Eskom’s renewable energy roll-out (or lack thereof) could derail ArcelorMittal’s decarbonisation plans

24 Jan 2023

Steel producer ArcelorMittal released its decarbonisation roadmap on Tuesday, setting out clear steps towards becoming a net zero carbon emissions company by 2050. However, the country’s problem child, Eskom, electricity tariffs and wheeling charges could prove a stumbling block.

ArcelorMittal’s chief executive, Kobus Verster, says the substantial transformation of the company’s current electricity supply will require an active, real transition from coal-based electricity to electricity from renewables and other clean sources.

In this regard, the company has announced projects to generate at least 200 megawatts of renewable power on its premises.

However, Verster warns that the financial viability of renewables procurement will be influenced by Eskom/Nersa’s pricing structures, as well as wheeling charges.

Blackouts – a serious impediment

“Clearly load shedding, or the continued unreliable supply of grid electricity, will be a serious impediment to South Africa realising its decarbonisation ambitions.

“The extent to which Eskom is able to green its electricity generation, and the pace at which it rolls out renewables, will have a bearing on our decarbonisation efforts and those of most manufacturing industries,” he says.

Verster adds that implementation of the decarbonisation roadmap will not only change the way the company operates, but will be a catalyst for changing the steel industry and the economy of South Africa.

“The decarbonisation roadmap is based on the implementation of clear actions and interventions. However, it is by no means cast in stone and will be subject to regular updates and changes as breakthrough technologies emerge and are proven – which will influence how the company ultimately implements its energy transition,” he says.

As part of the way forward, ArcelorMittal is targeting a reduction of ArcelorMittal South Africa’s carbon intensity from 2.9 tonnes of carbon dioxide per tonne of crude steel (tCO2/tCS) in 2018 to 2.16 tCO2/tCS by 2030, and a residual 0.4 tCO2/tCS by 2050.

Based on these targets, the company will reduce its carbon intensity by 25% by 2030, and 86% by 2050, with residual emissions being offset by yet-to-be-developed technologies and/or carbon offset arrangements.

One of the two blast furnaces at Vanderbijlpark will undergo a reline and upgrade between 2027 and 2030, while a suitable electric arc furnace (EAF) will be commissioned in Vanderbijlpark.

This means that in 2030, in addition to the EAF, one blast furnace will be permanently closed and another returned to service as a low carbon-enabled furnace. The current blast furnaces are able to produce 1.3 million tonnes and 1.9 million tonnes of molten iron, respectively.

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Green hydrogen project in Saldanha Bay

For almost a year now, the steel producer has hinted at bringing its decommissioned Conarc plant in Saldanha back into action.

This plan envisages Saldanha Works initially producing lower carbon steel and, subsequently, direct reduced iron (DRI), using green hydrogen. ArcelorMittal is currently working with Sasol to produce feasibility studies around the potential of the Saldanha Bay area as an export hub for green hydrogen and derivatives.

Verster says these operations will be centred on Saldanha’s advanced Midrex plant (the only such plant in Africa), using natural gas.

“The second leg of the Saldanha low-carbon-intensity steel opportunity entails the Conarc plant being restarted as a scrap smelter (EAF) using renewable energy, for continuous casting and rolling.

“Subject to regulatory and funding arrangements being made and affordable renewable energy and rail transport being secured, we project that Saldanha Works could account for South Africa’s largest single private sector off-taker of green hydrogen, catalysing the development of a green hydrogen industry,” the roadmap states.

In 2034, the company plans to close its blast furnace N5 in Newcastle, replacing it with the second of two EAFs (the first in Vanderbijlpark). The roadmap points out that if renewable energy costs – the highest contributor to green hydrogen costs – continue to fall, the company estimates that green hydrogen costs could drop to approximately $1.5/kg by 2030.

This still means that green hydrogen-based DRI would require significant public support beyond 2030 to be competitive versus other carbon neutral steelmaking routes.

Management has warned shareholders that the decline in global steel prices, a slowdown in local market activity and rail logistics problems have all had a “significant impact” on the annual financial results due to be published in February.

ArcelorMittal says, globally, steel prices have declined at a faster rate than raw materials. This has led to negative price-cost effects, with the difference between steel prices and raw material costs under significant pressure.

An aspect of the business which unexpectedly came under significantly more pressure than initially anticipated, was the net borrowing position.

Having successfully improved average capacity utilisation in the second half (54%) compared to the first half (42%) of the year, the sudden slowdown in market activity in the latter part of the fourth quarter was greatly aggravated by a notable shortage of readily available road trucks for sales deliveries. BM/DM

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Blackouts – a serious impediment

Green hydrogen project in Saldanha Bay