The first step to removing fossil fuels from steelmaking is to build facilities that can produce the all-important alloy with little to no carbon emissions. And the first step to building those new facilities is to lock down billions and billions of dollars in project financing.
H2 Green Steel, the Swedish company developing what would be the world’s first large-scale green steel plant, has done exactly that.
The firm announced Monday that it has achieved a “massive milestone,” finalizing a 4.75-billion- euro ($5.17 billion) investment. The financing, which is mostly debt, comes just months after the firm announced a €1.5 billion ($1.6 billion) equity round.
Steelmaking, essential for building everything from bridges to utility-scale solar arrays, is one of the most carbon-intensive processes on the planet. It alone accounts for somewhere between 7 and 9 percent of global carbon emissions. The sector relies heavily on coal-fired blast furnaces and is notoriously tough to decarbonize.
One potential path to removing fossil fuels from the process of making steel is to use clean hydrogen instead of coal. But this approach has not yet been demonstrated at an industrial scale.
H2 Green Steel aims to change this with its in-progress facility in Boden, a city in northern Sweden. The company says construction of the green steel plant is now “well underway,” and that it has locked down supply contracts, electricity power-purchase agreements and, most importantly, binding customer agreements for “half of the initial yearly volumes of 2.5 million tonnes of near zero steel.”
If construction goes as planned, the facility will begin churning out green steel for these customers by the end of next year or early 2026. By 2030, H2 aims to scale its annual production capacity to 5 million metric tons. These are ambitious figures, though just a drop in the bucket of global steel production; each year, the world produces nearly 2 billion metric tons of the crucial material.
“Our commitment to reach net zero by 2050 requires this sector to undergo transformative changes,” said Thomas Östros, vice president of the European Investment Bank, one of H2 Green Steel’s lenders. “The project paves the way for the development of environmentally friendly steel — crucial for the decarbonization efforts of the so-called ‘hard-to-abate sectors,’ of which steel is an important one.”
The debt portion of the financing, amounting to €4 billion ($4.35 billion), comes from a group of more than 20 lenders that includes government entities such as the European Investment Bank and major banks such as BNP Paribas. H2 also added nearly €300 million ($327 million) in new equity funding from a group of both new investors, like Microsoft Climate Innovation Fund, and existing shareholders, such as Just Climate. The company signed a €250 million ($272 million) grant agreement with the European Commission’s Innovation Fund as well.
Total funding for the facility is now €6.5 billion ($7.08 billion), a significant sum for a novel project.
“The sheer size and innovative structuring of the financing package matches the scale and complexity of this landmark project,” Shravan Bhat, a senior associate with RMI’s Center for Climate-Aligned Finance, said. “The way H2 Green Steel has raised and de-risked this first-of-its-kind financing is a template for others to study.”
The private equity firm behind the H2 project, Vargas Holding, has managed to pull together this much money in large part because it has already locked in a number of credible customers for the green steel. In 2022, the firm announced preorders from blue-chip companies like BMW and Mercedes-Benz as well as from primary steel suppliers like Bilstein Group. The Swedish National Debt Office has also agreed to provide a “green credit guarantee” that backstops billions of dollars of debt financing.
“If I’m a banker giving money for this first-of-a-kind thing, if anything goes wrong, the Swedish government is on the hook — and I have confidence that they will repay,” Bhat told Canary Media in September. (Canary Media is an independent affiliate of RMI.)
This assurance, taken together with the array of buyers H2 Green Steel has lined up, has likely helped ease investor concerns about the risks presented by the project’s unproven approach.
In addition to pioneering a new way to produce steel at an industrial scale, the firm is also planning to secure its access to clean hydrogen by building out an unprecedented amount of electrolyzers, the machines used to produce carbon-free hydrogen from water and electricity. The facility’s 700 megawatts’ worth of electrolyzer capacity is a major undertaking in itself: It represents one of Europe’s largest clean hydrogen commitments to date.
H2 Green Steel is far from the only green steel project in the world — nor is hydrogen-based steel the only potential path for decarbonizing the industry — but it may well be the facility that offers the world its first true look at the future of steel.
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