INSIGHT: Integrated power-ammonia to heighten China, Europe market dynamics

SINGAPORE (ICIS)–A significant number of solar and wind renewable power projects being planned or under development in China integrated with downstream production of “green” ammonia points to potentially heightened dynamics between renewable power and low-carbon ammonia within China, and by extension, in Europe.

Some of China’s key green ammonia producers are eyeing the European market.

• China develops ammonia capacity to store renewable power
• Around 7 million tonnes of green ammonia projects to start up in China by 2030 – ICIS
• Chinese low carbon ammonia export to extend cross-sector impact to Europe

“Green” ammonia refers to ammonia produced from solar or wind renewable power.

China’s current five-year economic development plan which started in 2021 (14th five-year plan) encourages investments in diversified energy storage technologies, including megawatt-capacity fuel cells, metal–air electrochemical cells and hydrogen-ammonia energy storage.

Energy storage solutions can counter impact of the inherently intermittent nature of solar and wind power.

More than 9 million tonnes/year of green ammonia projects have been announced in China since 2020, of which around 7 million tonnes are expected to start up by 2030, ICIS data show.

Majority of the investors in these green ammonia projects are state-owned companies from the Chinese power sector, with the rest from adjacent industries including steel, shipping, coal, electrolyzers and wind turbines manufacturing, as well as heavy industry machinery.

CROSS-SECTOR PRICING DYNAMICS
Implications of the potential cross-sector pricing dynamics were not lost on the Chinese economic and energy regulators.

China’s top economic regulator, the National Development and Reform Commission (NDRC), and its Energy Bureau announced a new pricing mechanism for solar and wind renewable power on 9 February this year.

Part of the new mechanism called for provincial regulators to set floor prices for domestic spot power markets in consideration of the potential returns that these renewable power providers can obtain outside the power market.

With the slew of renewable power integrated with ammonia-as-energy-storage projects in the pipeline, green ammonia could potentially be one of those non-power-sectors that generate returns for the renewable power producers.

Under the new mechanism, solar and wind power scheduled to start up after 1 June 2025 will be subject to feed-in tariffs (FITs) determined by voluntary industry bidding processes rather than FITs pegged to domestic coal power prices, a development widely seen as a step toward market-oriented power pricing.

Renewable power providers selected in the bidding processes will obtain payouts from state-run grid operators if the power prices they obtain from the domestic spot market are below the FITs, and vice versa.

The levels of FIT bids from renewable power providers inevitably would be influenced by their potential non-power-sector returns, hence aligning the floor prices of spot power markets to those returns could serve to prevent unnecessarily large amount of fund transfers between grid operators and renewable power operators.

China’s power spot markets also feature price ceilings set by provincial regulators and the central government has called for these to be set considering the peak load price levels that industrial and commercial end-users pay.

GREEN AMMONIA’S VARIED APPLICATIONS
In February, the central government also called for ending inappropriate interventions in domestic electricity markets, such as setting energy storage as a pre-requisite for approving renewable power projects or their grid connections, and to diversify energy storage to include other technologies including sodium-ion, flow, lithium and lead-carbon batteries.

Investor enthusiasm in green ammonia as an energy storage medium may ease as a result, but as a longer-term investment, ammonia remains promising due to its varied applications.

Ammonia is a primary feedstock for inorganic fertilizers and chemicals production, and potentially a medium for shipping hydrogen to overseas markets.

Last October, the Shuimu Mintal Damao project of Chinese state-owned company Mintal became the first in China to receive a TUV Rheinland pre-certification for green/renewable hydrogen and its derivative green/renewable ammonia, in compliance with the TUV Rheinland H2.21 v2.1 standard, based on the EU Renewable Energy Directive III (RED III).

This certification, which demonstrates that the project design complies with the EU Renewable Energy Directive for renewable fuels of non-biological origin (RFNBO), may pave the way for a steady flow of green/renewable ammonia exports from China to Europe.

Insight article by Chow Bee Lin

With contributions from Song Hea Beom