Automotive leads green steel demand, construction challenging: BloombergNEF

The automotive industry is leading the way for green steel demand, but the construction sector, which accounts for over 50% of steel consumption, has much thinner margins and therefore slower green steel uptake, says Dr. Julia Attwood, head of sustainable materials at BloombergNEF.

“Demand for premium products like green steel always come first from sectors where materials are a small portion of the total cost of the product and can be absorbed or passed on to consumers with little resistance. A 25% increase in the price of steel would only raise vehicle production costs by 1%,” Attwood says in a note seen by Kallanish.

BNEF calculates that, on average, green steel costs 40% more than unabated production today. However, these costs could fall by 2050, so that green steel costs 5% less than fossil-based routes.

Decarbonisation capital expenditure costs should decline through economies of scale, and development costs will fall due to greater experience with building these projects. Operational costs are more uncertain. Intermittent renewable power costs are expected to fall to $10-20/MWh by 2050, but electrolysis-based steel production may require firm clean power, which could be closer to $50-60/MWh due to very high clean backup power costs, Attwood observes.

Hydrogen costs are also expected to fall, from around $7/kg today to less than $1/kg by 2050. This depends not only on cheap clean power being available but also on the scaling up of electrolyser manufacturing.

Higher costs are eventually passed to customers as higher prices. Some steelmakers have been very transparent about their premiums. H2 Green Steel has disclosed that its steel will come at a 25% premium, and SSAB says its fossil free steel will be priced at €300/tonne ($325) higher than unabated steel.

“Most green steel projects are funded with a traditional project finance model, using a combination of equity and debt. For newer technologies such as hydrogen, carbon capture and electrolysis, the projects need to be de-risked. Offtake agreements, especially those that commit to buying green materials over several years can help to do that. This makes forming partnerships and selling off capacity, even before the plant is designed, extremely important,” Attwood concludes.

Adam Smith Poland