Power struggle in Swedish green steel plant ramp-up tests grid rules

Northern Sweden is set to be a thriving hub in Europe's green industrial transition, but a high-profile dispute over clean steel projects' access to renewable energy is pushing regulators to create clarity on the country's grid connection queuing system.

H2 Green Steel, which is building a hydrogen-powered steel plant in Boden, Sweden, is threatening legal action against distribution system operator Vattenfall Eldistribution AB, Swedish business newspaper Dagens Industri reported on March 3. H2 Green Steel said a recent decision that denied it additional electricity for the second phase of the steel mill is damaging its business.

Companies seeking grid access in Sweden are used to a first-come, first-served approach. However, transmission system operator Svenska Kraftnät AB in December 2023 updated its criteria to include an assessment of project maturity, helping more advanced projects get connected sooner.

Citing that guidance, Vattenfall Eldistribution allocated 500 MW of power capacity to Hybrit Development AB, a consortium of SSAB AB, Luossavaara-Kiirunavaara AB and Vattenfall AB, which plans to make low-emissions steel in the Luleå region, also in northern Sweden.

H2 Green Steel requested power for the second phase of its Boden steel plant but was denied. The first phase of the project, which was unaffected by the decision as it had already secured power access, is expected to produce 2.5 million tons of low-emissions steel starting 2026. Phase two would see this grow to 5 million tons.

'Contract violation' argued

According to H2 Green Steel, the decision not to allocate capacity to the second phase of its steel plant broke previous commitments.

"You assured us several times that we stand first in line for the granting of additional power," H2 Green Steel CEO Henrik Henriksson wrote in a Jan. 31 letter to Annika Viklund, general director at Vattenfall Eldistribution, Dagens Industri reported.

"Your actions now are unlawful, constitute a contract violation and are unacceptable for an entity that operates in a monopoly position and should preserve neutrality," Henriksson said.

Vattenfall Eldistribution is a subsidiary of Hybrit shareholder Vattenfall, and some market players see a potential conflict of interest in the decision to award the capacity to Hybrit.

Beyond reporting the situation to Sweden's energy market inspectorate, Henriksson said H2 Green Steel is considering further legal action.

Vattenfall Eldistribution Communications Manager Sara Andersson said the Vattenfall subsidiary would "welcome a trial."

"It is a complex issue that the authority has not tried before," Andersson said in an email. "It is an important matter of principle how this regulatory framework should be interpreted."

The Vattenfall unit said that H2 Green Steel was not able to produce evidence to show the second phase of the plant is mature enough to warrant power access and that it was not clear how or when the ramp-up would be realized.

H2 Green Steel said the grid operator did not reach out to discuss longer-term plans for the project before making its decision, and it was not asked to account for or explain its longer-term power needs.

"We are Vattenfall Eldistribution's largest customer, and even so have not been informed about their work to develop new principles which, to the highest degree, impact us," a spokesperson for the hydrogen startup said in an email March 12.

Decision creates 'anxiety'

If the allocation decision holds, H2 Green Steel will suffer "extensive damage," Henriksson said in the letter.

Market watchers expect the Boden green steel plant, which is backed by €6.5 million in debt and equity financing as well as EU grants, to find a solution to source the required power, though timelines for phase two of the plant may slip.

"They will figure it out," Pierre-Germain Marlier, investment director of French hydrogen investor Hy24, said when asked about the power access dispute at the SolarPower Summit in Brussels March 5.

Hy24, a joint venture of investment manager FiveT Hydrogen and private equity firm Ardian, co-led the equity financing of €1.5 billion for H2 Green Steel. The decision not to allocate power for the project creates regulatory uncertainty for green industrial projects in the north of Sweden, Marlier said.

"We can't change the rules in the middle of a five-year process," Marlier said. "I am worried about the message that it sends [and] the anxiety this will create."

The H2 Green Steel case shows that the new rule is not trusted yet, said Filip Johnsson, professor of energy technology at Chalmers University of Technology in Gothenburg, Sweden.

The grid connection queuing system needs overhauling to ensure an orderly allocation based on project merits. "There is a need to develop it further to have transparent criteria," the professor said in an interview March 11.

The Swedish government seems intent on shoring up investor confidence and on March 5 tasked the energy market inspectorate with improving the regulatory framework for electricity supply in northern Sweden.