With the UK’s manufacturing supply chain making great efforts to decarbonise its direct and indirect emissions, Jodie Eaton, CEO of Shell Energy UK, explores the opportunities this presents for steelmakers and explains why the sector is perfectly placed to lead the UK’s green transition.
Steel is without a doubt the world’s most important engineering and construction material. Appearing in almost every area of modern life – be it buildings, cars, ships, trains or tools – it comes to no surprise that it is an industry worth £2.9 billion to UK GDP, and one which indirectly supports a further £3.8 billion through industries like construction, auto, consumer goods and equipment manufacturing.
And while these industries are increasingly looking to decarbonise their supply chains, UK steelmakers have a real opportunity to tap into the lucrative opportunities presented by the transition to a greener economy. The processes for producing low-carbon steel, however, are not currently deliverable at commercial scale. So, while demand is high, the supply chain has not caught up. Despite this, the steel industry has a multitude of options available for bringing down direct and indirect emissions of steel production to offer lower-carbon materials, while developing the supporting green infrastructure for strengthening the UK-wide transition to net-zero.
Decarbonisation pathways
Most steel producers are already working towards their emissions reduction targets, with many pledging to achieve net-zero emissions by 2050. Take British Steel whose Low-Carbon Roadmap aims to deliver an 82% reduction in emissions by 2035 and net-zero by 2050, compared to a 2020 baseline.
To reduce emissions, the steel industry has a number of options available. Whether renewable energy generation hydrogen electrolysis or carbon capture, utilisation and storage (CCUS), all could be embraced to help pave the way towards a greener steel sector.
But what is the current state of these technologies and are they available for adoption at a commercial scale?
Embracing electrification
Possibly one of the biggest developments in technological advancements we’ve seen in recent years is the industry’s introduction of electric arc furnaces (EAFs). According to trade body UK Steel, EAFs have traditionally been limited in producing all steel grades, but recent innovations enable a vast range of products to be produced, especially by using steel scrap.
The importance of finding solutions that exploit scrap side streams cannot be understated and the redirection of scrap into production infrastructure is critical to meet the net-zero goals of the industry. A study to examine the differences between scrap-based and nickel pig iron (NPI)-based production systems in the production of stainless steel, found that using 85% stainless scrap (as opposed to virgin materials) can reduce carbon emissions during production by more than two-thirds.
When paired with on-site generation or harnessing renewable power purchase agreements (PPAs), EAFs have the potential to greatly reduce the CO2 emissions attributed to smelting and significantly cut the carbon footprint of steel production as a whole.
Accelerating the adoption of hydrogen
Harnessing green hydrogen as an alternative fuel is considered one of the most straightforward pathways for decarbonising the steel industry.
However, adopting hydrogen at mass-scale requires significant capital expenditure which, in turn,can lead to much higher steel prices. It has been calculated that (at current price levels) replacing coal with green hydrogen would drive the price of a tonne of steel up by roughly a third. According to the International Renewable Energy Agency (IRENA), however, costs of electrolyser plants could come down by up to 80% in the long-term through improved design, more efficient construction, greater economies of scale, replacing scarce materials with abundant metals and increasing efficiency and flexibility of operations. Through further investment, the steel industry could bring hydrogen to a point of price parity with coal, but with only a fraction of the carbon emissions.
The sector is likely to evolve further with the introduction of mechanisms like the UK’s Low Carbon Certification Scheme, which gives hydrogen producers greater credibility by certifying their processes, and therefore offers more opportunities to reach commercial scale.
Maximising Carbon Capture, Utilisation and Storage
CCUS has a key role in reducing those emissions that cannot be avoided by other means and the steel industry has a real opportunity play a major role in its development and deployment and supporting infrastructure.
According to Bloomberg New Energy Finance (BNEF), global investments into CCUS more than doubled last year, reaching record highs of $6.4 billion and leading organisations such as the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC) continue to emphasise the importance of CCUS in reaching the goal of the Paris Agreement in limiting the rise in global average temperature to 1.5°C above pre-industrial levels.
As it stands ahead of the general election in July, the Department for Energy Security and Net Zero (DESNZ) has put CCUS as a central plank of the UK’s net-zero roadmap, with aims to capture between 20 and 30 million tonnes of CO2 a year by 2030. And the potential return on investment for this is considerable- DESNZ’s ‘CCUS Vision’ is expected to add £5 billion a year to the UK economy by 2050.
Preparing commercial solutions for mass adoption – what’s needed?
In the short term, the most effective and available solutions to decarbonise steel are electrification, PPAs and renewable energy contracts. In the medium-to-long term, once supporting infrastructure like storage, pipelines, logistics and shipping has had more time to develop, CCUS and hydrogen will deliver the greatest impacts when it comes to reducing industry emissions.
Government support is pivotal to ensure infrastructural development and market readiness of these technologies. Fortunately, we have seen extensive funding and support for net-zero projects to help bring these mechanisms up to the scale required for industrial use, such as the £289 million Industrial Energy Transformation Fund (IETF), £21 of million funding to hydrogen projects announced in February and a £20 billion commitment to scale-up CCS projects across the UK.
The government has a major role to play in committing to a long-term position that will help give businesses confidence, negate risk, and ensure a nearer-term return on investment, with policies conducive to the development of decarbonisation technologies and infrastructure making a big impact on the scale of private sector investment.
Forging a path
Businesses across the steel industry can benefit from evaluating net-zero alternatives over a long-term timeline, taking into consideration economics, risks and different capital profiles to plan the optimal decarbonisation pathway.
Shell Energy is helping energy intensive industries (EIIs) to map out their decarbonisation journeys through scenario planning and facilitation. As such, we work in partnership with some of the UK’s largest high-energy users to support their energy management strategies, helping to streamline spend and outline a pathway to progress their decarbonisation ambitions.
There is no single solution when it comes to decarbonisation. Whichever route that steel companies decide to pursue, careful planning for the long term and taking a proactive approach will help to protect the sector from rapidly evolving regulation and volatile energy prices. The steel industry can make progress through realising the commercial opportunities that alternative energy pathways offerand galvanising their decarbonisation strategies into a solid plan of action.
To find out more about how Shell Energy can support your business, visit www.uk.shellenergy.com.