Green hydrogen, out of the blue

Hydrogen-based steelmaking develops faster and more effectively than CCS approaches.

Only months after the Paris climate agreement, in April 2016, Swedish steelmaker SSAB, iron ore miner LKAB and power producer Vattenfall launched a new decarbonisation strategy: to produce hydrogen with renewables and use this hydrogen to reduce iron oxide ore pellets to sponge iron. This was a bolt out of the blue, a radical departure from the previous strategy.
Four years later, McKinsey, found a very different situation [1]:
“All major European steel players are currently building or already testing hydrogen-based steel production processes, either using hydrogen as a PCI replacement or using hydrogen-based direct reduction.”

Hydrogen is getting much more attention for reasons aside from steel production, such as short-term and long-term (seasonal) storage to balance wind and solar, or for ships, trains (one in operation in Germany in August 2022 [2]), trucks and buses. Hydrogen is an input for ammonia production. Ammonia is currently used mainly for fertilisers and munitions, but also has the potential to be used as for example a ship propellant (as a more convenient form of stored hydrogen). The implication is that hydrogen will be produced by electrolysis using renewable electricity, abundant and cheap wind and solar.

The era of cheap renewables is here. In 2021 solar and wind together produced more electricity, globally, than nuclear, for the first time. Their output had trebled in seven years. Wind and solar became still more competitive after the autumn 2021 energy price hike (in Europe, at least) and even more so since the Ukraine war from 2022. By 2023, solar and wind were supplying 13.4 per cent of the world’s electricity, compared to 9.1 percent for nuclear. [3]

So far, wind power has been predominantly onshore, but the potential of offshore wind, including floating wind power, is even greater. For photovoltaics, the EU raised its 2030 target from 420 GW (set in 2021) to almost 600 GW (set in May 2022[4]).

Natural gas is now perceived as both dirty and a security risk. It is also scarce and expensive, at least if it is not bought from Russia.

One effect of the Russian invasion of Ukraine is that “blue hydrogen”, made from natural gas with CCS has lost much of its appeal, at least in Europe.

It is conceivable that hydrogen can be produced from nuclear power, but new nuclear takes a long time to build and is very expensive. It is difficult enough to finance any nuclear power plant, and it will be even more difficult to finance a nuclear plant partly intended for hydrogen production. Wind and solar have much lower operating costs than nuclear, as they use no fuel, have no waste to dispose of and need fewer people for operation and maintenance.

It can be concluded that future hydrogen will be green. Future power is increasingly synonymous with solar and wind.

SSAB has produced a small amount of green steel for delivery to Volvo Group [5], the world’s third-largest lorry and bus manufacturer. Volvo makes green steel a selling point. There is a market for green steel [6], though we don’t know how much extra industrial customers will be willing to pay for it.

Another important element of green steel production is hydrogen storage. A storage can greatly reduce the cost of the electricity for hydrogen. Hydrogen is produced, both for production and the storage when the cost of electricity is low (at night or at weekends when it is windy). When electricity is expensive (such as on cold mornings and on weekdays with low wind) hydrogen is withdrawn from the storage. With a four-day storage capacity this can cut costs by 40 percent in north Sweden, according to modelling from Hybrit based on real data[7]. In other parts of the world with larger shares of renewables, even greater price volatility can be expected, so storage facilities are likely to be even more valuable.

Hydrogen storage has added advantages that could be monetised: it acts as a very large and fast-acting battery that can dampen fluctuations in electricity prices, and can supply grid services, such as frequency stabilisation.

Because fossil gas storage is already used on a very large scale, one could be led to believe that there is little room for further cost reductions. One recent study [8] concludes however that costs could be halved for underground hydrogen storage. Another option is lined rock caverns, which “present both a promise and a puzzle. With dedicated research, informed by past experiences and steered by innovative approaches, we could unlock an efficient and sustainable storage solution”. [9]

Cost reductions for CCS are also possible. But unlike electrolysers, the main components of a CCS steel system are technologically mature: pipes, compressors, scrubbers, absorbers etc., are already produced in very large numbers, with limited room for improvement. And whereas hydrogen can be produced at any scale, small-scale CCS does not make economic sense. The cost per tonne of CO2 will be prohibitive for a small-scale project, due to the high costs of design, construction, staff and energy losses. CCS projects tend to be either on an experimental scale or very large. The largest projects are few in number, and tend to be bespoke rather than replicable. A CCS design for an ethanol plant or a gas processing plant is very different from a CCS add-on to a blast furnace. There is not much learning that can be transferred from one project to the next.

One possible selling point of green hydrogen is that once you produce hydrogen at large scale, it can be used for other purposes, such as a transport fuel, or for other industries or heating.

This is however not so sure. The design and construction of a green steel plant is a relatively straightforward task, though huge and expensive. The complexity added by a hydrogen distribution grid, hydrogen filling stations, agreement with other companies etc., may not be warranted.

Another way of looking at it is that green hydrogen does not need much infrastructure. It needs electricity, which is practically everywhere. A new large hydrogen infrastructure would not only be expensive, but would also take a very long time to put in place. Just think of the environmental impact assessments. Hydrogen must be kept under strict control; if it is not it can be very dangerous.

It may still be possible to build one or two other types of industry, such as a methanol plant, adjacent to a green steel plant. But essentially the green steel plant must stand on its own two legs, and other industries should produce their own hydrogen if they need it. On the whole, however, green steel is likely to be the road that should be taken and will be taken. It can be done, and it can be done faster than CCS.

[1] https://www.mckinsey.com/industries/metals-and-mining/our-insights/decar...
[2] https://www.pv-magazine.com/2022/08/26/the-hydrogen-stream-germany-launc...
[3] https://ember-climate.org/insights/research/global-electricity-review-2024/
[4] https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=COM:2022:221:FI...
[5] https://www.volvogroup.com/en/future-of-transportation/going-fossil-free...
[6] https://www.fortunebusinessinsights.com/green-steel-market-108711
[7] https://lkab.com/en/news/hybrit-hydrogen-storage-reduces-costs-by-up-to-...
[8] https://www.sciencedirect.com/science/article/pii/S2589004223028481
[9] https://www.sciencedirect.com/science/article/pii/S2352152X24005115