Europe’s second largest utility, Iberdrola, has kickstarted plans for a commercial-scale plant to produce green steel. Tapping Swedish start-up H2GS, for its process that replaces natural gas with hydrogen in the production of direct reduced iron, the move sounds the firing pistol for an overnight switch in investments towards clean approaches to the industry.
The plan outlines the world’s largest green steel production plant to date – a record that will surely be broken in coming months, given the acceleration of the industry.
With a total budget of €2.3 billion, funded through a combination of public funding, green project financing and equity, Iberdrola and H2GS will spearhead the creation of a 1 GW plant to produce green hydrogen using renewable electricity.
This power will feed a direct reduction tower, usually powered using natural gas, to produce 2 million tons of green direct reduced iron (DRI) per year, enabling steel production with a 95% reduction in emissions. The companies will explore the opportunity of co-locating a Green Steel production facility capable of producing 2.5 million to 5 million tons of Green flat steel annually, with production starting in 2025 or 2026 at an undisclosed location on the Iberian Peninsula of Spain.
The move marks a surge of investments from Iberdrola into clean fuel initiatives that aim to decarbonize areas of the economy outside of the power sector. Recent announcements include those to reduce emissions at fertilizer production plants, oil refineries, transport hubs, and whiskey distilleries.
Steelmaking, often dubbed as one of the ‘hardest-to-decarbonize’ sectors, is currently responsible for around 9% of global emissions, with global production set to increase by 66% through to 2050. The reduction of iron ore depends on a basic oxygen furnace in 77% of production worldwide. With coking coal used as its primary fuel source, this results in emissions of 2.4 tons of CO2 for every ton of steel produced.
Secondary steel production, using scrap steel as a feedstock, will grow to account for 47% of demand by 2050, up from 20% today. However, due to the projected growth in demand, existing methods of primary production will need to be reformed in the imminent future to put the industry on track with a net zero pathway for mid-century.
The Iberdrola project is alongside several others aiming to use hydrogen to produce DRI, before using a renewable-powered electric arc furnace (EAF) to produce crude steel. H2GS is already working on a separate plan for a green steel plant just below the Swedish Arctic Circle in 2024, before reaching a capacity of 5 million tons per year by the end of the decade.
The HYBRIT initiative, developed by Vattenfall, SSAB and KLAB, also aims to open a facility producing 1.2 million tons of green crude steel per year in 2024, using 500 MW of electrolysis. As well as receiving its first orders for carbon neutral steel from Volvo, the initiative recently secured a chunk of grant funding from the EU’s €1.1 billion Innovation Fund.
H2GS itself was also a recent beneficiary of an injection of $105 million in funding from European companies and funds – including Mercedes-Benz, Scania and Ikea – as part of its first round of venture capital funding. The company plans to raise about €2.5 billion in its B series funding round in the next 12 months.
Austria’s Voestalpine and ArcelorMittal are developing similar projects, but the two Swedish efforts are further ahead. Other groups – including Boston Metals – are working on technology to produce steel from molten oxides using electricity, although this is at an earlier stage of technological development. Similar disruptive technologies are emerging across other sectors including fertilizer production and cement making.
In Rethink Energy’s recent forecast entitled Renewables set to unlock $2.2 trillion Green Steel Monster, it outlines how the emergence of hydrogen-based methods of primary production in the late 2020s will drive an 82% reduction in emissions between 1990 and 2050. Despite the ongoing debate between those for hydrogen or biofuel-plus-CCUS for the decarbonization of steelmaking, the issues plaguing the latter in regard to capture rates and excessive land use, will likely prove insurmountable. Technologies that have continued to fail in actually capturing CO2 output will be displaced by those that avoid them entirely.
Off the back of early pilot projects in China, Sweden and Germany, which will be completed in 2024, a hydrogen-based approach to the direct reduction of iron (DRI), along with the use of electric arc furnaces (EAFs), provides the potential for a fully ‘fossil-free’ process of steelmaking.
As an appropriate alternative for a reduced-emission process, hydrogen-ready facilities using natural gas will become popular in decarbonization roadmaps, and will be installed throughout the 2020s, before green hydrogen can displace fossil fuels entirely over the subsequent decades – reaching a commercial status in 2029. By 2050, Rethink Energy predicts that a production chain using hydrogen-based DRI and renewable-powered EAFs will account for 34% of global production.
Another key reason to accelerate investment in green hydrogen is the looming risk that the steel industry will see a reduced allocation of free allowances as part of the EU’s Emissions Trading Scheme (EU ETS). While the European Steel Association Eurofer is urging for this to be delayed until a market for green steel is available and non-European markets remain tax-free, the risk alone should accelerate investment into low-carbon technologies, especially as the cost of carbon continues to rise.
Last week, BloombergNEF also released a report in line with Rethink Energy’s previous findings on the “titanic pivot” from coal to hydrogen in the steel sector. In characteristic fashion, the research group was more conservative, and has likely underestimated the penetration of green steel into the market, suggesting that just 31% of global production will come from hydrogen-based methods by 2050, with a further 45% coming from secondary production.
The organization did, however, note that the shift will see production facilities requiring a higher-grade of iron ore than has been used historically. Nations with ready access to high quality ores and low-cost hydrogen will be well placed to strengthen their positions in the steel sector, the study said, citing Brazil, India, Russia and South Africa as potential beneficiaries, with Australia set to lose out “if it does not invest in equipment to upgrade its product”.
The transition won’t just happen by magic, but transition towards green steel opens huge opportunities for those operating both upstream and downstream of the world’s steelmakers. For the hydrogen-based DRI process to be truly carbon neutral, 61 million tons of ‘green’ hydrogen will have to be produced through over 500 GW of full-time electrolysis. This – along with the 255% increase in electricity demand for EAFs by 2050 – will have to be powered by renewable generation to the tune of 4,500 TWh per year – more than 70% of power generated by wind, solar and hydropower in 2020.