H2's $5B fundraise is a 'test case' for financing green steel

The world's first large-scale green steel project is set to open next year. Is it a sign of more private financing to come?

January 23, 2024

Photo credit: Costfoto/NurPhoto via Getty Images

In 2023, a handful of green steel megadeals gave climate tech funding numbers a boost in an otherwise disappointing year. For instance, in September H2 Green Steel announced it had raised $1.6 billion in equity funding for its planned plant in Sweden. 

But the plant will continue to boost deal values in 2024, as the company announced yesterday it raised $5.17 billion in additional financing for the project.

  • The top line: H2 Green Steel is building what is expected to be the world’s first large-scale green steel project in Sweden, set to open next year. Its latest round of funding includes around $4.5 billion in debt financing, $3.2 million in equity, and just over $250 million through a grant from the EU Innovation Fund, in addition to last year’s raise.
  • The nuts and bolts: Construction for the plant is well underway, the company said in a statement, and much of the electricity it will need has already been secured via long-term power purchase agreements. Around half of the plant’s expected yearly output has already been sold. The new investments come from institutional players including European Investment Bank, BNP Paribas, ING, and UniCredit, and from equity investors including the Microsoft Climate Innovation Fund.
  • The current take: Julia Attwood, head of sustainable materials at BloombergNEF, described the funding news as “a very comforting sign” for the green steel space. “There was a moment in the industry when we saw inflation rising, construction costs rising, and we were wondering if all the net zero commitments were going to go out the window,” Attwood said. “So seeing that a first of a kind project has continued to raise that financing, it’s a really good sign for the rest of the industry.”

Making steel has a high climate toll; the industry accounts for up to 7% of global greenhouse gas emissions. But steel is also moving more quickly towards decarbonization than other industrial sectors, Attwood told Latitude Media. 

“That is mostly because there’s some very clear demand for it,” she added. “Especially in Europe, you’ve seen a lot of automakers going to their steel suppliers and saying ‘I want something that is green.’”

That demand has turned Europe into a leader when it comes to green steel, Attwood said: “Asia and North America are starting to catch up, but this is really a European phenomenon.”

Despite the promising signs, green steel isn’t yet approaching a tipping point of commercialization, Attwood said, in part due to the immensity of the steel industry, and to the relatively small size of current offtake deals.

“If you total up all the green steel projects that we’ve seen across all of the different decarbonization technologies, it’s just under 100 million metric tons by 2030,” she said. “That’s less than 5% of the total steel production that we expect by then.”

In addition to the massive size of its Boden plant, H2 has set itself apart in the sector by relying primarily on private financing, she added, while other green steel makers tend to lean on government financing. Given that landscape, the latest round of debt financing is set to prove a funding model for commercial-scale projects.

Atwood expects that most of the industry is watching the ultimate success of the project closely, in the hopes that they’ll be able to follow a similar financing path in the future: “It’s really a test case not just for the technology, but also for this form of financing for the whole industry.”

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