The impact of decarbonising the iron and steel industry on European power and hydrogen systems

Abstract

The transition of the European iron and steel industry (ISI) towards low-carbon manufacturing is crucial for the European Union (EU)’s 2050 climate neutrality objective. One emerging solution is electrification by using hydrogen (H2) as iron ore reductant, which increases specific electricity use per tonne of steel up to 35 times compared to the conventional, most adopted coal-based technology. This study develops three scenarios, encompassing a moderate to an accelerated ISI transition, to evaluate the impact of the ISI decarbonisation on the power system CO2 emissions, generation mix and volume, and marginal prices in 2030. The study first estimates future electricity and H2 demand by considering country-specific technologies deployment and energy intensities. Then, these estimates serves as input to the model METIS to simulate European power system operations through a unit commitment and economic dispatch problem. The study shows that the power system can accommodate a transition of the ISI that substitutes 28% of the coal-based production with low carbon technologies, mainly based on H2. This leads to a 25% reduction in direct CO2 emissions and a demand increase of 20 TWh of electricity and 40 TWhHHV of H2. Furthermore, a 50% reduction in indirect power system emissions is achieved, compared to 2018, thanks to the substantial renewable power capacity deployment foreseen in the coming years. The study also demonstrates that a reduction of indirect CO2 emissions by over 85% can be achieved by deploying 1.2 and 2.7 GW of renewable power generators, and 200 and 400 MW of electrolyser capacity for each million tonne of steel produced annually with low-carbon technologies. Additional renewable capacity that ensures green steel production is also key to maintaining stable electricity prices.