European groups pump money into Swedish ‘green steel’ start-up

A range of leading European companies and funds have invested in a Swedish “green steel” start-up that is promising to build the world’s first large factory for emissions-free production of the alloy.

The Agnelli, Wallenberg and Maersk families as well as Mercedes-Benz, Scania, an Ikea foundation and the chief executive of Spotify have helped H2 Green Steel raise $105m in its first round of venture capital financing.

The companies, foundations and funds involved in the series A funding round include the Agnellis’ Exor, the Wallenbergs’ FAM, Italian steel company Marcegaglia and Swedish entrepreneur Cristina Stenbeck.

The Swedish group aims to start production just below the Arctic Circle in 2024 and plans to produce 5m tonnes of emissions-free steel by the end of the decade by using hydrogen produced with renewable energy to make the alloy rather than the traditional way of burning coke.

“It’s the perfect mix of investors that we want to have,” Henrik Henriksson, chief executive of H2GS and former boss of truckmaker Scania, told the Financial Times.

“There is a willingness to help this industry transform, and an understanding that this is urgent. We can’t wait until 2050, we need to act now.”

H2GS is one of two high-profile green steel projects in Sweden as it faces competition from Hybrit, a collaboration between steelmaker SSAB, iron ore miner LKAB and utility Vattenfall, which has estimated that it alone will need electricity equivalent to a third of Sweden’s current supply.

The Swedish projects are at the forefront of efforts to make an industry green that accounts for 7 to 9 per cent of all direct fossil fuel emissions.

Austria’s Voestalpine and ArcelorMittal are developing similar projects, but the two Swedish efforts are further ahead, while other groups are working on technology to produce steel from molten oxides using electricity. These are also at an earlier stage.

“Yes, there will be enough power,” said Henriksson, who said Sweden had current overcapacity, new wind projects, and would no longer export to Finland when its new nuclear plant comes on line.

Other investors in H2GS’s funding round include Ane and Robert Maersk Uggla, the family behind the world’s largest shipping group Maersk, the Imas Foundation that is part of the Ikea flat-pack furniture empire, Spotify chief executive Daniel Ek, and Vargas, the Swedish investment group behind Northvolt.

Henriksson said it was important to make a start now on making the steel industry green even though the two Swedish ventures would still be dwarfed by traditional production, which was about 158m tonnes in Europe in 2019, according to the industry association.

Both Swedish groups plan to use the existing direct reduction method for making steel, using electric arc furnaces rather than coke-fuelled blast furnaces.

Some analysts and companies such as BHP think blast furnaces could still account for half of steelmaking in 2050 because of problems with accessing cheap renewable energy and the young age of many steel mills in India and China.

Hybrit, which is aiming to produce 2.7m tonnes of fossil-free sponge iron to be used by SSAB and other steelmakers by 2030, started a pilot plant in August and will use it to provide green steel as early as this year for vehicles and machines from truckmaker Volvo Group.

H2GS plans to raise about €2.5bn in its B series funding round in the next 12 months, with about €1.8bn of that coming from debt and the remainder in equity.

Additional reporting by Neil Hume in London