Hamilton Locke Partner, Matt Baumgurtel, spoke at the Ammonia Energy Conference on 26 August 2021. Matt discussed future export markets and project development pathways in Australia.
On 26 August 2021, the Ammonia Energy Association held the virtual Ammonia Energy Conference with speakers from across the industry spectrum who presented on clean ammonia export projects, innovations in the Australian ammonia value chain, certifying clean ammonia, and ammonia fuel bunkering and infrastructure in Singapore.
Hamilton Locke Partner and head of Hamilton Locke’s Energy, Resources and Infrastructure practice, Matt Baumgurtel spoke at the conference on Australia potential future export markets, and the issues along with competitive advantage Australia faces in the development of green ammonia projects.
Recently, a grant application made in Japan by JERA Co Inc and IHI Corporation to conduct a demonstration project related to co-firing of ammonia with LNG was accepted. The Project will be the world’s first demonstration project in which a large amount of ammonia will be co-fired in a large-scale commercial coal-fired power plant. The Project will support Japan’s strategy of converting power capacity to green ammonia fired instead of natural gas or coal.
Projects like these are the footholds Australia needs to push into the global hydrogen economy as a major exporter of green hydrogen and help to build the industry’s long-term commercial viability.
Australia’s competitive advantage
Australia already has much of the required infrastructure and government policies required to successfully produce green ammonia. These include:
- a large domestic market across heavy transport, ammonia, steel and gas;
- access to low-cost renewable energy resources;
- existing hydrogen production, industrial bases and skilled workforces;
- potential for hydrogen export terminals in Port Kembla and the Port of Newcastle to access large scale export market opportunities;
- access to 30 day planning approvals through Special Activation Precincts in NSW.
In NSW in particular, there is an integrated hydrogen economy with the development of the New England REZ, Hunter Valley REZ/Hydrogen Hub and Illawarra Hydrogen Hub/ REZ.
It is clear Australia already has much of the infrastructure required to become a major exporter of green ammonia. However, the challenge from a project development point of view is lining up and complementing our existing renewable energy resources with the components needed to create green hydrogen and green ammonia.
There are a number of different project development structures that could be utilised in Australia.
One such example is using brackish water sources in close proximity to existing / future wind and solar farms to create green hydrogen through electrolysis and transporting this green hydrogen through hydrogen gas pipelines to existing ports where nitrogen can be added to create green ammonia.
Ammonia is an efficient and low-cost alternative to transporting and storing hydrogen as liquifying hydrogen for transport uses up 30% of its contained energy and needs to be stored at minus 250 degrees Celsius. Importers can then use the green ammonia as an alternative fuel source or decide to extract the green hydrogen to help power households.
While achievable, this development pathway will require significant investment into existing port infrastructure in Australia, to enable port facilities to produce green ammonia on site.
Increased investment in existing and future renewable energy facilities will also be required to allow the production of green hydrogen on site.
An alternate structure is to send renewable electricity through the grid to the port where it is electrolysed using seawater to create green hydrogen and converted to green ammonia by adding nitrogen. The green ammonia can then be shipped to various export markets.
This pathway shifts much of the capital expenditure from renewable energy facilities onto existing and future port facilities that will have to accommodate both hydrogen and ammonia production facilities.
The downside of this development structure is that projects will bear the grid connection costs for sending the required electricity to the port. The process of certifying the ammonia as “green” will also be complicated by this structure as the green electrons from renewable energy facilities will be mixed with other non-green electrons in transportation through the grid.
Some of the key roadblocks in the development of green ammonia projects in Australia discussed during the conference was the lack of global consensus on the definition of “green” ammonia, and the funding shortfall in Australian projects.
“Green” Ammonia: currently, there is no global consensus on what constitutes “green” ammonia which is resulting in a high-risk premium for green ammonia projects across the world. Europe, for example, has a strict interpretation of what constitutes green ammonia. To be classified as green in Europe, the ammonia must be produced using only electrons from new renewable energy facilities. While in other jurisdictions, electrons from existing renewable energy sources may be used to produce ammonia that is classified as green. As a result, existing and future projects developed based on the European interpretation of “green” ammonia may become commercially unviable in a scenario where Europe relaxes its interpretation of “green”. Conversely, projects developed based on a more relaxed interpretation of “green” ammonia may become commercially unviable where that interpretation becomes stricter. Whether the green ammonia industry succeeds and powers the future needs of a zero-carbon world will depend much on the international community’s ability to provide certainty through an agreed definition of “green” ammonia.
Lack of funding: an issue raised by Partner Matt Baumgurtel is the lack of funding which is required to make the economics of green ammonia projects stack up. As it currently stands, the gap between the capex required to construct green ammonia projects and the market price of ammonia is commercially unviable. Government funded agencies such as the Clean Energy Finance Corporation and the Australian Renewable Energy Agency are keen to help fund projects through grants and concessional loans but currently lack the necessary government funding to provide this assistance. Until such agencies have the financial resources to provide funding to green ammonia projects (like seen in the USA and Germany), project sponsors face too high a cost of production to get these projects off the ground.
The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel.