Swedish state-owned utility Vattenfall faces accusations of breaking contracts and the law with its decision not to allocate a 500MW grid connection in the Luleå area to H2 Green Steel and its flagship Boden project — a move that could halve its expected production capacity scheduled for this decade.

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The Boden facility, which will site 1GW of electrolysers to produce renewable hydrogen for direct iron reduction, is meant to start producing 2.5 million tonnes of green steel a year from 2027, with a ramp-up to five million tonnes starting as early as 2028.

H2 Green Steel had in 2021 reserved 2.6GW of new power from Vattenfall, with 1.75GW already allocated to the project since then.

However, in December last year, government regulator Svenska Kraftnät published new guidelines for connection to the national grid, which allows utilities to preferentially allocate power to projects that are further along in development, rather than on a “first come, first served” basis.

And in January, Vattenfall reportedly opted to allocate 500MW of power in Luleå to the Hybrit green steel project — for which it is a member of the development consortium — rather than H2 Green Steel. The utility told Hydrogen Insight it could not confirm or deny this due to non-disclosure agreements with customers.

“We would have welcomed a request or question from Vattenfall to discuss and explain our longer-term power needs. However... we have received no such request in advance of Vattenfall making their decision on power allocation,” a spokesperson for H2 Green Steel told Hydrogen Insight.

The green steel developer added that the utility’s new principles “deviate from accepted practices” and “were implemented in less than three weeks” from when Svenska Kraftnät published their non-binding guidance.

“It is our preference that these matters are solved through dialogue, which we are also working towards,” the spokesperson for H2 Green Steel said.

The steelmaking start-up has submitted a notification to the Swedish Energy Markets Inspectorate to have the decision reviewed.

“Vattenfall’s latest decision violates both the agreement and applicable law,” the spokesperson added.

“That is why we asked the supervisory authority to review the decision. It is the responsibility of Energimarknadsinspektionen [Swedish Energy Markets Inspectorate] to ensure that power grid companies, like Vattenfall, follow the laws and regulations.”

However, Vattenfall strongly disputes any wrongdoing in their decision not to allocate the 500MW of power to H2 Green Steel.

“If the electricity grids are to be used efficiently and optimally, a strict and unexceptional queuing system is no longer a viable option,” a Vattenfall press spokesperson told Hydrogen Insight. “It is necessary to ensure the maturity of the projects and that whoever is allocated capacity actually uses it.

“When we analyse the degree of maturity, we look at the customer's ability to carry out the project according to the plan in order to use the effect that is requested.

“It [is] up to the customer to prove that its manufacturing processes and technical solutions are mature, not to us as a grid owner. As a grid owner we can not take into consideration whether it is appropriate from an environmental perspective to place a certain activity in a certain location.”

H2 Green Steel warned that, depending on the regulator’s decision, the ramp-up of the Boden plant to full capacity could be delayed — while the wider regulatory landscape could make it difficult to continue investing in Swedish projects.

“H2 Green Steel has raised funds that amount to 1.3% of Sweden’s GDP, with a large portion from foreign investors,” the spokesperson for the company said. “These investments are done based on the agreements we have with customers and suppliers, like Vattenfall, and the principles that apply for power grid companies according to Swedish law and practice.”

The spokesperson added: “If Sweden as a country wants to remain attractive to foreign investments for the green industrial transition, rule of law and trust in signed agreements is crucial. All retroactive changes cause large uncertainty and reduced willingness to invest.”

H2 Green Steel is considering potential green hydrogen and steel hub development in Brazil, and is reportedly in discussions with Canadian governments to set up a project in Quebec. The firm already sources its iron ore from both countries, which it has previously noted could be built upon as it develops new projects outside of Sweden.