Unlocking Multi-Stage Flexibility Enables Cost-Competitive Hydrogen-Based Steelmaking in China

Abstract

Addressing climate change requires decarbonizing the iron and steel industry, which accounts for about 7% of global CO₂ emissions. Hydrogen-based direct reduced iron with electric arc furnaces (H₂-DRI-EAF) emerges as a promising pathway, yet its economic viability hinges on effectively managing the variability of renewable energy. However, heterogeneous flexibility potentials across electricity, hydrogen, iron, and steel production, together with the distinct characteristics of intermediate product storage, make coordinated capacity investment highly complex. This study develops a system-level modeling framework for renewable-centric, multi-stage H₂-DRI-EAF that jointly optimizes capacity sizing and flexible operations across production stages under flexibility strategies in representative Chinese steelmaking cities. We find that fully deploying flexibility across all production stages could reduce the levelized cost of steel (LCOS) by 6–10% relative to baseline configurations relying on flexible electrolysis alone. By 2035, flexible H₂-DRI-EAF can achieve near cost parity with conventional steelmaking under moderate carbon pricing ($38 t⁻¹ CO₂) and 50% low-cost scrap addition. Flexibility systematically alters investment patterns through significantly reducing the required capacities of solar and energy storage while moderately inducing differentiated overcapacity in electrolyzers, DRI furnaces, and EAFs. For a 1 Mt yr⁻¹ H₂-DRI-EAF plant, renewable deployment exceeds 100 km²; a PV-only configuration halves the land footprint but raises LCOS by $5–64 t⁻¹. This study provides quantitative insights to support the scalable deployment of green steel pathways under high renewable penetration.