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It isn’t the easiest time to be a green industrial start-up in Europe. The sudden collapse into bankruptcy of Northvolt, Europe’s best-funded start-up and its big hope for battery manufacturing, has in recent months cast a huge shadow over the sector, causing investors, customers and governments to rethink their commitment. All the while, Chinese competition stands in the wings ready to take advantage.
It is certainly not the easiest backdrop for a company started by the same Swedish investment group as Northvolt and operating in the same relatively remote part of northern Sweden to increase its efforts to produce green steel.
Stegra, formerly known as H2 Green Steel, has raised €6.5bn from the likes of the Wallenberg, Agnelli and Maersk families as well as Mercedes-Benz and Scania. It hopes to start producing green steel using renewable energy and emission-free hydrogen in the second half of next year at the factory it is building in Boden, about 80km south of the Arctic Circle.
The fate of Stegra will be the latest test for Europe’s faltering approach to green industry, closely watched by investors and countries both inside and outside the continent. The Swedish government’s own hesitancy in fully backing Stegra, after its lack of support for Northvolt, risks sending a chill through the sector.
Henrik Henriksson, Stegra’s chief executive and a former head of truckmaker Scania, puts on a brave face as he seeks to explain why the steel start-up is different from Northvolt, despite both being founded by private equity group Vargas. Whereas Stegra once had plans to emulate Northvolt and push into international projects quickly, it has now drawn one lesson from the failed battery group and is putting plans in Canada, Brazil and Portugal on the back burner until its Boden plant is successful.
Henriksson stresses that Stegra’s process for making green steel — using electric-arc furnaces — has been used for decades, and that it has already sold 50 per cent of its production for the next seven years. “We are a different industry, we are a different company, we have different customers,” he adds. Those customers include Mercedes, Porsche and steelmaker Marcegaglia.
Still, Northvolt highlights there is plenty that can go wrong. Building a factory that has a complex and energy-intensive manufacturing process far from most customers in northern Sweden is demanding. Banks and shareholders are taking a more sceptical approach to green projects in general, even if Stegra’s initial phase is close to fully funded.
“When we closed our funding two years ago, the sentiment was very tough, but I think it’s even tougher now. Sustainable investments really need to prove themselves,” Henriksson concedes.
One headache is what he calls “a small piece of the puzzle missing” — SKr1.65bn (€150mn) in funds from the Swedish state that has been approved by the EU but is being held back because the environmental protection agency in Stockholm says that Stegra will still have carbon emissions even if its green steel is planned to have 95 per cent fewer than current processes. That could delay a project already two years behind its original schedule. There are also question marks about its expansion in Boden as it struggles to gain access to the plentiful renewable energy in northern Sweden ahead of a rival green steel project backed by state companies.
Some investors feel doubly frustrated after Sweden refused to give financial support to Northvolt, even though Germany and Canada backed it. “Sweden talks a good game on all things green, but they won’t back their talk with hard cash,” complains one. The Swedish government declined to comment.
It is a dilemma faced by all European governments, especially as they up their defence spending. First movers in green technology often need heavy support, such as the $2bn Norway is giving to a pioneering carbon-capture and storage project. Some argue there is a first-mover disadvantage and that it can pay to sit out the often chaotic beginnings of new technology. Henriksson is having none of that. He insists Stegra can be profitable by 2028 and be producing 5mn tonnes of green steel at the end of the decade.
With troubles in its wind turbine and battery industries, Europe is undergoing something of a crisis in confidence in the projects to build a greener future. How smooth Stegra’s progress proves to be in the coming years will say much about whether the continent can recover against the pressure from China in particular.
richard.milne@ft.com
