H2 Green Steel secures €4.5bn of additional funding for world’s first large-scale green-hydrogen-based steel plant

H2 Green Steel (H2GS) has secured an additional €4.5bn of funding to help build the world’s first large-scale green steel project, which will incorporate about 1GW of electrolysers, making it the biggest green hydrogen facility in Europe.

The Swedish start-up, founded in 2020, now has close to €6.5bn of financing in place, and is expected to soon take a final investment decision (FID) on its plant in Boden, northern Sweden, which will use a combination of green hydrogen and renewable electricity to produce near-zero-emission steel.

The global steel industry is responsible for 7-11% of the world’s carbon emissions, as it mainly uses highly-polluting coal as its fuel source.

H2GS — along with some established steel makers such as Thyssenkrupp and ArcelorMittal — aim to replace coking coal with green hydrogen in order to decarbonise the extraction of iron from ore, and then use renewable energy to power electric arc furnaces that can further process the iron into steel.

There is currently no alternative method available to decarbonise iron-ore extraction, as the process requires both high-temperature heat and a chemical reaction that removes the oxygen from the iron-oxide ore. Currently, the oxygen reacts with carbon in the coal to form carbon dioxide, but it can also react with hydrogen to produce water vapour.

The construction of the Boden plant has already begun, despite the lack of an official FID, with production due to begin in 2027.

H2GS describes its steel as “near zero carbon”, as the iron ore will be shipped from Brazil and Canada, resulting in embedded emissions of about 40-50kg of CO2 per tonne of steel produced. But H2GS points out that this will be more than offset by the 1,800-1,900kg of CO2 emissions per tonne of steel avoided by its process.

Half of the initial annual volumes of 2.5 million tonnes of green steel have already been sold in binding five- to -seven-year agreements to customers including Mercedes-Benz, Porsche, truck maker Scania, German auto technology firm ZF and US conglomerate Cargill.

H2GS also has contracts in place for the supply of the hydrogen, iron and steel equipment required, including a 700MW order for Thyssenkrupp Nucera electrolysers, as well as “a large portion of the electricity needed”.

The company says it has signed “definitive financing agreements” for €4.2bn in project financing — more than €3.5bn in senior debt from a group of more than 20 lenders, including the European Investment Bank, BNP Paribas and ING, with “an up-to €600m junior debt facility” from “European and international investment banks and funds”.

In the event of bankruptcy, senior debt will be repaid first, and junior debt would be unlikely to be repaid, so the latter tends to come with higher interest rates.

H2GS has also raised “close to €300m more in equity”, with new shareholders including the Microsoft Climate Innovation Fund and Siemens Financial Services, bringing the private placement to a total of €2.1bn.

The start-up has also secured €250m of grants from the EU’s Innovation Fund, which is financed by income from the bloc’s Emissions Trading System.

“No one has scrutinised our project more thoroughly than those who back our financing,” said H2GS CEO Henrik Henriksson. “This massive commitment from our lenders, investors and the Innovation Fund is true recognition of the quality of our company.”

Thomas Östros, vice-president of the European Investment Bank, added: “The steel industry is a strategic sector, being at the heart of the EU economy. Our commitment to reach net zero by 2050 requires this sector to undergo transformative changes.

“The project paves the way for the development of environmentally friendly steel — crucial for the decarbonisation efforts of the so-called “hard to abate sectors”, of which steel is an important one.”