Fertilizer subsidy burden in India can be reduced by switching over to green ammonia

A shift to green ammonia would significantly reduce the Indian government’s massive fertilizer subsidy burden and boost energy self-reliance by cutting dependence on imports of expensive liquified natural gas (LNG) for fertilizer manufacturing, according to a new report by the Institute for Energy Economics and Financial Analysis (IEEFA).

India’s fertilizer subsidy is budgeted at Rs1.05 trillion ($14.2 billion) for 2022/23, the third year in a row it has exceeded 1 trillion rupees. But high and volatile global gas prices, exacerbated by the Russia-Ukraine war, have pushed fertilizer prices to record levels, making it likely that the subsidy will have to be increased drastically.

Gas prices increased from $10.75/MMBtu (metric million British thermal unit) in January 2021 to US$33.00 in January 2022. Global urea prices have been soaring to record highs of US$690-794/tonne (Rs51.4-60.4/kg) between October 2021 to March 2022. However, urea for the Indian agriculture sector remained at a subsidised retail price of Rs5.3/kg (US$71/tonne), reflecting the heavy subsidy of more than 90% on the global benchmark price of urea.

The demand for hydrogen in the Indian fertiliser industry is projected to rise from about 3MT per year today to 7.5MT by 2050.

There is 8MT of green hydrogen to green ammonia production capacity planned worldwide, according to the International Energy Agency’s (IEA) hydrogen project database.

The report looks at leading green hydrogen to green ammonia projects around the world and reviews the cost competitiveness of producing green ammonia using various electricity inputs – grid electricity, round-the-clock renewable power and solar power plus batteries.

The cost of green hydrogen production is currently about US$5.5 per kilogram, or US$3 per kilogram in countries with good solar resources and is projected to continue to decline steeply this decade, but to compete with grey hydrogen at US$2 per kg the costs of two critical inputs, electrolysers and renewable energy, must fall further.

Electrolysers must fall below US$250 per megawatt from US$700-1,000 and renewable energy to US$20 per megawatt hour from US$30-35, according to the report.

Making electrolysers in India would cut the cost of producing green hydrogen for green ammonia

Recently, Greenko Group subsidiary Greenko ZeroC and John Cockerill, a manufacturer of alkaline electrolysers in Belgium, signed an agreement to jointly set up India’s largest electrolyser Gigafactory. The companies say their targeted capacity of 2 gigawatts could replace 8% of the country’s LNG imports.

The government’s new green hydrogen policy offers a range of incentives to green hydrogen and green ammonia manufacturers, including allocation of land in renewable energy parks, waiving of interstate transmission charges for 25 years, and banking of renewable power for

The report says the next phase of policy incentives could include production-linked incentives (PLI) similar to those provided for solar modules and battery manufacturing. This could bridge the viability gap for interested manufacturers that are ready to risk capital for green hydrogen and green ammonia projects.

The international green bonds market will be a key funding avenue for projects as developers look to derive value from the synergy of renewables and green hydrogen, the report says.

Source: IEEEFA

Tags: Ammonia, Fertilizer, Hydrogen, LNG, Subsidy
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