Green steel, hour by hour: decarbonising India's steel

Summary

Combining 70% hourly-matched carbon-free electricity in electric furnaces with a 20% green hydrogen blend in natural gas DRI adds 3% to the levelised cost of steel on a regional basis - a modest premium for eliminating emissions and cutting natural gas dependence.

The renewable overbuild required for either hourly matching or green hydrogen production creates surplus power that would otherwise be curtailed. Sharing the procurement between these two decarbonisation policies creates a 'co-optimisation benefit' - cutting curtailment by up to 90% and reducing overall costs.

Exceeding the Ministry of Steel's baseline target is achievable through combining these two policies. This represents a long-term opportunity for the steel industry to differentiate its green steel product and open up export opportunities to low-carbon markets, including the EU.

Background: the Indian steel industry, green hydrogen, and 24/7 CFE

India is the second-largest steel producer and the primary engine of global steel growth, with capacity expected to reach 300 Mt by 2030. The sector is coal-heavy and carbon-intensive: at 2.54 tCO₂/t steel, Indian steel is 35% more emissions-intensive than the global average, and accounts for roughly 12% of national emissions. The Ministry of Steel's green roadmap targets 2.2 tCO₂/t by 2030, including 43% of electricity annually matched from renewables, in line with the Ministry of Power's Renewable Purchase Obligation (RPO).

Most of that carbon footprint is locked into coal-fed direct reduced iron (DRI) and blast furnaces, which are hard to shift this decade. The near-term opportunity lies elsewhere - in the electric arc and induction furnaces (EAF/IF) that already run on electricity, including scrap-fed secondary steelmaking, and in the gas-based DRI that feeds many of them. These routes can be cleaned up with technology available today.

Two near-term levers are investigated in this study: green hydrogen blending in natural gas DRI (NG-DRI) shafts, and 24/7 CFE. Policy support for green hydrogen is substantial - ₹455 crore for pilot projects, plus the National Green Hydrogen Mission. JSW, Jindal, and AM/NS India have all commissioned industrial-scale electrolysers. But cost remains a barrier: India's levelised cost of hydrogen (LCOH) sits at $3-4/kg, two to three times the breakeven against natural gas in DRI.

24/7 CFE matches demand to clean supply hour by hour, considering the existing grid. This is the more ambitious counterpart to the Ministry's annual matching target. Our earlier work on 24/7 CFE in India showed that a 70% hourly matching target delivers clear system benefits at modest cost. Combining the two levers could turn the renewables overbuild that each requires individually into a shared asset, reducing overall decarbonisation costs.

What we modelled

We ran a national system-level model of India's 2030 power sector. Demand projections for electric arc furnaces and induction furnaces (EAF/IF) - both standalone and paired with NG-DRI - came from the Ministry of Steel and Global Energy Monitor.

We focused on the three transmission grid regions where these production routes are concentrated: India West, South, and East. For each grid region, we tested the following scenarios, which vary the clean matching target for hydrogen production, the clean matching target for the steel plant, and the hydrogen blending percentage.

Our model optimises solar, onshore wind, battery, electrolyser, and hydrogen storage build at lowest cost across each hour of the year. We assumed a group-captive procurement model, allowing PPA electricity to serve both furnace load and electrolyser load.

For each scenario, we calculated the resulting levelised cost of electricity (LCOE), the levelised cost of hydrogen (LCOH), and the uplift on the levelised cost of steel (LCOS). We use representative state-level tariffs to represent the landed cost of electricity for steelmakers.

For a more detailed explanation of our methodology, download our report and look out for part 2 of this blog.

Hourly matching has lower system costs, with a modest cost premium for steelmakers

At a system level, 70% CFE requires less additional build, and brings more fuel savings and emissions reductions, compared to 100% annual matching. In the India West and East grid zones, this represents a 16% saving to the grid. In India South, this jumps up to a ~50% saving.

This echoes our earlier CFE work: when assets are procured on an hourly matching basis and take into account existing grid cleanliness, their generation aligns better with actual demand, is better at reducing emissions, and reduces exposure to grid tariffs. The procurement portfolio centres around cheap solar combined with battery storage, with small amounts of onshore wind.

Figure 2: Costs/savings to the India West grid region in 2030 (₹ thousand crore)

Looking at a plant level and after layering on grid charges, we find that moving from 43% annual matching to 70% hourly matching adds just over ₹1/kWh to electricity costs in the India West grid region. This corresponds to a 1-2% increase in steel production costs.

Closing the gap from 80% to 100% CFE pushes the electricity costs to ₹8/kWh and above, resulting in a 5-9% uplift to the cost of steel, depending on the grid zone. Assets must be oversized to cover the hardest hours, which comes with higher curtailment rates. However, this overbuild could be put to good use.

Figure 3: Landed electricity costs for steelmakers in the India West grid (₹/kWh) under CFE targets

Adding green hydrogen to the mix

Modelled separately, 24/7 CFE and green hydrogen each waste significant clean power. In India West, we modelled a standalone setup producing hourly-matched green hydrogen, sufficient to supply the grid region's NG-DRI shafts. We found solar curtailment rates of 14%, potentially worth several hundred crore rupees at a representative ₹2.5/kWh solar tariff. Standalone 24/7 CFE curtails less, but wasted surplus accumulates sharply at 100% CFE.

Combining procurement for both green hydrogen and 24/7 CFE cuts total solar curtailment by up to 90%. Clean electricity that would otherwise be curtailed gets redirected, and every megawatt of contracted capacity does more useful work. This reduction in curtailment passes directly into cost savings, and through to the LCOH.

Figure 4: Curtailment reduction as a result of co-optimisation

At 100% hourly matching, our co-optimised setup produces green hydrogen at $3.7/kg (~₹290/kg)1 - cheaper than a fully captive standalone setup. It also beats alternative procurement routes, such as third-party open access PPAs, or off-the-shelf solutions such as green tariffs and the green day-ahead market. This hourly-matched green hydrogen setup also approaches parity with current green hydrogen tariffs discovered on the market (which use the more lenient annual matching approach).

Figure 5: Comparison of green hydrogen production routes.

What does this mean for steel production costs?

We modelled the impact of these policies on steel production costs, using a baseline LCOS of $450-510/tcs.2 Let's take an example of steel plants in India West pursuing both decarbonisation policies together. We find that:

• Moving from 43% annual matching to 70% CFE: +$5/tcs (+1%)
• Increasing the hydrogen blend from 0% to 20%: +$8/tcs (+2%)

Together, these add +$13/tcs - roughly 3% on top of a $450/tcs baseline for steel production. Our modelling approach allows us to break down these cost uplifts into discrete components. Figure 6 breaks this down - notably, co-optimisation benefits are worth $3/tcs due to reduced curtailment.

Figure 6: Breakdown of changes to steel production costs, for steel plants in India West moving from 43% annual matching and 0% green H2, to 70% CFE and 20% H2.

In India South and East, hydrogen blending can come at close to zero additional cost at the most ambitious CFE targets. With lower NG-DRI demand in these regions, the renewable overbuild needed for CFE provides ample curtailed electricity for the electrolyser, and avoided natural gas offsets most of the remaining costs. The caveat is that NG-DRI accounts for a smaller share of production here, so the absolute emissions impact is more limited - coal-based routes remain the larger structural challenge in these regions.

At the extremes of 100% CFE and 40% hydrogen blending, LCOS uplifts range from $24-44/tcs across the three regions - less than 10% above baseline LCOS. This is the cost of eliminating most direct emissions from India's electric furnaces, and removing natural gas import dependence for DRI.

Crucially, these co-optimisation benefits only appear when clean energy assets can be shared between furnace load and electrolyser load.

How are generation and storage assets dispatched to meet demand?

Our model optimises generation and storage dispatch at lowest cost, whilst meeting CFE and green hydrogen targets. In general, solar and onshore wind generation is used to:

1. Meet the furnace’s electrical demand
2. Run the electrolyser to:
   1. Meet the hydrogen demand for DRI
   2. Produce excess hydrogen to be stored for later use
3. Charge up the battery storage

Both battery and hydrogen storage systems typically discharge during the night, where there is no clean electricity otherwise available. During PPA shortfall hours, grid electricity is imported to meet residual demand, but steel plants must ensure that this electricity still allows them to meet their overall CFE target.

Moving the steel industry forward

The Ministry of Steel's 2030 target is a floor. However, moving from annual matching to hourly CFE principles is a more pragmatic approach than simply increasing the annual matching percentage. For steelmakers, the commercial case is sharpening: the Carbon Border Adjustment Mechanism (CBAM) now prices electricity-related emissions into every tonne of steel exported to the EU, and the EU's Renewable Fuels of Non-Biological Origin (RFNBO) rules require hourly temporal correlation from 2030 - a standard India's current annual-averaging certification does not meet. Specifically, 70% CFE adds little cost, is more effective at reducing emissions, benefits the wider grid, and opens the door to cost-effective hydrogen use in DRI.

Once at 70% CFE, layering on 20% green hydrogen costs little on top. Beyond 80% CFE, costs accelerate, but so does the co-optimisation dividend, and at the most ambitious targets, natural gas savings and reduced grid exposure can bring green hydrogen blending to near-zero additional cost.

The wider steel industry is still dominated by coal-intensive production routes, and wider sectoral reform is still necessary for India to be a true leader in green steel. However, combining these policies represents a long-term opportunity for this slice of the steel sector. Indian green steel can differentiate itself from competitors through the use of hourly matching and green hydrogen, making full use of excellent domestic renewable resources, competitive costs, and government support.

This analysis builds on TransitionZero's earlier 24/7 CFE work for India, extending it to the interaction between clean electricity procurement and green hydrogen for steel. Full methodology, data inputs, and regional breakdowns are in the accompanying report.

This blog is the first in a two-part series based on research by Verity Crane, Heavy Industry Lead; Irfan Mohamed, Senior Energy Systems Modeller; George Ebri, Research Analyst; and Abhishek Shivakumar, Head of Solutions Engineering.

[1]: We use 2022 prices in our modelling, along with 2022 exchange rates between USD and INR

[2]: Council on Energy, Environment and Water (CEEW) 2023, "Role of Hydrogen in Decarbonising the Indian Iron and Steel Sector" (Accessed: 18 March 2026)

Green steel, hour by hour

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