Germany allocates €322m for Salzgitter's hydrogen steel project

The German government has committed an additional €322m to support Salzgitter’s ambitious hydrogen-based steelmaking initiative, Salcos, as the company grapples with regulatory delays and funding gaps. This new allocation, confirmed by the Federal Ministry for Economic Affairs and Energy (BMWE), follows approval from the European Union earlier this month.

Boosting Green Hydrogen Steelmaking

The Salcos project aims to revolutionise steel production by replacing coal in the iron ore reduction process with green hydrogen. In its initial phase, Salzgitter is constructing a 100MW electrolyser plant at its Flachstahl site, which will supply hydrogen to an iron ore direct reduction unit. When operational, this phase alone is expected to reduce the facility’s annual carbon dioxide emissions by approximately 30%, a significant step in decarbonising the steel industry.

The German government initially pledged €1bn to Salcos in 2022 through the Important Projects of Common European Interest (IPCEI) scheme. However, BMWE stated that further financial support was always anticipated due to a funding shortfall in the original calculation. Attempts to combine the aid with other financing mechanisms ultimately proved unworkable.

“By providing the new funds, [the government is] providing a key future project… with the necessary financial security to continue making great strides in its implementation”, BMWE said.

Delays and Challenges

Despite progress on the electrolyser, which is on track to begin operations this year, Salzgitter announced in September that the subsequent phases of the Salcos project - targeted at a 95% reduction in carbon dioxide emissions - would be delayed by three years. The delay was attributed to regulatory challenges, with the company emphasising the importance of “consistent trade protection” in moving forward.

The European steel industry continues to face significant pressures due to competition from low-cost steel imports from countries such as China and India. In response, the European Union implemented its carbon border adjustment mechanism in January, introducing carbon pricing on imported materials like steel and aluminium to level the playing field.

Future Prospects

Salzgitter is also preparing for a tender process to secure at least 100,000 tonnes of low-carbon hydrogen, beginning in 2027. The additional funding from the German government is expected to provide the project with the financial stability required to address these challenges and maintain momentum toward its ambitious climate goals.

Salzgitter has yet to release a statement regarding the latest funding approval.

Read the source