In Europe, electrification is considered a key option to obtain a cleaner production of steel at the same time as the electricity system production portfolio is expected to consist of an increasing share of varying renewable electricity (VRE) generation, mainly in the form of solar PV and wind power. We investigate cost-efficient designs of hydrogen-based steelmaking in electricity systems dominated by VRE. We develop and apply a linear cost-minimization model with an hourly time resolution, which determines cost-optimal operation and sizing of the units in hydrogen-based steelmaking including an electrolyser, direct reduction shaft, electric arc furnace, as well as storage for hydrogen and hot-briquetted iron pellets. We show that the electricity price following steelmaking leads to savings in running costs but to increased capital cost due to investments in the overcapacity of steel production units and storage units for hydrogen and hot-briquetted iron pellets. For two VRE-dominated regions, we show that the electricity price following steel production reduces the total steel production cost by 23% and 17%, respectively, as compared to continuous steel production at a constant level. We also show that the cost-optimal design of the steelmaking process is dependent upon the electricity system mix.
Effect of electricity system reform on retail electricity price increases in Japan