H2 Green Steel
The market
Being a core material in a wide range of products, from white goods to cars and building, the $1 trillion+ market for steel has an evident global footprint. On an annual basis global steel production is responsible for 3.4 billion tons of emissions, representing approximately 8% of global CO2 emissions.
There is now a significant pressure from end-customers as well as governments on incumbent steel manufacturers to decarbonise their production, and green steel is critical in this decarbonisation strategy. However, this transition will take time, and over the coming decade, a significant supply-demand imbalance for green steel is expected.
In this context, traditional steel companies face challenges, having built their businesses on old plants, which are expensive to convert and most often lack renewable energy sources. In addition, under the EU's Emissions Trading System (EU ETS) – the cornerstone policy and key tool for reducing greenhouse gas emissions cost-effectively – steel is one of the industries included, meaning, brown producers will need to pay an increasing cost for their emissions. Additionally, green steel is being sold at a 'green' premium due to the above-described supply shortage. This gives the green steel market a double-whammy upside compared to its brown counterparts.
The company
That is where H2 Green Steel comes in. Their mission is to decarbonise hard-to-abate industries, only starting with steel. By 2026, they will produce green steel by fully integrating a decarbonised route with hydrogen, iron ore and an electric furnace, reducing carbon emissions by 95%, via their first plant, strategically located in Boden in northern Sweden.
However, Boden is just the beginning of the company’s journey, serving as a blueprint on H2 Green Steel’s mission to become a global Climate Tech platform. The company’s electrolyser, one of the largest in the world, utilises electricity from renewable energy sources to produce hydrogen. Through the green hydrogen platform, the company envisions further growth opportunities in building green hydrogen-enabled facilities and products across other carbon-intensive industries.
Founded in 2021, H2 Green Steel has already commenced construction of the plant in Boden. Despite large-scale production not going live until 2026, half of the yearly volumes have been sold to customers regarded as leaders in various sectors through binding 5–7-year agreements (including Porsche, BMW, Cargill, Volvo and Electrolux – to name a few).
H2 Green Steel has secured funding of close to €6.5 billion through a mix of equity, debt, and grants, making it one of the largest climate Impact initiatives globally.
Lastly, the company is led by a top-tier team with substantial experience from both industry and scale-ups. The CEO, Henrik Henriksson, former CEO of Scania, and the rest of the management team has strong and relevant experience from BRS, Northvolt, Traton, SSAB, Cliffs and Yara.
The Investment Case
In 2022, we mapped out first-of-a-kind projects that were on a mission to decarbonise their hard-to-abate industries and it became clear, that H2 Green Steel is a true pioneer that is set to become the first large producer of green steel.
As an investor, we are intrigued by the potential to create a true green leader in the steel industry. H2 Green Steel stands to benefit from significant supply-demand imbalances, the potential to leverage a new modern technology with a state-of-the-art plant, access to cheap electricity and on top, regulatory tailwinds. Thus, H2 Green Steel will be able to create a leading cost position within the European steel industry.
Moreover, while the overall project is complex, several aspects are already de-risked. These include: 1) Technology stack based on existing, proven production methods, 2) Significant level of commercial contracts secured, mitigating production volume risks and validating green premium, 3) Obtaining key permits, access to critical infrastructure and input material, and 4) Fully financing the first phase of the project, reducing funding risks.
It is in our heritage to back founders who aim to disrupt their industries, especially coming out of the Nordic tech ecosystem. H2 Green Steel is revolutionising the climate industry, starting with steel, and we believe it has the potential to be one of the next global green challenger leaders.
