Sweden: EU Commission clears €265m RRF state aid to H2GS’s green steel plant

The European Commission has approved, under EU State aid rules, a €265 million Swedish measure made available in part through the Recovery and Resilience Facility (‘RRF’) to support H2GS AB in setting up a large-scale green steel plant. The measure will contribute to the achievement of the EU Hydrogen Strategy, the  European Green Deal and the Green Deal Industrial Plan  targets, while helping to end dependence on Russian fossil fuels and accelerate the green transition, in line with the REPowerEU Plan.

The Swedish measure

The measure notified by Sweden, with a budget of €265 million, will be partially funded through the RRF following the Commission’s positive assessment of the Swedish Recovery and Resilience Plan and its adoption by the Council.

The measure will support H2GS’s project aimed to set up a large-scale green steel plant in Boden, Sweden. The steel plant includes the construction of: (i) one of the largest electrolysers in the world with a capacity of 690 megawatt; (ii) a direct reduction plant operating with renewable hydrogen; (iii) two electric arc furnaces; and (iv) cold rolling and finishing facilities.

The new installations are envisioned to start operating in 2026. They are expected to produce 2.4 million tonnes of green steel per year. The use of renewable energy for the whole manufacturing process will neutralise up to 87% of greenhouse gases emissions compared to traditional steel manufacturing processes. H2GS has committed to actively share the experience and technical know-how gained through the project with industry and academia.

The aid will take the form of a direct grant of €265 million. The project, which concerns a €6 billion total investment, will be primarily financed by private investment but it has also been selected for support under the EU Innovation Fund and has received financing from the European Investment Bank.

The Commission’s assessment

The Commission assessed the measure under EU State aid rules, in particular Article 107(3)(c) of the Treaty on the Functioning of the European Union, which enables Member States to support the development of certain economic activities subject to certain conditions, and the Guidelines on State aid for climate, environmental protection and energy (‘CEEAG’), which allow Member States to support measures reducing or removing CO₂ emissions.

The Commission found that:

• The measure facilitates the development of an economic activity, namely steel production through low-carbon processes. At the same time, it supports the objectives of key EU policy initiatives such as the European Green Deal, the EU Hydrogen Strategy, the Green Deal Industrial Plan and the REPowerEU Plan.
• The aid has an ‘incentive effect’, as the beneficiary would not carry out the investments in green steel production without the public support.
• The measure is necessary and appropriate to promote the production of green steel. In addition, it is proportionate, as the level of the aid corresponds to the effective financing needs.
• The measure has sufficient safeguards to ensure that undue distortions of competition are limited. In particular, if the project turns out to be very successful, generating extra net revenues, the beneficiary will return to Sweden part of the aid received (claw-back mechanism). Moreover, the beneficiary will disseminate the technical know-how gained through the project.
• The aid brings about positive effects that outweigh any potential distortion of competition and trade in the EU.

On this basis, the Commission approved the Swedish measure under EU State aid rules.

Background

All investments and reforms entailing State aid included in the national recovery plans presented in the context of the RRF must be notified to the Commission for prior approval, unless covered by one of the State aid block-exemption rules.

The Commission assesses measures entailing State aid contained in the national recovery plans presented in the context of the RRF as a matter of priority and has provided guidance and support to Member States in the preparatory phases of the national plans, to facilitate the rapid deployment of the RRF. At the same time, the Commission makes sure in its decision that the applicable State aid rules are complied with, in order to preserve the level playing field in the Single Market and ensure that the RRF funds are used in a way that minimises competition distortions and do not crowd out private investment.

The 2022 CEEAG provide guidance on how the Commission will assesses the compatibility of environmental protection, including climate protection, and energy aid measures which are subject to the notification requirement under Article 107(3)(c) TFEU.

The Guidelines create a flexible, fit-for-purpose enabling framework to help Member States provide the necessary support to reach the Green Deal objectives in a targeted and cost-effective manner. The rules involve an alignment with the important EU’s objectives and targets set out in the European Green Deal and with other recent regulatory changes in the energy and environmental areas and will cater for the increased importance of climate protection.

With the European Green Deal Communication in 2019, the Commission set an objective of net zero emissions of greenhouse gases in 2050 that is enshrined in the European Climate Law. In force since July 2021, the law also introduced the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030. Through the adoption of the ‘Fit for 55′ legislative proposals, the EU has in place legally binding climate targets covering all key sectors in the economy.

In July 2020, the Commission published its EU Hydrogen Strategy, setting ambitious goals for clean hydrogen production and use, and launched the European Clean Hydrogen Alliance, bringing together the European hydrogen community (industry, civil society, public authorities).

In February 2023, the Commission published the Green Deal Industrial Plan to enhance the competitiveness of Europe’s net-zero industry and support the fast transition to climate neutrality.

The non-confidential version of the decision will be made available under the case number SA.110031 in the State Aid Register on the DG competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.