Japan’s ammonia bet faces a steep cost hurdle

The cost of a 50/50 blend could more than double that of solar and storage.

Japan’s plan to burn ammonia with coal faces rising costs and supply hurdles, putting its 2030 emission target at risk.

“As of mid-2023, 10% ammonia co-firing cost 42% more than an unabated coal fleet for utilities,” Umer Sadiq, Japan analyst at Bloomberg New Energy Finance (BNEF), told Asian Power via Zoom.

A 2024 BNEF analysis puts the levelized cost of electricity from a 50/50 coal-ammonia blend at $166 per megawatt-hour by 2050, compared with $72/MWh for solar paired with storage.

A 20% blend would cost 145% to 220% more than onshore wind and 240% to 464% more than commercial solar, the Institute for Energy Economics and Financial Analysis (IEEFA) said in a July report, citing government estimates.

The Ministry of Economy, Trade and Industry (METI) reaffirmed its target in April for power plants to use a 20% ammonia blend by 2030. The government plans to raise the share to 50% or more after 2030 and reach 100% by 2050, according to IEEFA.

No plant is yet operating commercially with the blend.

Walter James, an energy finance specialist for Japan at IEEFA, said JERA Co., Inc.’s Hekinan thermal power plant completed its pilot in 2024 but has not entered commercial operation.

Five units across three plants are scheduled to begin commercial 20% blending between 2027 and 2030, James said, citing an update from the Organisation for Cross-regional Coordination of Transmission Operators that was not included in IEEFA’s report.

JERA’s Hekinan Units 4 and 5 are scheduled for 2027 and 2029, respectively. Hokkaido Electric Power Co., Inc.’s Tomato-Atsuma Unit 4 and Kobelco Power Kobe, Inc.’s Kobe Power Station Units 1 and 2 are scheduled for 2029 or 2030.

Fuel supply poses another hurdle. Only Hekinan and Tomato-Atsuma have secured ammonia sources through the Blue Point complex in Louisiana. Kobe’s two units have no disclosed supply arrangement.

Hekinan Unit 4 alone would require about 500,000 tonnes of ammonia a year for a 20% blend, nearly half Japan’s annual consumption of about 1.08 million tonnes.

Ammonia also requires dedicated infrastructure because of its toxicity, James said.

“Japanese companies are developing ships, pipelines, handling mechanisms, and burners within power plants to try to use ammonia… in addition to developing the subsidy programs and safety guidelines and standards for handling and transporting ammonia,” he said.

The Blue Point project illustrates the capital burden. IEEFA estimates its cost rose from more than $2b in 2022 to $3b in 2023 and $4b in 2025. Construction began in 2026, with completion expected in 2029.

Government support remains critical. About $6.13b, or 32% of the budget under Japan’s Contract-for-Difference subsidy programme, had been allocated by January, with about $5b directed to the power sector, Sadiq said.

The application window has closed, with demand exceeding available funding and further awards expected later this year.

Benjamin Ng, power leader for Asia at Aon Plc, said first-of-a-kind projects need government grants, guarantees, or subsidies before they can attract conventional infrastructure financing.

“Against that backdrop, the 2030 target looks more like an aspirational benchmark with today’s economics and risk profile,” Ng said.

James expects Japan could eventually abandon the strategy because of its cost. METI has already cut its 2050 ammonia demand outlook from 30 million tonnes a year to 20 million tonnes between 2021 and 2023, he said.

He sees another reduction of similar size as plausible if the targets slip.

Sadiq said BNEF does not speculate on policy outcomes but sees limited economic benefits from the strategy.

“The decarbonisation effect especially is not that large,” he said, adding that importing ammonia from overseas does little to improve Japan’s energy security.

Liquefied natural gas (LNG) could become the fallback if ammonia projects fail to progress. LNG consumption by Japan’s power sector could rise in the coming years, James said.