H2 Green Steel’s latest €190 million funding round suggests a healthy appetite among European investors for sustainability-linked projects with a green hydrogen tag.
H2 has raised over €275 million over two rounds of funding from a diverse group of investors that include potential customers, strategic partners and financiers. The company has pre-sold 60% of its initial volumes to customers from various sectors.
Europe’s net zero commitments, the need for a greener steel supply chain, and interest in sponsoring green hydrogen projects are among the major drivers prompting investment interest in H2.
This project could also qualify for green bond financing, which may provide an attractive route to pay off venture capital investors, and also potentially reduce the cost of capital in the long-term.
The company is targeting five million tons of fossil-free steel production by 2030, complete with its own giga-scale green hydrogen plant.
In announcing its latest round of funding, H2 Green Steel’s CEO, HenriK Henriksson said – “This financing milestone is a real statement of confidence in H2 Green Steel. Despite the uncertainty in global markets, a venture like ours, with both a strong business case and a strong sustainable purpose, is clearly attractive to investors.
“This financing round has allowed us to combine leading industrial companies and global financial institutions, with investors with a strong Swedish participation, creating the investor-base that will set us up for success.”
Stakeholder participation, pre-sold capacity bolster the business case
Commitments to take over 60% of the initial planned capacity highlights the demand for green steel, and justifies investment in H2 Green Steel. Customer contracts ranging over five-to-seven years have been signed with companies from the automotive, white goods, construction and metals supply sectors to take over 1.5 million tonnes per year, out of the annual capacity of 2.5 million tonnes planned by 2025.
The business case for green steel, from H2’s point of view, will be strengthened when a polluters-pay-principle is put in place, allowing producers to charge a premium for green steel. The company defines its product as steel produced from a combination of virgin iron ore and scrap, and using electricity from renewable energy sources.
The process targets a 90% reduction in CO2 emissions compared to traditional steelmaking. The steel industry is one of the top three polluters, and accounts for about 8% of total global carbon emissions.
Green steel needs green hydrogen and large scale renewable energy on site
Green hydrogen is a key part of H2’s strategy, and it is building a giga-scale green hydrogen plant as an integrated part of its steel production facility. In 2021 it also signed a deal worth €2.3 billion with Iberdrola (MC:IBE), to build a 1 GW plant to produce green hydrogen.
The site for the venture with Iberdrola will be on the Iberian Peninsula, providing a second location for green steel production in Europe. The project will be financed via a combination of equity from both companies, public funds, and green project financing instruments.
The EU seems to have become the biggest backer of hydrogen as a bloc, having approved €5.4 billion in hydrogen projects with 15 EU states in July 2022, with a further €8.8 billion in private investment bringing the total investments in the hydrogen sector to €14.2 billion.
H2 Green appears to be off to a promising start, judging by the level of interest and participation by stakeholders, customers and financiers. Its pre-sold capacity appears to have attracted a premium price, which discounts concerns over green-steel only becoming cost competitive between 2030 and 2050.
Raising future financing from green and sustainable bonds, similar to its venture with Iberdrola, will further boost its outlook. Having received clearances to proceed with building its plants, meeting production deadlines and constructing GW scale green hydrogen plants seems to be the only obstacles in its way.