% of the aluminum smelting industry’s product value), sufficient to offset the costs of maintaining overcapacity and product storage. It also reduces workforce fluctuations across the aluminum smelting and thermal power generation sectors by up to 62%, potentially mitigating socio-economic disruptions from industrial restructuring and energy transition.