New optimization model boosts zero-carbon steel profitability to 20.67% IRR

A new paper from researchers at arXiv introduces an optimal sizing model for a hydrogen-based steel production system that integrates direct reduced iron, electric arc furnace, and methanol synthesis (H2-DRI-EAF-MeOH). The model addresses a key challenge in green steel: renewable energy volatility often leads to oversizing of capacity and poor investment returns. The authors replace conventional annualized-cost metrics with annualized net return on investment (ANROI), and decouple hourly production rate limits from annual capacities as independent decision variables. Using mixed-integer linear fractional programming solved via the Dinkelbach method, they theoretically show that increasing hourly rate limits expands the feasible operating region and improves renewable energy matching.

Case studies reveal strong financial performance. Under on-grid scenario, the ANROI-based sizing yields an internal rate of return (IRR) of 20.67%; off-grid scenario achieves 17.08%. Notably, as equivalent annual operating hours drop from 8,000 to 4,000, the on-grid IRR actually rises from 19.68% to 20.67% while battery storage needs fall by 113.56 MWh. Off-grid, the drop in hours boosts IRR from 12.64% to 17.08% with a 796.31 MWh battery reduction. The off-grid zero-carbon constraint enables CO2-to-methanol conversion but reduces IRR to 14.99%, suggesting current revenues don't offset additional costs. The model provides a practical way to size green steel plants for maximum financial viability.