Bigger is sometimes better: demonstrating hydrogen steelmaking at scale

This working paper applies insights from research on innovation systems and industrial economics to identify and analyse key risks that pertain to HYBRIT demonstration plants and their scale. The aim is to better understand the role that demonstration plants can play in bridging the so-called “valley of death”, in which a technology or a technological system progresses from lab-scale to commercial implementation. Poor design and setup of demonstration plants can be detrimental to the overall innovation process. Therefore, it is important to gain insight into matters pertaining to the design, organization and mobiization of policy support for demonstration projects.

The working paper analyses two hypothetical HYBRIT demonstration plant alternatives: one “small”, which is more of a large pilot plant (i.e. 200 000 metric tons per annum, with 80 megawatts of electrolysis capacity), and one “large” plant, which is of a size (800 000 t/annum, with 320 MW electrolysis capacity) closer to a commercial scale.

The authors conclude that a large demonstration plant is preferable because it is more likely to achieve the collaboration needed with authorities and society on key issues, such as financing, permitting and business models. The large plant also offers advantages in terms of signaling and marketing, because it builds on the currently strong momentum of HYBRIT as a flagship project moving towards a future in which steel production is free of fossil fuels.

At the same time, the authors note that setting up a large demonstration plant entails significant challenges, especially in terms of risks related to regulatory processes. Permitting issues, linked both to actual industrial sites and to the expansion of power transmission capacity needed for hydrogen production, could become a bottleneck. The authors underscore the need for prompt attention to the potential obstacle posed by the potentially long time horizons involved in permitting processes in Sweden.

While the analysis focuses on the HYBRIT project, the authors also place the issue of demonstration plants in the broader context of decarbonization of heavy industry. Metals processing, cement production and petrochemicals are all highly capital-intensive sectors.  If these sectors are to transition to technological configurations that are compatible with global climate change mitigation ambitions, a host of innovations will have to be proven not just to be technologically viable but to function in a broader business and policy context as well. Demonstration plants will be a central vehicle to this end.

The issue is timely and fast-moving. In June, while the working paper was in production, the HYBRIT consortium – SSAB, LKAB and Vattenfall – issued a press release that detailed plans to pursue a very large plant for the project’s demonstration phase. Preparations are beginning for the construction of a demonstration plant on an industrial scale, with a capacity of just over one million metric tons of iron per year. Consultations have begun for deciding on the placement of the plant, in Norrbotten, Sweden.