Energy-intensive industry: Unit economics
Why power prices decide where the world's metal gets made
Why power prices decide where the world's metal gets made What this tab covers What it costs to move a unit of energy this way: capital and operating costs, tariffs, utilisation and how it compares with the alternatives.In these industries energy is often a quarter to a half of production cost, so electricity and gas prices decide where plants are built. Green routes cost more today because they swap cheap fossil fuel for electricity.
Key costs
| Measure | Value | Note |
|---|---|---|
| Hydrogen DRI steel, production cost | 361-640 EUR per tonne of steel (2018 study)3 | Range driven mainly by electricity price and scrap share; competitive with blast furnace steel at about 40 EUR/MWh electricity plus a carbon price |
| Hydrogen DRI steel, capital cost | 574 EUR per tonne of annual capacity (2018 study)3 | Electrolyser 160, shaft furnace 230, EAF 184 |
| Carbon price that makes hydrogen DRI competitive | 34-68 EUR per tonne CO2 (2018 study)3 | With electricity at 40 EUR/MWh |
| Aluminium smelting electricity | About 14.4 (world average, calculated) and 12.3 (best pilot) MWh per tonne of aluminium5 | At an assumed USD 40/MWh, 14.4 MWh costs about USD 580 per tonne (calculated) |
| Ammonia energy use | 28 (best gas plant) to 41 (world average) GJ per tonne of ammonia, net (2020)9 | At an assumed gas price of USD 10/GJ, 32 GJ gross is about USD 320 per tonne in gas (calculated) |
| Chlor-alkali electricity | About 2,400 (calculated from 2,130 kWh per tonne of caustic soda and 1.13 t caustic soda per tonne of chlorine) kWh DC per tonne of chlorine (membrane cells)6 | Excludes rectifier losses, evaporation and liquefaction |
| Cement kiln fuel | About 2.6 (calculated: 3.6 GJ/t clinker x 0.71 t clinker per tonne of cement) GJ of heat per tonne of cement (2022)7 | At an assumed USD 4/GJ for coal this is about USD 10 per tonne (calculated) |
Where the money goes
| Item | Share or amount |
|---|---|
| Energy share of hydrogen DRI steel cost | 32% at 40 EUR/MWh, 47% at 80 EUR/MWh3 |
| Energy share of aluminium production cost | About 30%6 |
Worked example, hydrogen DRI: one tonne of steel needs about 3.5 MWh, most of it for the electrolyser. At 40 EUR/MWh the electricity costs about 140 EUR (calculated); at 80 EUR/MWh about 280 EUR (calculated). Iron ore pellets and capital charges make up most of the rest. This is why hydrogen steel projects cluster where wind, solar or hydro power is cheap, and why a carbon price or green premium is needed elsewhere. Furnaces, kilns and potlines run around the clock for many years, so utilisation is high and fuel or electricity price is the main variable cost.
Sources
- Assessment of hydrogen direct reduction for fossil-free steelmaking (Vogl, Ahman and Nilsson, Journal of Cleaner Production 203, 736-745) Elsevier (open copy on Zenodo: zenodo.org/record/2669111), 2018
- Hydro Karmoy technology pilot successfully verified Norsk Hydro, 2020
- Electrochemical Manufacturing in the Chemical Industry (Botte, The Electrochemical Society Interface, Fall 2014) The Electrochemical Society, 2014
- Cement (tracking report) IEA, 2023
- Ammonia Technology Roadmap IEA, 2021