IS GREEN STEEL WITHIN REACH IN INDIA? Green DRI Economics, Policy Drivers and Site Feasibility in Andhra Pradesh

A new study by TERI, in collaboration with Transition Asia, examines a critical decision for India’s next wave of steel capacity: the technology pathway for Phase 2 of ArcelorMittal Nippon Steel’s greenfield complex at Rajayyapeta, Andhra Pradesh. With 9.6 Mtpa of capacity scheduled for decision around 2030 and commissioning in 2033, the report evaluates options based on the site’s iron ore availability, power infrastructure, and policy landscape. Using a plant-level model, it compares three direct reduced iron (DRI) routes, a shaft furnace using pellets, a fluidised-bed route, and a rotary kiln using low-grade fines, against the conventional coal-based BF-BOF route across scenarios ranging from natural gas to 100 per cent green hydrogen.

Key findings:

The green premium is modest and technology routes have converged.

At 100 per cent hydrogen, green steel costs $571–606/tcs compared to $536/tcs for the BF-BOF route. Because the three DRI routes sit within $35/tcs of one another, technology selection will depend primarily on iron ore feed quality, process maturity, and lifecycle emissions rather than cost alone.

The domestic carbon market’s impact depends on the pace of its targets.

A greenfield plant earns no direct Carbon Credit Trading Scheme (CCTS) credits in its initial years; its primary commercial advantage lies in the compliance costs imposed on competing BF-BOF capacity—amounting to $10–45/tcs by 2035 ($24/tCO₂ if targets tighten by 2 per cent annually, rising to $50/tCO₂ at 5 per cent). Introducing a common emissions-intensity benchmark would reward greenfield low-carbon capacity directly.

EU carbon border adjustments affect only export volumes.

Under the EU Carbon Border Adjustment Mechanism (CBAM), hydrogen-based steel lands $179–209/tcs below Indian BF-BOF steel by 2033; however, India currently exports only 3–5 per cent of its total steel production.

Hydrogen is the strategic choice; natural gas is merely a fallback.

Hydrogen outcompetes natural gas in the same reactor at $1.70–2.11/kg. While starting on natural gas yields a lower initial cost of $531–553/tcs, it locks in emissions of 0.8–1.2 tCO₂/tcs based on imported LNG.

Power procurement strategy matters more than technology choice.

The project’s power economics rely heavily on two regulatory mechanisms: the group-captive cross-subsidy surcharge exemption ($81–94/tcs) and utility banking ($50–57/tcs). The base case satisfies a 1.3x debt-service coverage covenant only when both provisions remain intact.

Hydrogen hub off-take provides the strongest balance-sheet lever.

Procuring hydrogen from an external hub at $2/kg removes $1.2 billion in electrolyser capital expenditure from the balance sheet, lifting the plant's debt-service coverage ratio from 1.65x to 1.93x.