The German government has approved EUR322 million in additional funding for Salzgitter’s SALCOS decarbonisation project, according to a state press release.
The Federal Ministry for Economic Affairs and Energy (BMWE) approved the funds following the European Commission’s authorisation under EU state aid rules earlier in February.
Salzgitter’s SALCOS – Salzgitter Low CO2 Steelmaking – strategy initially aimed to reduce CO2 emissions by over 95% by the end of 2033, replacing its existing blast furnace-basic oxygen furnace (BF-BOF) route production with direct-reduced iron fed electric-arc furnace (DRI-EAF). The DRI plant would operate on a mix of hydrogen and natural gas, neither of which are very competitive at present in Europe, due to insufficient scale and high costs.
As noted in the German government’s statement, a financing gap was identified at the time of initial state aid approval in 2022, despite the EUR1bn pledged by the German state. Salzgitter’s construction relating to the first stage of SALCOS – the 2.1 mt/y DRI plant, 1.9 mt/y EAF, and 100 MW hydrogen electrolyser – is ongoing, now supported by the additional EUR322m grant, which according to the BMWE “further secures the project’s timely implementation.”
Salzgitter’s leadership stated last year that it expected relevant green steel production to begin in the first half of 2027. The latter stages of the SALCOS project remain on hold until final investment decisions are taken – expected for 2028-2029 – which could see plans to expand the H2 electrolyzer cancelled in preference for external supply.
The German government had previously assumed that additional funding to fill the SALCOS financing gap could be allocated from other state aid initiatives and instruments due to the project’s consumption of hydrogen produced as part of the EU’s Important Projects of Common European Interest (IPCEI) framework, but such an allocation “proved unfeasible,” requiring approval for additional funds.
More information on SALCOS, and other decarbonisation projects in the global steel sector, can be found in McCloskey’s Global Green Steel Profile.
