Home › Research › H2-DRI in India: Green Steel Economics
Steel · Green Hydrogen · EconomicsH2-DRI in India: Where the Economics of Green Steelmaking Actually Stand
India recently commissioned its first commercial-scale green hydrogen plant dedicated to steelmaking, while an IOCL tender discovered prices around Rs 397 per kg. Meanwhile, the National Green Hydrogen Mission director confidently projects costs will drop to USD 2 per kg by 2032, and JSW Steel has already committed USD 1.2 billion to a hydrogen-ready DRI plant. However, none of this alters the fundamental reality that H2-DRI is not yet commercially competitive with traditional BF-BOF or NG-DRI methods at today's hydrogen prices. Understanding exactly why this is the case, and how the economics will eventually shift, matters far more than any optimistic headline about the energy transition.
Key Takeaways
JSW Energy commissioned India's first and largest commercial-scale green hydrogen plant at Vijayanagar in November 2025. It features a 10 MW PEM electrolyzer producing 3,800 tpa of green hydrogen for direct supply to JSW Steel's DRI unit under a seven-year SIGHT offtake agreement. While this is a landmark achievement and a genuine proof of concept, 3,800 tpa is still less than 0.1% of the 5 MMTPA that green steel production would ultimately require.
India's most recent market-discovered green hydrogen price came from an IOCL tender in June 2025 at Rs 397 per kg (about USD 4.67/kg). The National Green Hydrogen Mission director aims for USD 2/kg by 2032. However, for H2-DRI to break even and be cost-competitive with NG-DRI, hydrogen needs to hit approximately USD 1.63 to 1.70/kg. The gap between current prices and competitive prices remains substantial, and the exact timeline for closing it is still uncertain.
At USD 4.67/kg for hydrogen, the "green steel premium" sits at roughly USD 150 to 225 per tonne of steel above conventional BF-BOF methods. If prices hit the 2032 target of USD 2/kg, that premium narrows to around USD 50 to 80 per tonne. While CBAM and domestic carbon market pricing are starting to change the financial calculation, they aren't quite enough yet to make unaided H2-DRI commercially viable against coal-based routes.
India's heavy reliance on coal highlights the H2-DRI problem in its starkest form. The country imports roughly 90% of its metallurgical coal. With another 182 MTPA of blast furnace capacity planned or under construction, we are looking at 30 to 40 years of coal-locked steelmaking. This creates a massive USD 124 to 187 billion stranded asset risk if decarbonisation policies tighten faster than developers currently expect.
The CBAM calculus definitely changes the economics, but not decisively in the near term. CBAM costs for BF-BOF steel exported to the EU currently hover around USD 65 to 80 per tonne based on today's EU ETS prices. That is real money, but it is not enough to close the USD 150 to 225 green premium gap on its own. Ultimately, it is the combination of tightening Ccripts targets, CBAM levy pressure, green procurement mandates starting in FY 2028, and falling hydrogen costs that will build a viable commercial case. Individually, none of these factors are enough.
India's advantage in H2-DRI is both real and structural. Because the country imports 90% of its met coal, it is highly exposed to global price volatility. Producing green hydrogen domestically from solar and wind completely eliminates that import dependency. The energy security argument for H2-DRI is at least as compelling as the climate argument, and in India's industrial policy landscape, it might actually be the more persuasive factor for decision-makers.
The H2-DRI process: what it is and why it matters for India
The chemistry of steelmaking is straightforward but stubborn. Iron ore is essentially iron oxide, and making iron means stripping that oxygen away. In a traditional blast furnace, carbon (derived from coking coal) does the stripping by combining with the oxygen to form CO₂. This makes the BF-BOF route inherently carbon-intensive. Carbon isn't just an energy source here; it is a critical chemical reactant in the ironmaking process itself. Because of this, you simply cannot eliminate CO₂ from a blast furnace by making it more energy-efficient beyond a certain point. The chemistry itself is the main constraint.
Hydrogen-based direct reduction of iron (H2-DRI) relies on completely different chemistry. Instead of carbon, hydrogen is used to strip the oxygen from the iron ore, combining with it to form harmless water vapour rather than CO₂. If this hydrogen is produced using renewable electricity through electrolysis instead of natural gas, the ironmaking process yields practically zero direct carbon emissions. The resulting sponge iron is then melted in an Electric Arc Furnace (also powered by renewables) to create liquid steel. Ultimately, this route slashes CO₂ emissions by 85 to 90% compared to traditional methods, approaching near-zero when powered entirely by renewables.
For India, this chemical shift matters for reasons well beyond climate change. India imports roughly 90% of its metallurgical coal, the high-grade fuel that blast furnaces desperately need. Global coking coal markets are incredibly volatile, geopolitically sensitive, and increasingly subject to carbon pricing in exporting nations. Every single tonne of BF-BOF steel India produces only deepens its exposure to that dependency. Producing green hydrogen domestically from solar and wind completely removes this risk. The energy security argument for H2-DRI isn't just a bonus side effect; it runs parallel to the climate argument and actively reinforces it.
The current cost reality: what green hydrogen actually costs in India
To truly understand H2-DRI economics in India, we have to start with the current price of green hydrogen. The most recent market-discovered price came from an IOCL tender in June 2025, settling at Rs 397 per kg (about USD 4.67/kg). This is actually a very competitive price by global standards and aligns with RMI's mid-2025 estimates for ISTS-connected projects in India. It is also a significant drop from the USD 7 to 10/kg range we saw in early project bids back in 2022 and 2023. India's renewable energy cost advantage is real and actively widening.
However, USD 4.67/kg is still far above the threshold where H2-DRI can realistically compete with conventional steelmaking. Academic break-even analysis from the Lawrence Berkeley National Laboratory shows that H2-DRI only becomes cost-equivalent to NG-DRI when hydrogen drops to around USD 1.63 to 1.70/kg. Shri Abhay Bakre, director of the National Green Hydrogen Mission, stated in September 2025 that costs should hit USD 2/kg by 2032. While that is still slightly above the competitive threshold, it is close enough that factors like carbon pricing, CBAM levies, and falling electrolyzer costs could make H2-DRI financially viable in certain setups by the mid-2030s.
The gap between USD 4.67/kg and USD 1.63/kg highlights the core economic hurdle for H2-DRI in India right now, representing a factor difference of about 2.8 times. At USD 4.67/kg, using green hydrogen in DRI steelmaking tacks on a cost premium of approximately USD 150 to 225 per tonne of steel compared to conventional BF-BOF routes. In a commodity market with razor-thin margins, that is a severe disadvantage. At the projected 2032 target of USD 2/kg, that premium shrinks to roughly USD 50 to 80 per tonne. By the time hydrogen hits the break-even price of USD 1.63/kg, the premium practically disappears.
Driving the cost of green hydrogen down relies on three key factors: cheaper electrolyzer capital costs, cheaper renewable electricity, and higher utilisation rates as the technology matures. Fortunately, all three are trending in the right direction in India. Electrolyzer costs have plummeted by roughly 50% since 2020, and India's renewable tariffs remain some of the lowest globally. Furthermore, the domestic electrolyzer manufacturing industry is building the kind of scale that will reduce equipment costs even more, largely thanks to SIGHT production-linked incentives. The real question is whether this cost reduction will happen fast enough to match the commercial urgency driven by CBAM, the CCTS, and upcoming Green Public Procurement mandates.
What India has actually commissioned: the pilots and investments
The most significant recent milestone in India's H2-DRI journey is the November 2025 commissioning of JSW Energy's green hydrogen plant at Vijayanagar in Karnataka. This is a massive step forward. It stands as India's first and largest commercial-scale green hydrogen plant dedicated to steelmaking, leveraging proton exchange membrane electrolysis and powered by Karnataka's abundant solar and wind resources.
India's first commercial-scale green hydrogen plant for steelmaking. Capacity: 10 MW PEM electrolyzer, producing 3,800 tpa of green hydrogen and 30,000 tpa of green oxygen. Located adjacent to JSW Steel's Vijayanagar DRI facility in Karnataka, with direct pipeline supply. Operates under a seven-year offtake agreement with JSW Steel, part of JSW Energy's 6,800 tpa SIGHT programme allocation from SECI. A separate MOU commits JSW Energy to supply 85,000 to 90,000 tpa of green hydrogen to JSW Steel by 2030, roughly 23 times the current commissioned capacity. This scale-up will require the electrolyzer capacity to expand from 10 MW to approximately 300 MW, tracking Karnataka's expanding solar and wind capacity. The hydrogen supplies JSW Steel's DRI unit, partially substituting the natural gas currently used in the reduction process, demonstrating that technical integration of green hydrogen into an operating DRI facility is feasible at industrial scale.
JSW Steel has committed USD 1.2 billion to a new hydrogen-ready DRI plant at its Vijayanagar complex, with a designed capacity of 1.5 MTPA. The plant will initially operate on a mix of natural gas and hydrogen before transitioning progressively to 100% green hydrogen as the Vijayanagar electrolyzer capacity scales toward the 90,000 tpa supply target. This is the design philosophy that enables commercial viability before green hydrogen reaches break-even cost, starting on NG-DRI economics and transitioning as hydrogen costs fall, rather than waiting for full competitiveness before committing capital. JSW Steel's group decarbonisation target is a 42% reduction in carbon intensity by 2030 from a 2005 baseline.
The Ministry of Steel awarded five pilot projects for hydrogen use in steelmaking under the National Green Hydrogen Mission's Rs 455 crore steel sector allocation. The three categories are: 100% hydrogen-based DRI production (government covers 70% of eligible costs); hydrogen injection into existing blast furnaces to reduce coal and coke consumption (50% cost coverage); and blending hydrogen with natural gas in existing DRI plants (50% cost coverage). The initial hydrogen requirement can be met by any source, but final implementation mandates green hydrogen. Two of the Ministry of Steel's awarded pilot projects are for 100% hydrogen-based DRI in vertical shaft furnaces; one is for hydrogen injection into an existing blast furnace. These pilots are designed to generate operating data that informs the commercial case for H2-DRI at scale.
Jindal Steel and Power Limited has disclosed plans for green hydrogen integration at its Angul DRI facility in Odisha, one of India's largest DRI complexes. The specific scale and timeline have not been publicly disclosed in detail, but the intent aligns with JSPL's broader decarbonisation commitments and the SIGHT programme structure. Angul's location in Odisha, a state with significant renewable resource potential and a strategic priority for aluminium and steel decarbonisation, makes it a natural candidate for hydrogen integration once the economics improve.
Both Tata Steel and ArcelorMittal Nippon Steel India have disclosed hydrogen-in-steelmaking trial programmes. Tata Steel's focus includes hydrogen injection into blast furnaces as a transitional decarbonisation measure, which does not require a DRI route but reduces coke consumption and associated CO₂. AM/NS India's H₂-DRI trials are exploring the technical parameters for hydrogen integration at its existing DRI-EAF facilities. These trials sit at lower technology readiness than the JSW Vijayanagar commissioning but represent the industry-wide move toward hydrogen as a serious operational input rather than a theoretical future technology.
How CBAM changes the financial calculation
The "green steel premium" (the extra cost per tonne for H2-DRI steel over BF-BOF steel) doesn't exist in a vacuum. Indian steel producers operate in a complex global market, and policies like CBAM, the CCTS, and the Green Public Procurement mandate are actively applying pressure. These policies are progressively making conventional BF-BOF steel more expensive compared to its low-carbon alternatives.
At current EU ETS prices of roughly €60 to €70 per tonne of CO₂, the CBAM levy for an Indian BF-BOF producer exporting to Europe sits at approximately €153 to €179 per tonne of steel. This calculation is based on an average emission intensity of 2.55 tCO₂/ts. That levy is already in the same ballpark as the green steel premium at today's hydrogen prices. While the math isn't entirely favourable for H2-DRI just yet, as the green premium still slightly outweighs the CBAM savings, the trajectory is hard to ignore. As EU ETS prices climb toward the €100 to €130 range projected for 2030, and as hydrogen costs drop toward USD 2/kg, the adjusted economics between BF-BOF and H2-DRI will narrow considerably.
| Scenario | H₂ price | Green steel premium vs BF-BOF (est.) | CBAM cost BF-BOF to EU | Net financial gap |
|---|---|---|---|---|
| Today (2026) | USD 4.67/kg | USD 150 to 225/t steel | ~€153 to 179/t steel (EU ETS ~€65/t) | Still H2-DRI disadvantage |
| 2028 to 2030 Mission trajectory | USD 2.5 to 3/kg | USD 80 to 120/t steel | ~€180 to 230/t steel (EU ETS ~€80/t) | Approaching parity for EU exports |
| 2032 and beyond Mission target | USD 2/kg | USD 50 to 80/t steel | ~€225 to 260/t steel (EU ETS ~€100/t) | H2-DRI potentially competitive for EU-export producers |
The data clearly maps out the future. For Indian producers exporting to Europe, falling hydrogen costs and rising CBAM pressures will eventually create a financial crossover point sometime between 2030 and 2035. This heavily depends on hydrogen costs dropping as projected and EU ETS prices continuing to rise. For producers focused entirely on the domestic market without CBAM exposure, this crossover point will arrive later. Their timeline relies much more on domestic carbon market pricing through the CCTS and public procurement mandates that reward green-rated steel.
The CBAM-CCTS financial calculation is not the only lens through which H2-DRI economics should be evaluated in India. India imports approximately 90% of its metallurgical coal, primarily from Australia, the United States, Russia, Mozambique and Indonesia. Coking coal prices spiked to over USD 400 per tonne in 2022, adding directly to steel production costs across India's entire primary sector. A 1.5 MTPA H2-DRI plant running on green hydrogen eliminates the coking coal dependency for that capacity entirely, removing approximately 1.5 MTPA of coal import exposure and the associated price volatility. At current met coal import prices of USD 200 to 250 per tonne, the coking coal cost saving partially offsets the green hydrogen cost premium. This is why leading producers like JSW Steel frame H2-DRI as an energy security investment alongside a climate one, and why IEEFA characterises it as providing India with "steel without the energy security challenge."
The structural problem: 182 MT of new BF capacity
The most critical number in India's H2-DRI economic landscape isn't the current price of hydrogen. It is the 182 MTPA of traditional blast furnace capacity that is currently planned or under construction. India aims to hit a steel capacity target of 300 MTPA by 2030, up from about 205 MTPA today. The vast majority of this expansion relies on the coal-intensive BF-BOF primary production pathway.
When a steel plant is built today, it typically operates for 30 to 40 years. A BF-BOF plant commissioned in 2026 or 2027 will still be churning out steel in 2056 or 2057, well into the timeline where India's net-zero 2070 goals demand deep decarbonisation of the entire sector. Global Energy Monitor estimates that this incoming BF-BOF capacity creates a stranded asset risk of USD 124 to 187 billion. If carbon policies tighten faster than expected to meet global net-zero trajectories, that capital could be heavily written down. This is the exact "build now, decarbonise later" risk that groups like IEEFA and GEM have been warning about.
On the flip side, India's steel industry argues that the country has urgent, immediate infrastructure needs. Traditional BF-BOF produces the specific structural steel grades required for Indian construction, which scrap-based EAF cannot fully substitute just yet. Industry leaders argue that pausing new capacity until H2-DRI becomes fully competitive would stall India's infrastructure growth by a decade. This creates a genuine, complex policy tension rather than a simple right-or-wrong debate. The Ministry of Steel's current strategy, which includes pilot projects, a green steel taxonomy, public procurement mandates, and SIGHT incentives, aims to prepare the market so that H2-DRI is commercially viable by the time the next major wave of capacity investments rolls around, rather than forcing a technology mandate today that the numbers cannot support.
One clever design choice that helps mitigate this lock-in risk is making new plants adaptable. For example, JSW Steel's USD 1.2 billion DRI plant at Vijayanagar is intentionally designed to be "hydrogen-ready." This means the engineering allows it to smoothly transition from natural gas to hydrogen feedstocks without needing a complete tear-down and rebuild. Building natural gas DRI today with hydrogen-ready engineering in an area with great renewable access is a much safer bet than building a rigid BF-BOF plant. It acts as a smart bridge technology strategy, and given the current economics, it is likely the best path forward.
What needs to happen for H2-DRI to scale in India
For H2-DRI to evolve past pilot programs and scale significantly in India, five key factors need to align. None of these are enough on their own, but together, they build a rock-solid commercial case.
Green hydrogen cost below USD 2/kg
The National Green Hydrogen Mission's 2032 target is well within reach if electrolyzer manufacturing costs keep falling, domestic renewable tariffs remain low, and the ISTS waiver for renewable electricity stays active. India's fantastic solar and wind resources, especially in states like Rajasthan, Gujarat, Tamil Nadu, and Andhra Pradesh, combined with the ISTS waiver, mean cheap renewable electricity can be seamlessly routed to electrolyzers anywhere in the country. RMI even estimates that ISTS-connected projects can hit USD 4 to 5/kg today with a clear path downward.
Domestic iron ore quality improvement
The H2-DRI process is incredibly sensitive to impurities and requires high-grade iron ore pellets with an iron content typically above 67%. Unfortunately, much of India's domestic iron ore is lower grade and requires extensive beneficiation and pelletising. The SIGHT programme's focus on 100% H2-DRI pilots is largely about figuring out how to efficiently process Indian iron ore to meet these strict requirements. If local ore cannot hit the mark, importing high-grade ore from places like Australia or Brazil will only inflate costs.
Carbon pricing that reflects the full cost gap
The current intensity-based targets of the CCTS generate only a modest carbon price signal, and early market CCC prices are expected to be low. For domestic carbon markets to genuinely drive H2-DRI adoption, those CCC prices need to rise significantly to levels closer to the EU's CBAM levy. Fortunately, the CCTS's tightening trajectory, combined with CBAM pressures on exporters, is already creating the right directional push even if today's absolute price falls short.
Green public procurement creating guaranteed offtake
The proposed Green Public Procurement Policy, which aims to mandate 25 to 37% green-rated steel in government projects starting in FY 2028, is arguably the most powerful near-term tool for creating demand. If the government procures 30.6 MTPA of steel with a 25% green mandate, it instantly guarantees a market for 7.6 MTPA of certified low-carbon steel annually. This level of predictable demand is exactly what green steel producers need to secure project financing. A recent CII report even suggests this could drive up to 10.6 MTPA of green steel consumption by FY 2031, sending a massive market signal that would accelerate hydrogen supply investments.
Targeted public finance for early H2-DRI projects
As IEEFA pointed out in its November 2025 analysis, commercial lenders still view these technically proven projects as high-risk. Public capital is absolutely essential to bridge this early financing gap. The proposed Rs 5,000 crore National Mission for Sustainable Steel is perfectly positioned to help, offering production-linked incentives, concessional loans, and risk guarantees. With 80% of these funds specifically targeted at secondary steel mills and early-stage low-carbon primary production, the mission directly supports the producers who need bridging capital the most.
Frequently Asked Questions
What hydrogen price does H2-DRI need to become competitive with BF-BOF?
Without carbon pricing, H2-DRI becomes competitive with NG-DRI at approximately USD 1.63 to 1.70/kg. With CBAM plus CCTS carbon costs of USD 50 to 80 per tonne of steel, the break-even hydrogen price for EU-export producers rises to approximately USD 2 to 2.5/kg, which is remarkably consistent with India's 2032 cost target.
Is India's DRI industry an advantage for H2-DRI adoption?
Yes, significantly. India is the world's largest DRI producer at approximately 55 MTPA. Existing gas-based DRI shaft furnaces can transition to hydrogen with lower capital investment than converting rigid BF-BOF plants, giving India a structural advantage over predominantly BF-BOF producers like China, Japan and South Korea.
What emission reduction does H2-DRI achieve?
H2-DRI using green hydrogen and renewable electricity achieves approximately an 85 to 90% reduction in direct CO₂ emissions versus BF-BOF. This brings intensity from approximately 2.5 to 3.0 tCO₂/ts down to 0.3 to 0.5 tCO₂/ts, earning it five-star status under India's Green Steel Taxonomy and effectively eliminating CBAM exposure.
How much green hydrogen would India's steel sector need by 2030?
EY projects approximately 5 MTPA of green hydrogen demand from steelmaking by 2030 under an accelerated transition scenario. This is actually equal to India's entire National Green Hydrogen Mission production target across all sectors. Most analysts view 2030 to 2050 as the realistic scaling window, with JSW Vijayanagar's 3,800 tpa being the genuine starting point.