Greening the fertilizer sector
Fertilizer companies may become an important new market for renewable energy developers.
Ammonia production via the Haber-Bosch process is critical to the nitrogen fertilizer sector, which in turn underpins the ability to feed the current world population. Currently, the sector has an annual turnover of US$250 billion. It is consuming 3% to 5% of global natural gas production and has a carbon footprint of 1.5% of global emissions.
Increased investment in green hydrogen can be expected to transform the production of ammonia in the 2020s due to four factors.
First, various pilot projects are now testing whether renewable energy can be used to produce ammonia without new technology advances.
Second, significant reductions in capital costs have made renewable power plants cost competitive with natural gas for the production of hydrogen.
Third, a deep pool of renewable developers is prepared to offer low-cost electricity on a long-term basis.
Fourth, there are now cost effective solutions for managing the intermittency of renewables for industrial processes requiring baseload power delivery.
There are challenges ahead, but all that is required in the near term is the right partners in the right location.
Proof of concept
The Haber-Bosch process involves combining hydrogen and nitrogen gas over an iron catalyst, at high temperatures and pressures, to produce ammonia. Globally, almost all hydrogen is produced from fossil fuels such as gas or coal, and half of that hydrogen is used in ammonia production using the Haber-Bosch process. Greening this process can involve both using renewable electricity as a power source and using hydrogen produced by electrolysis powered by renewable electricity.
A number of pilots have, or are planned to, show how this can occur using readily available technologies.
In July 2019, one of the world’s largest fertiliser companies, Yara, announced that it is working toward making Yara carbon-neutral by 2050, including by using carbon-neutral ammonia to produce nitrate-based fertilizer. It is currently undertaking a feasibility study on the design of a green hydrogen plant integrated with Yara’s existing ammonia plant in Pilbara in western Australia. The goal of the feasibility study is to convert the Pilbara ammonia plant from one that relies completely on natural gas for its hydrogen to one where a significant share of its hydrogen comes from renewable power. It will do so by using a 2.5-megawatt solar array to power a bank of electrolyzers.
Australia is also the location of the south Australian government-funded demonstration project by Hydrogen Utility. That project will comprise a 15-megawatt electrolyzer system to produce hydrogen. The plant will also include a small ammonia plant with the aim of being one of the first commercial facilities to produce ammonia from renewable energy.
In August 2018, OCP Group announced plans to develop green hydrogen and green ammonia as sustainable raw materials for use in fertilizer production. This includes building pilot plants in Germany and Morocco.
Siemens is currently running a green ammonia demonstration plant in Oxford in the United Kingdom. This project uses a wind turbine to power a typical Haber-Bosch process, including the production through electrolysis of hydrogen for that process. The demonstration plant only uses existing mature technology.
In 2018, Siemens Gamesa announced a partnership with Danish climate innovation fund Energifonden Skive to investigate the production of ammonia from wind power at an eco-industrial hub in Denmark.
It is highly likely that by the early 2020s, there will be body of demonstration plants that can the viability of producing ammonia from renewable energy at scale.
Various studies regarding the production of hydrogen from electrolysis have highlighted the critical importance of the cost of energy.
For the baseload production of hydrogen for an industrial process, alkaline electrolysers are an appropriate and mature technology. The capital cost of these is also well understood. Most studies expect capital cost reductions to occur. However, in the near term, the key to an early roll out of green hydrogen for ammonia production will be low-cost renewable electricity.
For example, one study has shown that renewable electricity costs of 3¢ or less a kilowatt hour means a cost of US$2 a kilogram to produce hydrogen, which is cost competitive with hydrogen produced from natural gas. There are numerous recent examples of the steep decline in the cost of solar electricity. In solar-rich locations such as Saudi Arabia, Portugal, California and Brazil, competitive procurement of new-build solar electricity has led to bids of well under 3¢ a KWh.
Intense competition is driving these results even as governments are scaling back financial support for mature technologies such as solar PV. In some countries, government subsidies are now also bid. Renewable developers will continue to bid for declining subsidies as such subsidies often provide the long-term revenue certainty necessary for debt financing. As technologies such as solar move to parity with other technologies, the search for revenue certainty for new-build projects will be a continuing dominant theme.
It is this dynamic that makes ammonia production a natural partner with renewables.
Over the last 10 years, a significant amount of renewable capacity has been developed on the basis of direct-sale arrangements between generators and corporate customers. These corporate PPAs provide an important alternative to government financial support for renewables and disappearing utility contracts.
On current trends, there is little doubt that an ammonia producer in the right geographic location would be able to procure a long-term renewable energy solution for at-scale production of green hydrogen, with costs well below current costs of gas-based hydrogen production. The intermittent nature of the renewable energy production would need to be managed as discussed further below. An alternative approach would be for the ammonia producer to use power from the grid, but hedge that cost through a virtual PPA with a large renewable energy facility in the region. The grid charges incurred in importing power to the ammonia production facility would have to be accounted for in the overall economic model.
Use of renewable power generation at on-site industrial facilities triggers concerns that the intermittent nature of the output makes renewable power an inappropriate solution. That is not the case when the variety of existing and emerging solutions are considered.
There are numerous examples in the US and European markets of contractual solutions whereby the on-site user of renewable power will receive a firm delivery profile on a cost-effective basis. In practice in a place like the United Kingdom, this means that power used will be a mix of on-site generation and imported green electricity, meaning electricity backed by appropriate certificates. In the United States, a contractual solution may be for the renewable generator to offer a shaped product where it uses a trading arm to supplement any shortfalls in renewable electricity with electricity from other sources.
The cost of batteries is falling quickly, and there are many global examples of developers prepared to use batteries to offer an on-site user a firm power delivery solution based on, for example, solar with batteries.
Both hydrogen and ammonia can be stored and then used for generation of electricity. While the economics of these solutions make them less likely to apply for the first wave of green fertilizer production, it is feasible to consider integrated solutions where excess renewable generation is used to produce hydrogen that can then be used at a later time to smooth electricity generation profiles.