Shift to green ammonia can lead to huge savings on fertilizer subsidy: report

India’s fertilizer subsidy is estimated to be close to ₹1.05 trillion for 2022-23

Published - April 21, 2022 10:19 pm IST - NEW DELHI

India’s fertilizer subsidy is estimated to be close to ₹1.05 trillion ($14.2 billion) for 2022-23. File image for representation.

India’s fertilizer subsidy is estimated to be close to ₹1.05 trillion ($14.2 billion) for 2022-23. File image for representation. | Photo Credit: K.K. Mustafah

A shift to green ammonia would help cut India’s fertilizer subsidy burden and boost energy self-reliance by reducing dependence on imports of expensive liquified natural gas (LNG) for fertilizer manufacturing, says a report by the Institute for Energy Economics and Financial Analysis (IEEFA).

India’s fertilizer subsidy is estimated to be close to ₹1.05 trillion ($14.2 billion) for 2022-23, the third year in a row it has exceeded ₹1 trillion. 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 nearly three-fold from $10.75/MMBtu (metric million British thermal unit) in January 2021 to $33.00 in January 2022. Global urea prices soared to record highs of $690-794/tonne (₹51.4-60.4/kg) between October 2021 and March 2022. However, retail price of urea for the Indian agriculture sector remained at a subsidised ₹5.3/kg ($71/tonne), reflecting the heavy subsidy of more than 90% on the global benchmark price of urea.

“Demand for fertilizer in India is expected to grow and this will increase the need for further subsidies and LNG imports, unless we switch to a cleaner and domestically produced feedstock,” said the report’s author Kashish Shah, energy finance analyst at IEEFA, in a statement.

“Green hydrogen is produced from the electrolysis of water powered by renewable energy sources and can replace grey hydrogen, which is generated from natural gas, or methane, as a feedstock for ammonia production.”

Mr. Shah says demand for hydrogen in the Indian fertilizer industry is projected to rise from about 3MT (million tonne) 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 $5.5 per kilogram, or $3 per kilogram in countries with good solar resources, and is projected to continue to decline steeply this decade. But to compete with gray hydrogen at $2 per kg, the costs of two critical inputs, electrolysers and renewable energy, must fall further.

“While the gap between the cost of producing green hydrogen and hydrogen from fossil fuels is narrowing, there is still further to go,” says Mr. Shah. Making electrolysers in India, in tandem with the growing solar PV manufacturing base, would cut the cost of producing green hydrogen for green ammonia, he says.

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 up to 30 days, the report added.

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