The European Commission granted approval on Tuesday for €2.6 billion ($2.85 billion) in state aid to assist Germany in decarbonizing its struggling steel industry through the use of hydrogen. This direct grant aims to support Stahl-Holding-Saar (SHS), the holding and management company overseeing the steel industry in the German state of Saarland, in the ambitious task of decarbonizing the region's steel sector with hydrogen.

According to a press statement from the Commission, the funding will be directed towards the construction of a direct reduction plant and two new electric arc furnaces. These electric furnaces, designed to operate on renewable energy sources, will replace the existing blast furnaces, which rely on fossil fuels for operation. The newly established direct reduction plant is set to run on low-carbon and green hydrogen. The expected operational date for these installations is 2026, with an annual production capacity of approximately three million tonnes of crude steel—equivalent to the current production from blast furnaces.

Margrethe Vestager, Executive Vice-President of Competition Policy at the European Commission, highlighted the significance of decarbonizing the energy-intensive steel sector in achieving the green transition. She stated, "The decarbonisation of the very energy-intensive steel sector is key for delivering the green transition. This €2.6 billion German measure will support Stahl-Holding-Saar in decarbonizing its Saarland steel production sites.

Vestager emphasized that competition distortions would be limited, thanks to safeguards incorporated into the measure. As part of the initiative, SHS will conduct a competitive tendering process to select suppliers of green hydrogen. The chosen suppliers will install electrolysers in close proximity to SHS facilities, fostering the development of a green hydrogen value chain in the region. Additionally, SHS plans to connect to the German hydrogen network, ensuring access to larger and more cost-effective volumes of hydrogen over the long term.

Germany has been actively promoting hydrogen as a crucial tool to meet its domestic net-zero targets throughout the year. In May, the German government outlined a framework for a "core" hydrogen network expected to be operational by 2023.

In July, Germany enhanced its national hydrogen strategy by doubling its target for domestic electrolyser capacity from 5GW to 10GW by 2030, acknowledging the importance of hydrogen in decarbonization efforts, even as it anticipates importing up to 70% of its total hydrogen requirements. The EU's approval of the state aid demonstrates support for Germany's initiatives to transition its steel industry to a more sustainable and environmentally friendly model, aligning with broader European goals for a carbon-neutral future.