Govt mulls tweak in interest rates to fund capital-intensive green steel projects

India is pressing ahead with initiatives to fund green steel projects, embracing hydrogen as the ‘game-changing alternative’ to traditional coal methods. Discussions are underway over proposals, including the potential for imposing lower interest rates specifically tailored for upcoming capital-intensive green steel ventures.

Green steel is characterised by its low carbon footprint.

A senior official, aware of discussions, said options like “tweaking” the existing financing rates by banks are under-consideration too. For instance, if the interest rate is 10 per cent, for a green steel project, approved under various pre-determined parameters, it could slightly lower.

“Several Ministerial clearances are required, while financial institutions need to be brought on-board too if this proposal has to go through,” the official said.

The establishment of a green steel project incorporating hydrogen technology is commonly perceived as double the expense of traditional steel plants. While the construction cost for a conventional steel plant with a capacity of one million tonnes per annum is estimated at $1 million, the setup cost for a similar green steel plant ranges $2-2.5 million.

The Centre is also pushing for a consortium-based approach to set up steel projects that use green hydrogen.

It has been proposed that in case of projects which come through a consortium mode, or via industry associations (wherein multiple companies will have a common unit that will be used), funding or support could be as high as 70 per cent of the project cost (including preparation of DPR) if it gets requisite clearances.

EMISSIONS

India’s steel sector accounts for 12 per cent of the country’s greenhouse gas emissions. The emission intensity is 2.55 tonnes of CO2 per tonne of crude steel produced, higher than the global average of 1.9 tonnes.

The Steel Ministry has been allotted ₹455 crore as part of its share under the National Green Hydrogen Mission.

As per the initial scheme guidelines, notified in February, there will be a call for proposals (pilot projects) that will be issued by the Ministry of Steel through a yet-to-bedecided “scheme implementing agency”, with funding available up to 2029-30.

The scheme would primarily fund capital equipment required for use of hydrogen in the iron & steel manufacturing process.

Three key areas have been identified for the pilot projects in the steel sector: the use of hydrogen in the Direct Reduced Iron-making (DRI) process, using hydrogen in blast furnaces, and gradually substituting fossil fuels with green hydrogen.

Funding approved shall not exceed 50 per cent of the total (project) cost, and primarily cover capital expenditure requirements (excluding land costs, and expenses relating to production of hydrogen).

THREE STAGES

Funds will be disbursed in three stages – award of letter of contract (20 per cent), completion of specific timebound milestones (70 per cent) and final completion of project (remaining 10 per cent).

Failure to complete projects on time or diversion of funds will lead to refund of entire grant.