The European steel industry needs five million tonnes of green hydrogen a year to fully decarbonise and the European Hydrogen Bank (EHB) funding mechanism is not furnished with enough cash to achieve this, Europe’s steel production trade association has told Hydrogen Insight.
Steel producers need green hydrogen to cleanly extract iron from ore through the direct-iron reduction (DRI) process, in place of coke-fired blast furnaces, so as to minimise their 7-8% contribution to all global carbon emissions.
It will need to cost no more than €2-3/kg ($2.13-3.19/kg), a spokesperson for industry association Eurofer said, which implies the need for significant subsidies. The cost of green hydrogen in Europe is expected to be in the region of €4.50-6/kg, according to analyst S&P Global Platts.
“[But] the European Hydrogen Bank has not enough firepower for the huge task it has been set,” the spokesperson explained, referring to the EHB’s €800m pilot auction, launched in November with the aim of bridging the gap between grey hydrogen made with fossil gas and renewable H2.
Europe’s first DRI plants are due to come on line in 2025-27, with at least two incumbent German developers putting out tenders for thousands of tonnes of green hydrogen by 2027-28.
However, contracts granted as part of the first EHB auction — which was oversubscribed and is set to be followed by a second €2.2bn auction in the autumn — envisage first production within five years of award, meaning that the first green H2 deliveries may not occur until 2029.
In addition, a subsidised green hydrogen price on its own may not be enough to incentivise steel producers to invest in green hydrogen-based DRI, because incumbents are considering not just the cost of grey H2 (which can also be used in DRI plants), but a switch from cheap, carbon-intensive coking coal used in their existing blast furnaces.
And while some customers may be prepared to pay a green premium for green hydrogen-derived steel (H2 Green Steel has pre-sold 40% of its 2.5-million-tonne capacity with premiums of 20-30%), the industry needs other regulatory incentives, Eurofer insists.
“We need green lead markets in the EU, via public procurement and product regulation, for example, vehicles [and] construction,” the association’s spokesperson explained.
Eurofer’s comments come after its director-general Axel Eggert, told a conference in Poland that it could take up to 25 years to fully decarbonise Europe’s steel industry due to the scarcity of green hydrogen, meaning that Polish-produced coke is set to be used for many years to come.
The EHB programme offers ten-year fixed-price premiums for each kilo of green H2 produced, with the aim of bridging the cost gap between renewable hydrogen (including derivatives such as green ammonia and methanol) and polluting equivalents made with fossil fuels.
Producers bid for a fixed-price per-kg premium in a closed auction up to a ceiling price of €4.50/kg, with the lowest eligible bids (weighted against a range of other criteria such as sustainability) picked first, continuing until the budget is exhausted.
The aim is to give domestic green hydrogen developers the revenue certainty they need to secure project financing.
Germany’s H2Global, to which Berlin has promised around €5bn, works in a similar fashion for imported green hydrogen and derivatives, with the addition of a double-sided auction that offers short-term supply contracts for offtakers alongside long-term supply contracts for producers.
