Green hydrogen is an intrinsic part of the transition of the steel industry to net zero. Whilst prices have been decreasing, they are prone to price jumps, and the lack of certainty over reaching levels of cost competitiveness means that the industry may not seize the initiatives that will make the transition to low-carbon steel happen.
- Steel industry leaders commit to net zero strategy that requires shift to green hydrogen.
- Pricing structures would need robust carbon price and for green hydrogen prices to fall.
- Joined-up thinking across the value chain supported by policy is necessary for the shift to occur.
For the steel industry to decarbonise as industry leaders have committed to by 2050, green hydrogen needs to be ready for full scale use by 2030. The Mission Possible Partnership (MPP) comprising the CEOs from carbon-intensive industries who signed the pledge, states that this must happen but it cannot be avoided that price will be a sticking point.
To level with current unabated steelmaking, it would need to be around $0.65/kg but in the context of policy and market support of green transition, it would need to be around $2.00/kg.
Consultants and research groups suggest a price bracket of $2.50 – $6.00/kg for green hydrogen but the prices are susceptible to global pressures such as inflation and raw material constraints, and Platts had PEM green hydrogen prices in the UK up at €30.00/kg for August, a jump of 48% from the month before.
For the low-carbon steel transition, green hydrogen would need to replace natural gas in direct reduced iron (DRI) production. Blue hydrogen could be a stepping stone with less prohibitive costs, but with the long duration of investment cycles leading out to 2050, green hydrogen, a different technology, would need to be factored in from 2030.
Value chain collaboration key to development of low carbon steel
The Mission Possible Partnership says that price hurdles mustn’t hold back the necessary transition, which will require a unified front across the value chain with supportive policy frameworks.
“Delays to the development of critical technologies or to the build-out of zero-carbon hydrogen, electricity, and CO2 infrastructure would throttle the pace of the sector’s transition. Unlocking final investment decisions for first-of-a-kind plants will require policy and value-chain collaboration to make these plants competitive, given they will have operating costs up to 55% higher than conventional steelmaking in the 2020s.”
It says that “incentivising early switches to technologies with greater abatement potential could achieve much sharper reductions this decade and radically lower cumulative emissions.”
Steel decarbonisation needs lower hydrogen prices
Keeping the blast furnace-basic oxygen furnace (BF- BOF) technology and retrofitting it with carbon capture, utilisation and storage (CCUS) is less cost competitive in the long term than DRI-based steelmaking routes using 100% zero-carbon hydrogen, says the MPP steel transition strategy.
Prices for zero-carbon hydrogen would need to hit $2.20–$2.90/kg, and the MPP strategy assumes that prices will settle around that in the 2020s. DRI is direct reduced iron production to which green hydrogen is linked.
Grey and blue hydrogen prices
The cost of producing hydrogen from natural gas (‘grey hydrogen’) depends mainly on the price of gas, which varies from one region of the world to another. When including the cost of carbon emission avoidance, it becomes ‘blue hydrogen’.
Green hydrogen price
Hydrogen can also be produced through electrolysis. This process uses electricity to split water into hydrogen and oxygen. If the electricity is produced from carbon-free sources, this allows production of carbon-free hydrogen gas, also called ‘green hydrogen’. There are different types of electrolyser; alkaline, PEM and it is the cost curves of these technologies that determine the cost curve of green hydrogen.
Price trajectories pitch green hydrogen prices coming down to around €2.00/ kg this decade. The production cost of green hydrogen has fallen by 60% over the last decade, and will tumble further as investment costs lower with mass production and renewable energy electricity prices continue to drop. Under conservative assumptions the Hydrogen Council sees the price of hydrogen falling to €1.80/kg this decade.
Converting blast furnaces and on-site power plants to green hydrogen would be replacing coal, as steel mills have been built in conjunction with coal. Replacing coal now with green hydrogen would increase the price of a ton of steel by a third although the price differential will narrow with greater onus on the carbon price, and scaling up driving down hydrogen costs.
Market implications of low carbon steel transition
A report by Wood Mackenzie this September also nailed in the message that the availability of competitively priced green hydrogen at scale is a must in delivering decarbonisation goals.
It projected a staggering 52 million tonnes of green hydrogen in 2050 to meet the increase in global steel demand. In terms of electrolysers it reportedly adds up to 550-600GW capacity. As a reference of unit capacity, the entire UK de-rated electricity generation capacity is 76.6 GW.
Wood Mackenzie’s analysis is that for green hydrogen to be competitive, it would need to be priced at around $2/kg, which would raise the cost of steel by about 15-20% to around $100/tonne, but could be recouped via green premiums.
The amount of green electricity required for a global green steel industry, not just for hydrogen-powered DRI but for the blast furnaces too, comes to a total of 2,000GW it calculates, more than double that of the world’s current installed wind and solar capacity.
The MPP says that steel scrap will play an important role, which would reduce primary steel production. Scrap recirculation, productivity of steel use, and material efficiency across steel production and use, if deployed maximally, could reduce steel demand by up to 40% relative to business as usual by 2050, avoiding 18 Gt of steel production over the next three decades.