As ArcelorMittal's XCarb Innovation Fund backs Form Energy's $450m series E round, its head tells us why the unit is targeting clean energy, hydrogen and smart carbon technology.

Steel producer ArcelorMittal’s XCarb Innovation Fund has now committed nearly $200m to startups, providing $17.5m for US-based energy storage technology provider Form Energy’s $450m series E round today.

The fund reflects ArcelorMittal’s growing need to find ways to decarbonise the steel industry, which is currently responsible for around 8% of the world’s CO2 emissions. The XCarb team is hoping emerging technologies can provide some of the answers.

“You need to look at the whole value chain around steelmaking,” Irina Gorbounova (pictured), head of XCarb Innovation Fund, tells Global Venturing.

“If you look at the way steel can be produced in a sustainable way, there are currently three fundamental pathways. One is that everything that can be recycled, should be recycled. Then, if you use renewable energy to recycle steel, it gets you to the minimum, minimum carbon footprint.

“The second is what we call innovative DRI – directly reduced iron plants where we use green hydrogen to reduce iron ore in steelmaking. And the third one is what we call smart carbon. What that means is that you can use existing facilities, but then you need to take the coal out of the equation.”

XCarb was set up in early 2021 specifically to invest in external technologies with the potential to help ArcelorMittal move to carbon-neutral steel production. Form Energy has created an iron-air battery designed to be safe, cost-effective and scalable while storing renewable energy for multiple days, and could in theory optimise the clean power resources of steel production plants.

The Innovation Fund first backed Form through a series D round that closed at $240m just over a year ago, in the process agreeing to investigate the possibility of ArcelorMittal supplying directly reduced iron to the company. The latest deal comes as the companies are in talks over trialling a more expansive production partnership.

A roadmap in place for every portfolio company

The Innovation Fund has an annual budget of $100m and has now committed over $197m to startups. About half that capital has been invested directly, with $100m put into anchoring energy investment group Breakthrough Energy’s Catalyst scheme, which provides financing for innovative cleantech projects.

“We have a lot of exciting investments in the pipeline,” Gorbounova says. “The way I approach it is if we decide to invest, we also want to have a roadmap or a deployment plan in place for how this technology can be used in our steelmaking facilities.”

Photo courtesy of ArcelorMittal

The unit’s investments include sunlight energy system developer Heliogen, and ArcelorMittal is exploring the potential for using that company’s technology in its plants. It also plans to commission a carbon capture project it is building with fellow carbon recycling technology provider and XCarb portfolio company LanzaTech in Belgium by the end of 2022.

“But collaboration can come in the form of R&D collaboration,” Gorbounova says, adding that ArcelorMittal’s research and development team is discussing joint testing with another XCarb company, water-to-hydrogen technology developer H2Pro.

“What we bring, unlike traditional VC funds, is the platform to establish the technical viability of some of those technologies and, more importantly, the industrial scalability and also the ability to roll out globally.

“I think that is where we really stand out, because we are one of the largest steelmakers with a global presence and massive experience in scaling up technology.”

An accelerator that seeks ‘the best and brightest’

The unit typically invests at growth stage, but XCarb added an accelerator in May this year with a brief to target startups with commercially scalable technologies that could support its decarbonisation efforts.

“We were pleased to receive over 100 applications,” Gorbounova says. “We have shortlisted a number of companies that we met with and now our objective is really to finalise our review and select the finalists that will present their project and technology to our investment committee.

“As a result of that, I hope we will be making an investment in one or some of them in the next several months.”

Wind turbines at sunset
Photo courtesy of ArcelorMittal

The accelerator was launched after XCarb got together with ArcelorMittal’s technology and R&D teams to decide the technologies in which they were most interested. The answers included carbon capture, hydrogen and energy storage in addition to gas conversion and waste-to-gas systems.

“It is definitely not a shortage of approaches or potential companies, it was more that we took a step back to think: ‘What are we actually after?’,” Gorbounova says. “We brainstormed with our technology, R&D and chief technology officer teams to discuss what the key technology domains are where we want to see the best and brightest.

“We decided for each of those technology domains we were going to invite promising companies to submit. Then once we get all the applications we can really benchmark and landscape the technologies that might make a difference.”

XCarb Innovation Fund may concentate on direct investments but the overall XCarb initiative brings together all the corporate’s low and zero-carbon steel activities, including recycled steel and green steel certificates. The recent rise in the price of fossil fuels may help accelerate the development of renewable alternatives but will not have any effect on XCarb’s strategy, Gorbounova says.

“The way we look at our investments is not just from the financial perspective or the hope our investment will increase significantly,” she adds. “We hope for that too, but the main reason is strategic. The underlying technology will be used to produce steel in a clean and sustainable way.”

This article was amended on October 6, 2022 to reflect the $100m being committed to Breakthrough Energy and not future direct investments.

Robert Lavine

Robert Lavine is special features editor for Global Venturing.