The Spanish electricity company Iberdrola and the Swedish company H2 Green Steel will join forces and develop a major installation that will produce green hydrogen, another example of the interest of companies in this much talked about sector.

In an announcement Thursday, the companies said the 2.3 billion euros ($ 2.6 billion) project would see them set up a green hydrogen facility with an electrolysis capacity of 1 gigawatt. Funding will come from a mix of equity, green project funding and public funding.

Hydrogen, which has a diverse range of applications and can be deployed in a wide range of industries, can be produced in a number of ways.

One method is to use electrolysis, with an electric current dividing water into oxygen and hydrogen. If the electricity used in this process comes from a renewable source such as wind or solar, some call it green or renewable hydrogen.

The idea is that the green hydrogen from the development of Iberdrola and H2 Green Steel will be used to generate around 2 million tonnes of direct reduction iron, or DRI, each year, which can then be used to produce electricity. ‘steel.

At 1 GW, the scale of the project is significant: according to the International Energy Agency, the global installed electrolyzer capacity was only 0.3 GW in 2020.

Development by Iberdrola and H2 Green Steel will be located on the Iberian Peninsula – no specific location has yet been announced – and is expected to start production in 2025 or 2026.

The electrolyser itself will be owned and operated by both companies. Iberdrola will supply renewable energy to the site, with H2 Green Steel owning and operating the production of DRI, including all processes related to downstream steel production.

The companies said they would “also explore the opportunity to co-locate a green steel production facility capable of producing 2.5 to 5 million tonnes of green flat steel per year, in collaboration with the plant. “.

In a statement, Aitor Moso, liberalized commercial director of Iberdrola, said green hydrogen would be “a critical technology in the decarbonization of heavy industrial processes such as steel production”.

Projects such as the one planned with H2 Green Steel, Moso said, “would help accelerate the commercialization of larger and more sophisticated electrolyzers, making green hydrogen more competitive.”

Reducing the environmental footprint of intensive industrial processes is a major challenge.

“Among heavy industries, the steel sector ranks first in terms of CO2 emissions and second in terms of energy consumption,” says the IEA, adding that the steel sector is responsible for 2.6 gigatonnes of emissions of carbon dioxide every year. .

“The steel sector is currently the largest industrial consumer of coal, which supplies around 75% of its energy demand,” he said.

In recent years, several large companies have embarked on projects focused on green hydrogen.

In November, for example, Australia-headquartered Fortescue Future Industries announced it would become the UK’s largest supplier of green hydrogen after signing a memorandum of understanding with the equipment company. JCB construction and Ryze Hydrogen.

That same month, it was announced that Norsk Hydro and oil giant Shell would study the potential of joint projects focused on green hydrogen production.

While there is enthusiasm for the potential of green hydrogen, there are also hurdles to overcome.

In October, the CEO of Siemens Energy spoke about the problems he believed he faced in the industry, telling CNBC that there was “no business case” for it at the moment.

In comments made during a discussion at CNBC’s Sustainable Futures Forum, Christian Bruch described several areas that would require special attention for green hydrogen to gain momentum.

“We need to define boundary conditions that make this technology and these cases commercially viable,” Bruch told CNBC’s Steve Sedgwick. “And we obviously need an environment of cheap electricity and, in that regard, abundant renewable energy available to do this.” It wasn’t there yet, he argued.

A few months earlier, in July, Enel CEO Francesco Starace said there was “no competition for capital between hydrogen and renewables”.

“Hydrogen is a niche today, and it’s a niche that needs to become a trade standard and become… a big industry, competitively priced,” Starace said, noting that such a change would likely take 10 years.