Gates-Backed Startup Hits Milestone, Races Ahead on Green Steel

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(Bloomberg) — Bill Gates-backed startup Electra says it can now make emissions-free iron without melting ore on commercial-sized prototypes. That’s a major milestone for a technology that’s only a few years old and promised a step-change in the race to produce steel without a massive carbon footprint.

Steel is a crucial building material and accounts for 7% of global carbon-dioxide emissions each year—more than the impact of shipping and aviation combined. When Electra came out of stealth mode in 2022, the Colorado-based startup showcased a technology that pushed the boundaries of known electrochemistry. It soon found itself in a race to scale up and show it can produce green steel cheaply. “We have so much demand for this material,” said Sandeep Nijhawan, chief executive officer of Electra.

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The driver of the momentum is automakers, electrical-appliance brands, and equipment manufacturers willing to pay a premium price for emissions-free steel in a bid to meet their climate commitments. “Without customer demand, it’s hard to get investors,” said Claire Curry, manager of BloombergNEF’s technology, industry & innovation research. “Big brand names are willing to pay up to 50% price premium for low-carbon steel.” 

It’s why many of the startups have secured blockbuster investments. Last year Sweden-based startup H2 Green Steel raised $1.6 billion in equity, one of the biggest funding rounds for startups in 2023. Electra plans to supply its green iron to steelmakers to turn it into green steel, while H2 Green Steel is planning a large-scale plant that will will be up and running by 2026. 

Steel production is a two-step process. The first one involves taking iron ore, which contains compounds of iron and oxygen, and treating it with something—typically coal—that can remove the oxygen, leaving behind iron. More than 90% of carbon-dioxide emissions of steelmaking come from this first step. Then that iron is mixed with small amounts of other metals and even some carbon to make different types of steel, such as carbon steel or stainless steel.

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There are three main ways to make emissions-free steel. Capture emissions from conventional steelmaking and bury it deep underground, which has been deployed at a plant in the United Arab Emirates. Replace coal with a carbon-free fuel, such as renewables-powered hydrogen, which is what H2 Green Steel does. And, finally, use carbon-free electricity to go from iron ore to iron, which is what Electra does, and then convert that into steel in existing electric-arc furnaces. 

Carbon capture has failed to take off, with no further construction happening at large steel plants. H2 Green Steel expects to complete its 2.5-million ton plant in 2026, but its process is only price competitive with high-grade iron ore and thus limits its applicability to replacing all steel production. And, so far, none of the startups wanting to use only electricity for steel production have reached the commercial stage.

It’s one reason why Nijhawan and his team are in a rush. “We went from a PowerPoint vision to a pilot in three and a half years,” said Nijhawan. “That’s insane speed.” His goal is to have a 50,000-ton plant built by 2027 and the same site will be expanded to million-ton scale by 2029.

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Electra’s process involves taking iron ore and heating it up to 400C (752F) with hydrogen. Then dissolving the ore in acid, which also separates out any sand. Running electricity through the iron ore-acid mixture at temperatures of about 60C—cooler than coffee—which is enough to separate oxygen from iron oxide and leave behind silvery-gray plates of emissions-free iron. The whole process takes between three and five days, according to Quoc Pham, chief technology officer of Electra.

Electra’s other competitors include US-based Boston Metal. Like Electra, it relies on electricity to make green iron, and has raised $262 million. Founded in 2012, it still hasn’t built a commercial scale plant.

 And since Electra came out of stealth mode in 2022, another promising startup has emerged: Australia-based Element Zero says it can convert iron ore to iron using only electricity at less than 400C. So far it’s only shown to work at small scale and doesn’t expect to have a commercial scale plant until 2030.

The advantage that Electra and Element Zero have with their lower temperature process is that it allows them to start and stop the conversion of iron ore to iron without hassle. That’s important, if the goal is to use solar and wind power when it’s available. Boston Metal can’t do that without molten metal solidifying and destroying their reactor.

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All three startups aim to supply the carbon-free iron to a steelmaker that uses a mixture of scrap steel and virgin iron in an electric-arc furnace to make steel. And if that process is powered by renewables, the entire cycle from iron ore to steel can be emissions-free.  

“I expect more startups in this space,” said Venkat Viswanathan, associate professor of mechanical engineering at the University of Michigan. “The electrification of industrial processes is speeding up.”

In 2022, Electra’s 20 or so workers were able to make iron plates the size of office paper that weighed few kilograms. The company shared its space with a bakery. Now, Electra has taken over the bakery, has about 100 people working and produces carbon-free iron plates of more than 100 kilograms.

“We miss the smell,” said Pham, Electra’s CTO. He said that a million-ton iron plant will contain hundreds or thousands of the kinds of plates that Pham’s team has shown to work in the pilot-scale plant today.

Crucially, both Nijhawan and Pham say that the one thing that gives electricity-driven iron production an advantage is that it can use any type of iron ore. There are billions of tons of such raw material sitting in dumps around the world, making it very cheap to acquire. The company says that it can even separate out useful raw material, such as alumina which is used to make aluminum, from low-grade ores and create an additional source of revenue.

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Currently, Electra consumes about the same amount of energy as a conventional iron-making process does. Over the past 18 months, Pham and his team has also worked hard to reduce energy consumption. Electricity is more expensive than burning coal, and so lowering energy use is key to being price competitive. “Ideally electrochemical iron-making processes should use a lot less energy than conventional methods,” said Viswanathan.

There are a lot of challenges ahead. “Even if you’ve solved the technology problems, there is a whole lot of logistical challenges that you still have to conquer,” said Julia Attwood, BNEF’s analyst covering industrial decarbonization. 

Companies relying on either hydrogen or only electricity will need to secure huge amounts of green power which can be tough, with governments around the world struggling to build enough solar and wind energy. And while hydrogen can be retrofit into existing steel plants, the companies relying on electricity-powered iron prodution will have to build new plants from scratch. “It’s a bigger economic hill to climb,” says Attwood.

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Electra is now focused on finding a site to build its first commercial-scale plant. It has shortlisted a few locations already, but Nijhawan won’t reveal details—not even the countries he’s eyeing. The startup has forged partnerships with some of the world’s largest iron-ore producers (including BHP), steelmakers (including Nucor), and equipment manufacturers. Electra has raised $85 million so far from investors including Bill Gates-backed Breakthrough Energy Ventures, Capricorn Investments, Singapore’s Temasek and Amazon’s Climate Pledge Fund. (Michael Bloomberg, the founder and majority owner of Bloomberg News parent Bloomberg LP, is an investor in Breakthrough Energy Ventures.)

The next round of funding worth $150 million will enable it to acquire land for the commercial plant and fund the engineering design. After that, Nijhawan estimates that a million-ton plant would cost about $1.6 billion, which means that he will have to raise a lot more money.

H2 Green Steel was able to raise billions of dollars because it lined up an order book of about 1.2 million tons of emissions-free steel at a higher cost than conventional steel. Nijhawan isn’t worried by the competition. He aims to emulate the Swedish startup and is working to secure orders from automakers and electrical-appliance makers. 

 “The opportunity and the size of the problem is so big that there are going to be multiple paths to solve it,” said Nijhawan. “I’m not being pressed by a competitive threat. Rather I’m being pulled by demand.”

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