Renewing steel markets

THERE is little doubt that the push to generate electricity from renewable power sources is accelerating in the United States, driven by governmental policies such as the recently passed Inflation Reduction Act (IRA). This is good news for the producers of plate and other steel products that are used to generate, store and transmit energy and/or use such clean power to produce greener steels.

Renewable energy generation

Over the last few decades there has been fairly steady growth in the amount of US electricity generation capacity coming from renewable energy sources, particularly from solar, wind and hydropower sources. In fact, according to Mark Morey, senior electricity advisor to the US Energy Information Administration (EIA), it has already grown to the point that renewable energy currently accounts for about 21.5% of all utility-scale electricity generation in the US.

He noted that while there are also certain other technologies emerging, such as those related to geothermal, hydrogen, carbon capture and wood pellets, those technologies have been dwarfed by the growth in wind, solar and hydroelectric power generation with the EIA reporting that currently about 12% of US utilityscale electricity generation is coming from wind power (about 5-6% from solar and about 6% from hydro). In fact, John Anton, director of the steel pricing and purchasing service of S&P Global Market Intelligence, said that wind power generation is currently surpassing that for coal in the US.

While it has taken some time for them to achieve this, Paolo Frediani, a senior analyst for Fastmarkets, said that it has gotten to the stage where there is a proper economic case for renewable energy to go mainstream, with its use continuing to grow going forward.

In fact, largely spurred on by such government initiatives, particularly the IRA, Willis Thomas, head of CRU+ Consulting, said that it is expected that by 2050, as much of 70% of US energy needs could be met by wind and solar, although over that timeframe the growth rate for other means of renewable power generation will be much less remarkable, as they aren’t as directly impacted by the IRA. In fact, he said that about $30 billion of tax credits in the IRA will be going toward wind and solar projects.

Evidenced by the incentives in the IRA, and also to a lesser extent the IIJA bipartisan infrastructure bill, Teresa Wagler, Steel Dynamics’ executive vice president and chief financial officer, said that it seems as if the US government is finally starting to participate more on the capital side of the equation, catching up with some other governments around the world.

In mid-May, the Biden administration proposed a new Environmental Protection Agency (EPA) rule that would require power plants burning such fossil fuels as coal and natural gas to cut their GHG emissions by as much as 90% or shut down by 2040.

There are, however, other factors driving the energy transition. Demand for renewables in the US is being driven by corporate initiatives and corporate branding moves, especially with the transition being more of an ongoing process with no real end game, said John Villali, research director for IDC Energy Insights.

He noted that demand for renewables also varies regionally with the initial boom for wind being in the Midwest and West Texas, where there is plenty of land and plenty of wind, while you see a lot of solar capacity either in very sunny states or where there are high expectations for environmental compliance, like California or the Northeast.

When it comes to the IRA, Brett Smith, senior director of government relations for the American Iron and Steel Institute (AISI), said it provides clarity and more certainty to renewable electricity producers, knowing that renewable electricity tax credits – both investment tax credits and production tax credits – will remain in place through 2029.

“While there have been inroads, the renewables market also faces certain challenges,” Miriam Falk, a senior analyst for Fastmarkets, pointed out. For example, even though the cost of renewable power capacity has been declining, it is still more expensive than that for fossil fuels, making it difficult for such projects to be competitive, especially given that there is an ample supply of oil and natural gas in the US. However, Falk noted that the push by the Biden administration to have the US reach certain climate goals has helped.

Sophie Karp, a senior analyst and director of electric utilities, power and renewable energy for KeyBanc Capital Markets, stated that the IRA is more likely to encourage more solar projects versus wind power and other renewable energy projects due to the way that the tax credits are structured and the fact that solar has a greater need for such incentives. That is partly because solar power generation has been more expensive and less efficient than wind power generation, although Karp said its cost has been coming down.

Solar projects growth

Currently, she said that the rate of growth for solar projects is outpacing that for wind power, partly because of how many wind farms – particularly onshore wind farms –have already been built in key regions in the wind corridor, but also because solar is picking up steam.

Also, while there is growing interest, the US offshore wind market has been slower getting off the ground, although governmental incentives are expected to eventually help that market as well.

John Begala, vice president of state and financial policy for the Business Network for Offshore Wind, noted that currently there are only two operational offshore wind projects in the US – off the coast of Virginia and Rhode Island, although there are two more projects beginning construction this year – one off the coast of Long Island and the other off the coast of Massachusetts.

While offshore wind is less intermittent than most other renewable power generation sources, Begala said that one of its challenges is that it involves large, complex projects with long timelines, which can increase material and transportation costs, making it challenging for those projects to go forward.

Another challenge is getting the steel they need given that they need 90-150 mm thick heavy plate, Begala said, noting that only seven mills worldwide can produce 120-150 mm thick plate with none of those mills being in the US. He said that even Nucor’s new Brandenburg, KY, plate mill will only be producing heavy plate up to 100 mm thick. However, AISI’s Smith said that new investments by domestic steelmakers could fill that gap, maintaining that the greenfield mill that Nucor plans to build in West Virginia is largely being put in place to serve the offshore wind market.

Hydrogen has also recently come onto the scene as another viable renewable energy source, Alan Hollis, Evraz North America’s vice president of business development for emerging energy markets, said, noting that a multitude of companies are exploring a range of opportunities. In fact, in April, Evraz became the first North American line pipe producer to have a product qualified for high-pressure, 100% hydrogen pipeline transportation.

While being on the table for a while, Philip Gibbs, a senior metals equity analyst for KeyBanc Capital Markets, said that without the incentives in the IRA many ‘green’ hydrogen projects that are now seen as being viable would not have been considered for another decade given its cost. That, Villali explained, is because while hydrogen itself is clean, traditionally its production process is dirty, involving the use of such fossil fuels as natural gas, oil and coal and there is a lot of cost involved in switching to the use of renewables instead, including building solar or wind farms to make that ‘green’ hydrogen.

Due to the intermittent nature of renewable power sources – for example, when the sun doesn’t shine and when the wind doesn’t blow – there continues to be a need for such baseload power, as natural gas, coal or nuclear power, AISI’s Smith pointed out. Begala, however, maintains that isn’t necessarily the case for offshore wind, which he calls ‘renewable baseload power’ with the wind blowing more offshore.

For the same reason, SDI’s Wagler said that the energy storage of renewable energy, including the development of new battery storage technologies, is also very critical to guarantee the reliability of the electric grid for steelmakers and other significant power consumers.

“The amount of steel that will be used for these renewable power generation facilities remains to be determined,” Evraz’ Hollis declared, pointing out that it is still anyone’s guess as to how much planned new capacity will actually come to fruition and when.

Hollis pointed out that different types of renewable projects have somewhat different impacts upon not just steel demand in general but upon different steel products.

Steel demand

CRU’s Thomas pointed out that it will not only have an impact upon carbon steel, but upon stainless steel as well. And even for carbon steel, S&P Global’s Anton maintained that the overall net steel demand won’t increase dramatically, given that there is also less of a need for pipelines with many forms of renewables.

But certain specific types of steels, most notably carbon steel plate, will see a big boost. “Already the growth of generation capacity for such renewable energy sources as wind power has had an impact upon US demand for steel plate,” Frediani said, predicting that in the near- to mediumterm the building of wind towers could account for as much as 10% of US plate demand. “While that is a lot, it won’t be transformational,” Frediani said, given the impact that construction and some other major end-use markets will have upon plate consumption. In anticipation of this, he said that US plate production capacity has already ramped up about 10%, including the start-up of Nucor’s Brandenburg mill.

This push is also exponentially increasing demand for both grain oriented and nongrain oriented electric steel – products that are already in deficit, Anton observed, stating that if there isn’t more electrical steel production capacity built – preferably at a rate of four new mills per year – that will be one of the single biggest choke points for renewables. While US Steel’s Big River Steel facility will soon be making electric steel and Baosteel and ArcelorMittal are both adding production capacity,

Anton said that won’t be enough to meet demand. Frediani agreed, calling it just ‘baby steps.’

Several other steel products are also expected to benefit from the push for new renewable energy generating capacity, including hot-rolled and galvanized sheet, rebar, structural steel, tubular products and specialty steels. US steel mills are generally doing what they can to support this increased demand. For example, Hollis said that Evraz’ research and development centre in Saskatchewan, Canada, is very focused upon developing renewable energy related technologies and products.

Smith said that there are several examples of US steel producers working with companies producing renewable electricity to use electricity to make clean energy products.

For example, Wagler noted that SDI (as well as some other steelmakers) supports some renewable energy developers and the electricity grid through virtual purchase power agreements (VPPAs) that guarantee the power companies that the steelmaker will be pulling a certain amount of power from the grid where they will be introducing renewable energy. “It doesn’t necessarily mean that we will be using that renewable energy directly,” she noted, “But we will be supporting the grid, offsetting some of the cost of the renewables while also getting renewable energy credits that we can use to reduce our Scope 2 emissions.”

Meanwhile, some steelmakers have made investments to help them have more access to renewable energy. For example, Evraz has a commitment with Xcel Energy to build a solar farm on the grounds of its Rocky Mountain Steel mill in Pueblo, Colorado.

“Many steelmakers are doing things to play the game and to look better to their customers,” Gibbs said. While he thinks it’s a positive development for US steelmakers, it won’t ever usurp such other large end-use markets as construction and automotive. “But’’, Gibbs said, ‘’it will be a source of growth for companies that have been targeting the energy market for some time.” �