Germany, Spain get EU nod for green steel aid: Update

Adds info on €460mn state aid approval for ArcelorMittal's Spanish project in paragraphs 1 and 2

The European Commission has approved a total of more than €500mn of state aid from Germany and Spain to support steelmaker ArcelorMittal as it seeks to decarbonise its processes using renewable hydrogen.

The commission has given the nod to the Spanish government to provide a direct grant of €460mn ($492mn) to ArcelorMittal for construction of a €1bn direct reduced iron (DRI) plant at its steel production site in Gijon in northern Spain. In combination with an electric arc furnace, the DRI plant will substitute the current blast furnace and allow for natural gas to be gradually phased out from the production process, the commission said. The plant is expected to start operations by the end of 2025 and could produce 2.3mn t/yr of DRI, avoiding 70.9mn t of CO2 emissions in total, it said.

The commission separately approved €55mn in state aid from Germany to ArcelorMittal for a €110mn pilot project testing renewable hydrogen in steel production. ArcelorMittal plans to build a DRI unit in Hamburg that will produce 100,000 t/yr of iron to be fed into an electric arc furnace alongside scrap for steel production. The project will avert 700,000t of CO2 emissions in total, according to the EU. ArcelorMittal aims to trial using hydrogen instead of natural gas to produce iron, and to discover how the carbon-free iron reacts in the electric furnace. But the start date for the plant has slipped to 2026 from 2025 initially planned.

ArcelorMittal will use the experience gained to decarbonise its EU steel production on a larger scale and has committed to share technical lessons with European steel producers, the EU said. The company is also considering using hydrogen at other sites including in France, Belgium and Bremen in Germany.

Last year the EU approved €1bn in state aid for Salzgitter to help decarbonise its steel production using hydrogen. The EU has approved more than €12bn in state aid for hydrogen projects, many of which target hard-to-abate sectors like steel.

The steel industry will be a key consumer of hydrogen as it seeks to decarbonise, but steelmakers are concerned about security and affordability of supply. The sector is about to start a massive transition from coal-based to hydrogen-based production, which means "a major shift in technology," Thyssenkrupp's head of government and regulatory affairs Erika Mink said earlier this week. "We practically have to build new steel plants while we still run the old ones in order to serve our customers," she said.

Thyssenkrupp is planning large investments for moving to hydrogen-based green steel, including at its plant at Duisburg in western Germany. But its plans are dependent on public funding. Hydrogen supply is a major concern for Thyssenkrupp. Mink said the company faces a future in which energy accounts for 50-60pc of its production costs post-transition, compared with 5pc at present. "Our whole business model will depend on availability and affordability of renewable electricity and hydrogen," she said.

Mink called for a "hydrogen map" or "master plan" for Europe to detail demand from different regions and the likely capacity for supply from local production and imports, saying this would allow Europe to set priorities and plan effectively. She also echoed calls for simpler funding mechanisms and said it was concerning for steel makers to see potential hydrogen and electrolyser suppliers prioritising investments in the US over Europe.

By Aidan Lea