India seen signing more renewable ammonia supply deals, policy clarity awaited

04:26 PM @ Monday - 27 May, 2024

India is emerging as a renewable ammonia supply base with a handful of international trade agreements and more expected to follow, but greater clarity on policy and price discovery is required to convert them into binding deals in the early commercial stage, industry sources said.

The country's own energy needs are rapidly growing, yet India harbors ambitions to produce 5 million mt of renewable hydrogen by 2030 and have a 10% share of the global trade around that time.

Indian developers have signed agreements to sell renewable ammonia to firms in Japan and Europe, positioning the nation alongside other major suppliers such as the Middle East, the US and Australia.

"I see more non-binding agreements being signed," Ashish Ranjan, research analyst at S&P Global Commodity Insights said. "I see these agreements as more of a guiding light to help companies get finance and finalize engineering, procurement and construction contracts."

Cheap power, subsidies, low-cost loans and availability of land are among incentives from federal and state governments helping to fast-track large projects, with exports seen around 2027, Ranjan said.

Renewable or low-carbon hydrogen/ammonia importers in Japan and South Korea -- among the largest Asian buyers -- are in talks with Indian developers to diversify their supply base but are waiting for details from their governments on a contract for difference scheme.

"Whether we need a real binding agreement or a non-binding agreement (to bid for the Japanese subsidy) we don't know yet," Ikushima Wataru, general manager of new energy business development department at Marubeni, told Commodity Insights.

"We need to have flexibility. if we have cost overruns, then of course the cost of ammonia or hydrogen increases. Whether, such cost overruns can be absorbed, we do not know."

Indian developers want assurances from the government that the hydrogen export policy will stay consistent in the face of growing domestic energy demand, leading to some skepticism about exports.

According to Commodity Insight's Hydrogen Production Assets database, India has almost 100 renewable or low-carbon hydrogen projects with a combined capacity seen at 7.85 million mt.

Renewable vs low-carbon ammonia

The challenge for India is to find a place for its renewable ammonia -- produced primarily using renewable power -- in the Japanese and South Korean markets that have so far bought low-carbon ammonia produced using fossil fuels with carbon capture.

Several cargoes of low-carbon ammonia from the Middle East have landed in Japan since 2021 for demonstration purposes and for co-firing in power plants. Since the low-carbon ammonia was produced using natural gas reforming, it was cheaper than renewable ammonia.

"There is competition between green [renewable] and blue [fossil fuel plus carbon capture] ammonia," Ashwani Dudeja, president and director, global business development, ACME Group, told Commodity Insights.

"India unfortunately cannot produce blue ammonia ... India has to fight another battle to advocate with the buyers especially in Japanese, Korean and other consuming nations, to at least have some, if not all of their requirement met by green [ammonia]."

Japan and South Korea have said their subsidy schemes are for "clean" hydrogen/ammonia rather than "green," which could be seen as an inclination the nations want to keep using the cheaper low-carbon option in the first leg of their decarbonization journey.

"Clean" usually refers to both low-carbon fossil fuel-derived hydrogen/ammonia with carbon capture, and that derived via electrolysis powered by renewable energy.

Platts, part of Commodity Insights, assessed Qatar hydrogen produced via alkaline electrolysis at $2/kg May 23, unchanged on the month.

Platts assessed Saudi Arabia hydrogen produced via steam methane reforming with carbon capture and storage at $1.68/kg May 23, rising 27% on the month.

Competitive Indian supplies

India's renewable hydrogen/ammonia is still expected to be priced competitively against the low-carbon options in the global market because of some of its cost advantages, analysts and industry sources said.

India's National Green Hydrogen Mission 2023 waives off interstate transmission charges for renewable energy, facilitating renewable energy banking and time-bound processing of open access and connectivity, which will lower power costs.

On the Indian Energy Exchange, the green day-ahead market saw a weighted average price of Rupee 4.10/kWh (5 cents/kWh) in April.

The mission offers subsidies with an initial outlay of Rupee 197.44 billion ($ 2.37 billion) and the first round awarded eight developers in January, including Reliance, Welspun, ACME and Greenko.

The trade is also expected to get a substantial transport cost advantage between India and North Asia with the cost seen $20-$25/mt lower in the India-Japan route compared to the Middle East-Japan route, industry sources said.

AM Green, a company set up by Greenko's founders, is building its projects based on the EU's requirements for renewable fuels of non-biological origin and the Renewable Energy Directive.

"To meet the standards, the renewable hydrogen cost in most countries in Europe and other markets is touching close to $8-$10/kg ... In India, we can achieve all this in $3-$4/kg range and that too without subsidies," Mahesh Kolli, president and joint managing director, Greenko, told Commodity Insights.  – Platts