On October 4, 2022 the EU Commission has approved, under EU State aid rules, a €1 billion German measure to help Salzgitter Flachstahl GmbH (‘Salzgitter’) decarbonise its steel production processes by using hydrogen, including renewable hydrogen produced on site, thanks to a new production facility. The measure contributes to the achievement of the EU Hydrogen Strategy and the European Green Deal targets, while helping reduce dependence on imported Russian fossil fuels and fast forward the green transition, in line with the REPowerEU Plan.

Today’s decision follows the approvals on 15 July 2022 and on 21 September 2022 of two Important Projects of Common European Interest (IPCEI ‘Hy2Tech’ and IPCEI ‘Hy2Use’) in the hydrogen value chain. Salzgitter’s project was selected by Germany in the context of an open call to form part of an IPCEI on hydrogen technologies and systems, which resulted in the two approved IPCEIs. However, given its characteristics and objectives, it was better suited for assessment under the Guidelines on State aid for climate, environmental protection and energy 2022. Pending a positive, conclusive review and decision by the national funding authorities, Salzgitter AG now assumes that, in accordance with the administrative agreement of September 15, 2022, the Federal Government and the Federal State of Lower Saxony will contribute up to € 700 million and up to € 300 million respectively to promoting SALCOS®. Together with the funds already approved by Salzgitter AG in an amount of € 723 million, this would thereby secure financing the first development stage of SALCOS® for implementation by the end of 2025.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “This €1 billion measure enables Germany to support Salzgitter’s plans to decarbonise its steel production processes by using and producing renewable hydrogen. This will contribute to the greening of a very energy-intensive and hard-to-abate sector while reducing Germany’s dependence on imported fossil fuels. This is a good example of how our State aid framework enables Member States to help the EU’s energy intensive sectors tackle the challenges of greening.”

The German measure

Germany notified to the Commission a €1 billion measure to support investments in the greening of Salzgitter’s steel manufacturing processes  thanks to increased production and use of renewable hydrogen.

The aid, which will take the form of a direct grant, will support the construction and installation at the company’s site in the city of Salzgitter (Lower Saxony) of a direct reduction plant and electric arc furnace which will replace one of the blast furnaces currently operated by Salzgitter. This will allow to substitute the use of fossil sources (i.e. coal used for iron ore reduction) *  with hydrogen in steel production, thereby avoiding almost all direct CO2 emissions in steel production. The new installation will produce in a greener manner approximately 1.9 million tonnes per year of crude steel – the same volume of crude steel currently produced via a more polluting process.

The measure will also support the construction and installation of a large-scale (100 MW) electrolyser, which will produce approximately 9,000 tonnes of renewable hydrogen per year. The hydrogen produced by the electrolyser will be used as feedstock in the direct reduction plant. The electrolyser, the direct reduction plant and the electric arc furnace are envisaged to start operating in 2026.

Once completed, the project is expected to avoid the release of 3.6 million tonnes of carbon dioxide annually. In addition, to maximise the greenhouse gas emissions’ reduction, the generated hydrogen will be produced solely with the electricity stemming from renewable sources.

Photo: courtesy Salzgitter AG