The Federal Ministry for Economic Affairs and Energy (BMWE) approved the funding increase for the steelmakers’ Salcos project, which looks to use green hydrogen to reduce iron ore instead of coal, after EU approval earlier this month.

These new funds add to the €1bn ($1.8bn) originally committed in 2022 through the European Important Projects of Common European Interest scheme.

BMWE said the project had always required additional support, as the calculated funding gap exceeded the €1bn originally approved, but efforts to combine the aid with other financing instruments proved unfeasible.

Under the Salcos project, Salzgitter is currently building a 100MW electrolyser plant at its Flachstahl site, which will supply an iron ore direct reduction unit. This initial phase alone is expected to cut around 30% carbon dioxide emissions from the facility’s annual two million tonnes of steel output.

It had also launched a tender process for at least 100,000 tonnes of low-carbon hydrogen from 2027.

Although the electrolyser remains on track to come online this year, the company confirmed last September that the subsequent two phases – aimed at reaching a 95% CO2 reduction – had been pushed back, citing regulatory delays.

Specifically, the company highlighted the need for “consistent trade protection.”

The European steel industry has faced growing pressures amid rising imports of cheap steel from China and India. In January, the EU’s carbon border adjustment mechanism came into effect – applying carbon prices to imported products like steel and aluminium.

BMWE said by providing the new funds, it was “providing a key future project…with the necessary financial security to continue making great strides in its implementation.”

Salzgitter has not yet commented on the funding approval.