Steel plant construction cost

Background

Estimates state that approximately USD 1.4 trillion will be needed to decarbonize the entire steel industry. Thus, the capital available to steel companies — through external sources and their profit margins — is an important factor to enable the transition. The decarbonization of the steel industry will require significant amounts of capital for new investments — to cover costs associated with new facilities, infrastructure, resources, and training of professionals, for example:

Low-emissions steel plants: On average, building a low-emissions steel plant costs between USD 600-800 million per Metric tonnes (Mt) of capacity per year. Fully retrofitting an existing BF-BOF plant with the same capacity only costs an estimated third of that amount. Additionally, all construction — whether emissions-intensive or green — is likely to be affected by increasing material prices, e.g., due to  international resource scarcities and green premiums.

Low-emissions technologies: Although the price of new technologies is expected to decrease over time, it will remain substantially higher than existing technologies for at least another decade. As such, the costs of zero- and near-zero steel plants are currently estimated at 90% higher than the costs of traditional BF-BOF plants. An example of a new technology considered for many companies’ steel decarbonization strategies is carbon capture, utilization, and storage (CCUS), which has the potential to be used as permanent removal technology by emissions-intensive production sites. Under some estimates, 10% of current steel emissions will need to be reduced using CCUS to achieve net zero, even if other low-emissions and efficiency technologies are implemented, although the feasibility of the technology itself is still in question. If assuming an annual emissions rate of 3.6 Gigatonnes (Gt) of CO2 per year, as in 2019, this would imply the need to capture 0.36 Gt per year with CCUS (Gt/y). At the current CCUS price within the steel industry — estimated at USD 40-100 per ton of CO2 — the costs of capturing and storing 10% of emissions would be approximately USD 14-36 billion per year.

Low-emissions resources: An estimated 60-80% of a plant’s steel production costs stem from raw material and energy input costs, both of which will likely increase with switches to low-emissions materials and energy. The use of CCUS to reduce emissions from steel-related coal mining could cost around USD 12 billion per year, which would increase coal prices by an estimated USD 65 tonnes (t). One of the essential raw materials used in the iron production process is iron ore. Non-coal steelmaking requires higher-grade iron ore — to limit the amount of slag produced in the EAF process — which entails more steps in the production process (e.g., further ore beneficiation), reducing yields, and increasing costs. Renewable energy, too, is only just now starting to become cost competitive to traditional, fossil fuel-based energy. Lastly, hydrogen will play an essential role in reducing carbon emissions across production pathways. At the moment, green hydrogen is significantly more expensive than natural gas or fossil fuels and dependent on access to renewable energies itself. In terms of research and development (R&D) It is also expected that electrolytic hydrogen can only be used commercially from 2030 onwards. Due to the high costs associated with green hydrogen, its implementation is highly dependent on how fast green hydrogen prices can be lowered to become as cheap as fossil fuel-based hydrogen.

Enabling infrastructure: Another factor relevant to a successful and fast energy transition is the existence of sufficient enabling infrastructures, such as CO2 storage and transportation, hydrogen infrastructure, and facilities for renewable energy generation and distribution. To enable the production and delivery of green energy sources required for net zero steel production in 2050, the industry will need a USD 3-3.8 trillion cumulative investment in electricity generation, transmission, and distribution.

In some cases, additional costs may be necessary to train or retrain professionals for the use of new technologies. The accumulation of costs, all of which are greater than the traditional carbon-heavy route without substantially increasing profits, makes it more challenging for steel companies to afford a transition without external upfront investment.

Policy Action

Policy targets to increase capital availability include:

• Provide resources and government funding for relevant R&D projects, the construction of low-emissions steel plants and (energy) infrastructure, the refurbishment with low-emissions and energy-efficiency technologies, or to cover increasing costs from renewable energy purchases. This could include grants, loan guarantees, subsidies, public expenditures, tax credits, and deductions, or agreements with financial institutions and investors, including through Public Private Partnerships (PPPs).

Policy targets to increase access to funding include:

• Enable access to finance through frameworks for sustainable finance (World Steel Association, 2021). This should include criteria or definitions of green and low-emissions steel, a topic that will be discussed more later on.
• Create climate-aligned investment principles. This should include recommendations for client engagement, information disclosure, and exclusion and inclusion criteria.
• Collaborate with banks and investors to create partnerships and align on investment criteria.
• Increase the availability of funding for low-emissions steel producers, through increased government spending and green projects, or collaborations with other financial stakeholders, e.g., with green funds, PPPs, carbon credit funding, future contracts, etc.
• Accelerate projects towards final investment decision status (FID) to reach the necessary decarbonization milestones.
• Use regulations or financial incentives to encourage investments in low-emissions steelmaking.

Policy targets to promote the construction of enabling infrastructure include:

• Analyze the existing and future needs for enabling infrastructure, such as production, storage, and distribution facilities for renewable energy, hydrogen, and other strategy-relevant resources. This requires collaboration with the energy and steel industry stakeholders.
• Coordinate and fund the development of carbon storage, sequestration, and transportation infrastructure, where needed, to allow CCUS usage and lower its cost. This may require an initial identification of suitable sites and the set-up of a regulatory framework.
• Legislate and incentivize the expansion of renewable energy production, storage, and high-voltage electricity transmission to ensure high availability and accessibility for low-emissions steel producers.
• Invest in and plan the expansion and research of green hydrogen production, storage, and distribution to ensure high availability and accessibility for low-emissions steel producers.
• Implement localized waste heat-sharing infrastructure between industries, e.g., between steel and chemical plants.

Examples and Case Studies

Salcos Salzgitter Green Industrial Hydrogen Production

ArcelorMittal €1.1 Billion Investment in Green Steel Production

Voestalpine’s €1.5 Billion EAF Investment

ArcelorMittal CCUS Technology Investment

Arena Green Steel R&D commitment

External Links

CCUS Cost IEA Report 2021

Green Hydrogen Cost IRENA Report 2021