Economic optima for buffers in direct reduction steelmaking under increasing shares of renewable hydrogen

Abstract

While current climate targets demand substantial reductions in greenhouse gas emissions, the potentials to further reduce carbon dioxide emissions in traditional primary steel-making are limited. One possible solution that is receiving increasing attention is the direct reduction (DR) technology, operated either with renewable hydrogen (H2) from electrolysis or with conventional natural gas (NG). DR technology makes it possible to decouple steel and H2 production by temporarily using overcapacities to produce and store intermediary products during periods of low renewable electricity prices, or by switching between H2 and NG. This paper aims to explore the impact of this decoupling on overall costs and the corresponding dimensioning of production and storage capacities. An optimization model is developed to determine the least-cost operation based on perfect-foresight. This model can determine the minimum costs for optimal production and storage capacities under various assumptions considering fluctuating H2 and NG prices and increasing H2 shares. The model is applied to a case study for Germany and covers the current situation, the medium term until 2030, and the long term until 2050. Under the assumptions made, direct reduced iron (DRI) storage mainly serves as long-term storage for several weeks, similar to usual balancing storage capacities. Storing H2, on the contrary, is used for short-term fluctuations and could balance H2 demand in the hourly range until 2050. From an economic perspective, DRI production using NG tends to be cheaper than using H2 in the short term, and potential savings from the flexible operation with storages are initially small. However, in the long term until 2050, NG and H2 could achieve similar total costs if buffers are used. Otherwise, temporarily occurring electricity price spikes imply substantial increases in total costs if high shares of H2 need to be achieved.