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Economic Optima for Buffers in Direct Reduction Steelmaking Under Increasing Shares of Renewable Hydrogen


While current climate targets demand substantial reductions in greenhouse gas (GHG) 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 hydrogen 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, the role of using direct reduced iron (DRI) storage as a buffer seems less relevant. DRI 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 small at first. 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.

Funding source: The authors gratefully acknowledge funding support from the German Federal Ministry of Education and Research for the project underlying this publication under funding code FKZ 03EK3044A. The authors would like to express their gratitude to the entire project team
Related subjects: Applications & Pathways
Countries: Germany

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