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Project finance

What it takes to decarbonize a steel mill

A coal-fired steel mill’s transition could incentivize bringing electrolytic hydrogen behind the meter, new research found.

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A steel mill

Photo credit: Dmytro Smolienko / Future Publishing via Getty Images

A steel mill

Photo credit: Dmytro Smolienko / Future Publishing via Getty Images

Steel and iron production together account for 11% of global emissions. But decarbonizing the sector is notoriously a challenge due to its heavy reliance on coal for the high temperatures required for steelmaking. 

And while hydrogen has been touted as a potential swap, it’s a new enough option that individual steel plants hoping to switch to less-emitting fuels have few models to work from. But a new analysis from RMI put numbers to the process, both in terms of cost and emissions.

  • The top line: To create a framework for measuring the cost, energy, and resulting emissions of decarbonizing heavy industry, RMI turned to a first-of-a-kind Cleveland-Cliffs project in Ohio. The steel manufacturer is preparing to transition an existing coal-fired mill to hydrogen-based manufacturing, replacing its blast furnace with a 2.5-million-ton per year direct reduced iron operation that can run on natural gas or hydrogen. The analysis found that using hydrogen rather than coal could cut emissions by up to 90% — and incentivize bringing the fuel behind the meter in the process.
  • The current take: Nick Yavorsky, a senior associate on RMI’s industrial decarbonization team who led the Cleveland-Cliffs analysis, told Latitude Media that tax credits stemming from the Inflation Reduction Act may encourage steel manufacturers to invest in on-site hydrogen production. “Producers may become hydrogen developers or partner with folks to take that hydrogen behind the meter,” he said. “That is the most cost-effective way to go about it.”

The RMI analysis couples the think tank’s in-house, proprietary project finance models with publicly available data. It works like this: first, RMI’s hydrogen model produces the levelized cost of hydrogen under a given set of conditions. Then, their steel model “eats” the hydrogen inputs and regional data. The program analyzes those before spitting out the pathways that maximize cost savings and emissions abatement.

Models for hard-to-abate sectors rely on economic elements like metallic pricing and physical components like regional renewable energy capacity; all components can be toggled to test different scenarios that are unique to each project. 

Yavorsky said models like RMI’s can take years to develop and are constantly fine-tuned — funneling the many approaches companies take to real-world steel-making into a single, accurate model is time-intensive.

“Really, what the project finance model serves to do is analyze how corporate companies plan financially to construct new assets,” he said. “We take our models and show them to folks in the industry to engage with the corporate actors in these specific sectors and make sure that our assumptions are true.”

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Middletown’s potential

The Cleveland-Cliffs project in Middletown, Ohio is still in the middle of its transition to hydrogen. Though little public data exists about it, Yavorsky estimates that three to five years remain before commercial operations begin.

The Middletown facility will be the first direct reduced iron plant to leverage equipment known as an electrical smelting furnace, which enables it to use electricity instead of coal or coke to power steelmaking. And it will use a flex-fuel technology that allows it to run on natural gas or hydrogen. 

Once the transition is complete, it is expected to maintain its current annual production capacity of 3 million tons while transitioning, Cleveland-Cliffs said in a statement.  But just because the facility could run entirely on hydrogen, that doesn’t mean it will — at least not at first. 

According to Yavorsky, the initial post-transition plan is to run the project entirely on natural gas. However, the facility operator has “signaled some intent” to use hydrogen to become as clean as possible and eventually “pursue a route to 100% clean hydrogen,” Yavorsky said, adding that the company is likely to rely on a blend of hydrogen and natural gas for a time.

Today, the coal-fired plant produces 1.92 tons of carbon dioxide per ton of crude steel produced. If the retrofitted plant runs entirely on natural gas, RMI found it could cut those emissions to 1.05 tons — but if hydrogen is blended with gas, they could fall to 0.70 tons. A 100% hydrogen mixture, which most would agree would yield truly “green” steel, would mean that the plant produces less than half a ton per ton of steel produced.

Bringing hydrogen behind the meter

But the latter would require nearly 160 kilotons of hydrogen per year — which itself would require 8.3 terawatts of renewable power annually, or 1.5 gigawatts of new wind capacity and 2.0 GW of new solar capacity, according to RMI’s analysis. Last year, the entire state of Ohio added a total 1.93 GW of new renewable capacity.

While those numbers are specific to the Cleveland-Cliffs project, RMI found that a typical large direct reduced iron plant would require about two GW of electrolyzer capacity and roughly four GW of renewable power, though Yavorsky said it varies geographically.  

The Middletown project will likely need to have “some type of hydrogen production on or near the site…to take that hydrogen behind the meter” and avoid uncertainty as the 45V guidance continues taking shape, Yavorsky said, noting that Swedish steel manufacturers H2 Green Steel and HYBRIT have already done so successfully. 

On-site electrolytic hydrogen production can also speed things along, as projects can avoid getting caught up in long interconnection queues

“Steel producers historically have not been energy providers,” Yavorsky said. “Their willingness to do that now really shows that they want [clean energy] faster, and they realize that they can get more money for a clean product…while reinvesting in the steel industry.”

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