A new techno-economic study by The Energy and Resources Institute (TERI) and Transition Asia has found that hydrogen-based green steel production in Andhra Pradesh could become commercially competitive with conventional coal-based steel, provided the project secures favourable renewable power, hydrogen supply and carbon-market conditions.
The study, “Is Green Steel Within Reach in India? Green DRI Economics, Policy Drivers and Site Feasibility in Andhra Pradesh,” examines the potential deployment of hydrogen-based direct reduced iron (H₂-DRI) at commercial scale, using local power, iron ore and policy conditions to assess different production configurations.
Its analysis focuses on a potential decision for Phase 2 of ArcelorMittal Nippon Steel India’s greenfield complex at Rajayyapeta in Andhra Pradesh. The study assesses roughly 9.6 million tonnes per annum (Mtpa) of prospective capacity, with the investment decision expected around 2030 and commissioning targeted for 2033.
The research concludes that producing steel entirely with green hydrogen would cost about 6%-13% more than conventional blast furnace-basic oxygen furnace (BF-BOF) steel under the assumptions modelled. However, the study identifies several measures outside the steel plant itself that could substantially narrow or eliminate this premium.
Green hydrogen steel premium remains relatively narrow
The study compares three direct reduced iron routes with the conventional BF-BOF pathway, including a shaft furnace using pellets, a fluidised-bed route and a rotary kiln capable of using lower-grade iron ore fines.
At 100% green hydrogen, the model puts the cost of steel from the three DRI configurations at $571-$606 per tonne of crude steel, compared with $536 per tonne for BF-BOF steel.
This represents a green premium of approximately 6%-13%.
The emissions advantage, however, is substantial. The study estimates emissions of about 0.3-0.6 tonnes of CO₂ per tonne of steel for the hydrogen-based DRI routes, compared with approximately 2.6 tonnes of CO₂ per tonne for the BF-BOF benchmark.
The relatively narrow cost range between the hydrogen-based configurations means that technology selection cannot be based solely on headline production cost. The study instead highlights factors including iron-ore characteristics, technology maturity and emissions performance.
Hydrogen price could determine the preferred production route
The economics become more favourable as the delivered price of green hydrogen declines.
Transition Asia and TERI estimate that hydrogen becomes more competitive than natural gas in the assessed DRI configurations at a delivered price of approximately $1.70-$2.11 per kilogram.
The study treats natural gas as a potential fallback rather than the preferred long-term pathway. A gas-based start could lower initial production costs in some configurations, but it would retain significant emissions and increase exposure to imported liquefied natural gas.
The researchers therefore conclude that hydrogen should be incorporated into the plant design from the outset, while natural gas could provide flexibility during the transition.
Hub-based hydrogen could reduce capital requirements
One of the study’s most significant findings concerns the potential use of hydrogen supplied from a regional hub rather than producing all hydrogen on site.
The analysis assumes delivered hydrogen at approximately $2/kg. Under that scenario, buying hydrogen from a hub could reduce steel production costs by around $28-$30 per tonne compared with on-site hydrogen production.
It could also remove approximately $1.2 billion in electrolyser capital expenditure from the steel project’s balance sheet.
The study estimates that the resulting debt-service coverage ratio could improve from 1.65 times to 1.93 times.
However, this option depends on the availability of sufficient hub capacity and a dedicated supply agreement. The report says Phase 2 could require around four-fifths of the planned hydrogen hub’s output, making reliable delivery a key condition for the modelled economics.
Renewable power procurement is a major economic lever
The study identifies electricity procurement as potentially more important to project economics than the choice between the different DRI technologies.
The value of the power contract is estimated at up to $129-$148 per tonne of steel, driven particularly by two regulatory mechanisms: group-captive surcharge exemptions and energy banking with the state utility.
According to the modelling, the base case requires access to both mechanisms to achieve the 1.3-times debt-service coverage assumed by lenders.
The researchers also flag a potential constraint around energy banking. The assessed project could require 470-1,555 MW of banked load, compared with a state-wide envelope of approximately 700 MW under the conditions examined.
This means the availability and future expansion of power-banking arrangements could become an important factor in determining whether large hydrogen-based steel projects can secure bankable renewable electricity supplies.
Andhra Pradesh’s clean-energy policy could support green steel
Andhra Pradesh has several characteristics that make it relevant to large-scale green steel development, including renewable energy resources, coastal logistics, industrial infrastructure and access to clean-energy policies.
The state’s clean-energy framework includes provisions covering renewable energy, green hydrogen, green ammonia, energy storage and transmission.
During the stakeholder workshop, representatives of Andhra Pradesh’s power and renewable-energy agencies highlighted mechanisms for renewable electricity procurement, including open access, third-party procurement and power exchanges.
The state has also introduced incentives related to transmission charges, cross-subsidy and additional surcharges, alongside infrastructure support for designated green hydrogen hubs, according to the study’s workshop presentation.
For a steel project of the scale examined, however, the study indicates that the long-term availability and bankability of these arrangements will matter as much as their existence on paper.
Carbon market could close part of the green premium
India’s emerging carbon market is another important variable in the project’s economics.
The study estimates that the value generated by the carbon market could range from approximately $10-$45 per tonne of steel by 2035, depending on the carbon price and the pace at which emissions-intensity targets tighten.
Under the scenarios modelled, a carbon price of $25-$50 per tonne of CO₂ combined with tighter emissions targets could potentially cover the entire green premium for some hydrogen-based production routes.
The researchers also point to the potential evolution of India’s Carbon Credit Trading Scheme (CCTS) towards mechanisms that provide stronger incentives for low-emission production.
The timing is important because a new greenfield steel plant will not necessarily benefit from carbon credits immediately. The economic value can instead arise from the increasing carbon cost associated with higher-emission conventional steel production.
EU CBAM strengthens the export case, but only partially
The European Union’s Carbon Border Adjustment Mechanism (CBAM) could improve the competitiveness of low-carbon Indian steel exported to Europe.
The study estimates that hydrogen-based steel could have a $179-$209 per tonne advantage over Indian BF-BOF steel in the EU market by 2033 under its modelled assumptions.
However, the researchers caution that CBAM cannot be the primary foundation for India’s green steel business case because India currently exports only around 3%-5% of its steel production.
The study also identifies an important issue concerning how Phase 2 of the Rajayyapeta project is reported for CBAM purposes. If Phase 2 is treated as part of the same installation as Phase 1, the report estimates that the border charge could rise substantially. Treating Phase 2 as a separate installation could avoid that increase, according to the analysis.
Rajayyapeta provides a real-world test case
The Andhra Pradesh study is significant because it examines a prospective industrial investment rather than a theoretical green steel plant.
ArcelorMittal Nippon Steel India laid the foundation stone for its greenfield integrated steel plant at Rajayyapeta in March 2026. The first phase is planned at 8.2 Mtpa, with investment of more than ₹70,000 crore, while production is expected to begin in phases from 2029.
Transition Asia’s analysis examines a separate potential 9.6 Mtpa Phase 2 decision, expected around 2030, rather than treating the entire announced Rajayyapeta development as an already committed hydrogen-based steel facility.
That distinction is important: the study assesses what production pathway could make a future Phase 2 commercially viable; it does not confirm that the project has already committed to 100% green hydrogen-based DRI.
Green steel policy is moving beyond technology pilots
India’s Ministry of Steel has identified green hydrogen, renewable energy, material efficiency, carbon capture and alternative DRI pathways among the major routes for reducing emissions from steelmaking.
The ministry has also awarded six pilot projects under the National Green Hydrogen Mission focused on hydrogen applications in steel production, including hydrogen-based DRI, hydrogen injection into blast furnaces and hydrogen-biochar-based DRI production.
India has separately established a Green Steel Taxonomy based on emissions intensity. Steel with emissions below 2.2 tonnes of CO₂ equivalent per tonne of finished steel is eligible for green-rating classification, with higher ratings assigned to progressively lower emissions intensities.
These measures create a policy framework for green steel, but the TERI-Transition Asia study indicates that large commercial projects will require more than technology support.
Stakeholders call for coordinated policy and infrastructure action
The study was presented at a stakeholder workshop involving representatives from the Andhra Pradesh government, power utilities, steel and energy companies, technology providers and academia.
TERI highlighted the commercial challenge created by the gap between the cost of green hydrogen and buyers’ willingness to pay a premium, describing it as a “chicken and egg” problem.
Transition Asia argued that India’s expanding steel demand creates a strategic opportunity to adopt lower-carbon production routes as new capacity is built.
Industry and technology participants including AM/NS India, GAIL, APEPDCL, Andhra University, the Indian Institute of Petroleum and Energy, Danieli and NTPC Green Energy contributed to the discussion.
The organisations said the workshop’s recommendations would be used to strengthen the study and inform policymakers, investors, financiers and technology providers.
