Australia should pursue an integrated approach for its own green iron industry and learn from the mistakes from Europe and the U.S. to avoid delays in low-emissions steel projects.
The Institute for Energy Economics and Financial Analysis (IEEFA) urged Australia to adopt an integrated approach that combined significant investments across ironmaking, electrolysers and renewable energy.
In a recent note, titled How to spend a billion dollars, IEFFA’s analysis showed several shortcomings in how governments in the EU and the U.S. issued billions in capital grants to low-emissions steel projects, only for the projects to be cancelled or delayed.
Lachlan Wright, Energy Finance Analyst, Global Steel at IEEFA, said: “In all cases, the grants were issued to steelmakers to transition specific sites from blast furnaces to direct reduction to enable the switch from coal to gas or hydrogen.”
“However, the grants were provided to steelmakers without any firm commitments on hydrogen supply, meaning there was a disconnect with the most costly and capital-intensive part of the supply chain. When the steelmakers were subsequently unable to secure suitably priced hydrogen (despite other support for potential suppliers), the projects/grants had to be either cancelled or amended.”
Australia is investing AU$1 billion in the Green Iron Fund to boost green iron manufacturing and supply chains. Half of the fund will support the Whyalla Steelworks transformation, with the remainder available in capital grants to greenfield and brownfield projects across Australia.
The IEEFA noted that projects failed where grants were targeted only at the iron or steel producer. Failures also occurred even with government support to both the steelmaker and hydrogen developers.
“Grants alone were not sufficient to offset rising gas and electricity prices,” Wright said.
“In Australia, this can be avoided by directing grants to projects that can demonstrate binding, long-term supplies of low-cost energy.
Directing grants to projects that can demonstrate long-term supplies of low-cost energy is more significant due to the uncertainties in the gas market.
Successful projects have emphasised a comprehensive policy suite to both directly help projects and support other stakeholders with offtake and supply agreements, according to the IEEFA note.