Navigating the Interlinked Technical and Commercial Complexities of E-Ammonia Production

Challenges and Opportunities for Fertiliser Producers Entering Power-to-X Markets

The global push for decarbonisation is reshaping the fertiliser industry, creating both significant challenges and exciting opportunities. E-ammonia, ammonia produced using electrolysis and renewable energy, is a crucial element of the emerging Power-to-X markets, sitting at the heart of this transformation. As fertiliser producers enter this space, they face a complex web of technical and commercial obstacles that require innovative solutions and strategic foresight.

AFRY’s experts explore five critical areas fertiliser producers must navigate in the transition to e-ammonia: managing renewable energy variability, selecting and financing electrolyser technologies, addressing carbon dioxide (CO2) loss for urea production, adapting to and entering new energy markets, and bridging the cost gap. By understanding these challenges and exploring success strategies, producers can position themselves in the evolving e-ammonia landscape, paving the way to a more sustainable future.

Renewable Power Intermittency

One of the main challenges in integrating renewable energy sources (RES) into e-ammonia production is managing the variability and intermittency of power supply. Power fluctuations occur not only hourly, but also seasonally, which directly impacts the continuous operation of e-ammonia plants. Ensuring stable plant performance in the face of such unpredictable fluctuations is critical.

Modern e-ammonia plants typically operate at a minimum load of 20-40%, depending on the technology licensor. However, frequent load adjustments can cause wear on equipment, catalyst degradation, and inconsistent product quality. To address this, AFRY and other engineering firms have developed solutions to decouple the electrolyser from the ammonia plant, allowing the electrolyser to handle power fluctuations while the ammonia plant runs at a steadier load.

To mitigate power supply volatility, hydrogen storage can buffer excess hydrogen generated during peak RES production, supporting ammonia synthesis when renewable inputs are low and/or high cost. However, hydrogen or ammonia storage requires substantial investment and careful management of safety measures. Battery energy storage systems (BESS) offer short-term load balancing, but their high cost and limited cycle life make them suitable for short-term fluctuations only. Hybrid systems combining multiple renewable sources or grid power offer a more stable power supply but add complexity to plant design, carbon footprint accounting, and product certification.

Flexibility solutions also need to be tailored to each project’s specific end-use requirements, including the type of off-taker and local regulations. For example, under the EU’s Renewable Energy Directive (RED) II, renewable hydrogen eligible to meet ambitious EU targets must meet requirements that affect the viability of sourcing from the grid versus building new captive RES, as well as the plant’s hydrogen storage and flexibility in response to hourly-matching requirements from 2030. Compliance with these rules adds another layer of complexity, making it essential for producers to stay informed about evolving regulatory landscapes.

All these complexities mean that early-stage technology selection, and plant and storage size optimisation exercises, are critical for mitigating Power-to-X project challenges. At AFRY, our rigorous modelling approach minimises initial capital expenditure (CAPEX) by up to 20%, while establishing a robust operational philosophy for long-term success.

Electrolyser Technologies

A critical challenge in scaling e-ammonia production lies in selecting the appropriate electrolyser technology. The three primary options - Proton Exchange Membrane (PEM), Alkaline (AWE), and Solid Oxide Electrolysis Cells (SOEC) - each offer unique benefits and trade-offs:

• PEM electrolysers are ideal for integrating renewable energy due to their fast response times and high efficiency at partial loads, making them well-suited for intermittent solar or wind power. However, their high CAPEX, driven by scarce materials such as platinum and iridium, poses a high financial barrier.
• Alkaline electrolysers with a lower CAPEX offer a more affordable option, but slower response times and limited flexibility make them less compatible with variable RES.
• SOEC electrolysers are still in early development, but operate at high temperatures and use waste heat, significantly boosting efficiency. This makes SOEC promising for large-scale e-ammonia production, particularly where heat integration is possible. However, challenges remain in reducing costs, improving ramp-up times, and managing thermal cycling for broader adoption.

The trend is moving from alkaline to PEM systems, with expectations that SOEC will play a larger role as the technology matures. This transition requires skilled technical staff for operation and maintenance, highlighting the need for workforce training.

Financing the significant CAPEX commitments required for e-ammonia plants, including integration with ammonia synthesis and other equipment, and project implementation costs, is a major hurdle, particularly for projects using less mature technologies or start-up technology suppliers. Developers need to consider the track record and performance guarantees of technology suppliers, with a view to reducing the perceived risk from investors and lenders.

In future, the overall CAPEX requirements should decline. Recent advancements, such as upscaling electrolyser stacks to 20 MW, reducing reliance on precious materials, and automation, are projected to drive down costs by 44% by 2030. Still, achieving cost-competitive green hydrogen - and by extension e-ammonia - requires sustained innovation.

CO2 Sourcing

The transition to e-ammonia production eliminates a vital by-product - CO2, which is essential for urea synthesis. Traditional ammonia production using gas or coal generates CO2, which is captured and used in urea fertiliser production. However, e-ammonia relies on renewable energy and no longer produces this by-product, forcing fertiliser manufacturers to source CO2 externally.

One solution is biogenic CO2, carbon dioxide captured from biomass combustion and decomposition, which when used in urea production could yield a more sustainable fertiliser, “green urea”. Whilst biogenic CO2 is carbon-neutral, its availability and cost vary by region. Competition for biogenic CO2 is set to intensify as e-fuels production grows to meet rising demand for renewable transport fuels, and more biogenic CO2 is permanently stored, generating carbon dioxide removal credits. The EU, for example, mandates biogenic CO2 use or CO2 from direct air capture (DAC) for e-fuels production from 2041.

DAC—extracting CO2 directly from the atmosphere—offers another option for CO2 sources, but its high costs currently limit widespread adoption. Both biogenic CO2 and DAC represent higher future CO2 costs for urea production, which may prompt substitution away from urea towards nitrate-based fertilisers.

Adapting to and Entering New Energy Markets

Ammonia’s potential as a global energy carrier poses a significant opportunity for fertiliser producers. Ammonia’s high energy density (12.7 MJ/L compared to liquid hydrogen’s 8.5 MJ/L), plus its existing worldwide transport infrastructure, makes it particularly suitable for shipping energy over long distances. AFRY estimates that global ammonia trade is set to quadruple by 2050, as it acts as the primary hydrogen carrier, with ammonia cracked back to produce hydrogen for use in diverse energy and feedstock markets, including power, transport fuel, heating and industry. Global transportation of ammonia will require investment in shipping infrastructure (including specialised vessels and terminals) and logistics chains that ensure the safe and efficient transfer of ammonia.

Fertilizer producers with existing ammonia logistics or trading capabilities are well-placed to participate in these new markets. Brownfield investments in additional ammonia infrastructure should be lower cost vis-a-vis new entrants. For example, in October 2024, Yara opened its ammonia import terminal in Brunsbüttel, Germany, where it had existing export infrastructure. Strategic partnerships between fertiliser companies, ports, technology suppliers, and energy logistics and trading companies in large ammonia infrastructure projects are important to share the associated costs and risks.

Ammonia also shows some potential for use in power generation but to a greater degree as a fuel in maritime shipping, where it is increasingly viewed as a scalable cleaner alternative to traditional fuels. Fertiliser producers face the challenge of entering new energy sectors, which have different demand drivers compared to traditional fertiliser markets. Some fertiliser producers have some existing links to fuel markets, for example via AdBlue sales, but others are more unfamiliar with these new markets. Producers must adapt their production and business processes and develop new skills, whilst building relationships in these new markets.

Logistics for storing, importing, and exporting e-ammonia will vary based on its end use, necessitating tailored infrastructure and distribution strategies. For instance, power generation requires large-scale storage near plants, but the ammonia volumes delivered may be only small and infrequent if the plant acts as a backup generation, only used a small share of the year. In contrast, maritime applications demand specialised port infrastructure with bunkering capabilities and may require regular ammonia supply to meet fuel demand.

Bridging the Cost Gap

Achieving profitability in e-ammonia production is a significant challenge due to the higher costs compared to conventional grey ammonia. We estimate that e-ammonia production costs are currently well over $1,000 / metric tonne (mt) for many projects in Europe, more than double the grey ammonia price of around $500 / mt on average to date in 2024 (Northwest Europe CFR basis), creating substantial barriers to market entry.

Production costs could be even higher for some. AFRY’s experience with large-scale e-ammonia projects highlights frequent cost overruns, often driven by the integration of novel technologies and scaling up production. The recent increase in capital costs for electrolyser systems further exacerbate the challenge, due to supply chain constraints and increased demand. Project developers need solid implementation strategies with strong cost and change controls and front-end engineering.

Fluctuating energy prices add another layer of uncertainty. While renewable energy costs are decreasing, electricity price volatility can drive unpredictable production expenses if connected to the grid, making power procurement strategies essential. Solutions such as Power Purchase Agreements (PPAs) bring greater price certainty over long periods (typically 10-15 years), but also need to be aligned to regulatory and customer requirements to ensure that the e-ammonia produced has the desired green credentials.

On the pricing side, whilst some have been successful in securing long-term offtake agreements for e-ammonia which cover costs, many e-ammonia projects report low willingness to pay for e-ammonia, e.g. they cannot pass through the additional costs of e-ammonia versus grey ammonia to end-users. In order to bridge the gap, e-ammonia producers need to target those countries and end-use sectors where there are either incentives or penalties that can bridge the cost gap.

Government incentives, such as the U.S. Inflation Reduction Act’s production tax credits, can improve the economics of e-ammonia in the short term. Projects need to pursue a range of subsidy schemes at the local, national, and international level. Regulatory penalties, for example, the EU RED III mandate targets may result in national penalties for non-compliance with renewable hydrogen targets, whilst carbon pricing adds extra costs onto grey ammonia.

E-ammonia producers also need to pursue those end users that might be willing to pay for the additional value perceived for low carbon products – e.g. a “green premium”. For fertiliser producers this can often be constrained by the corresponding impact on food prices and security. E-ammonia may have more success used in specialty fertilisers offering additional agronomic benefits, and/or for use in brands with aggressive carbon abatement targets and where ammonia does not contribute to a large share of the product cost. Fertiberia, for example, has signed off-take agreements with Heineken and PepsiCo for its Impact Zero premium fertiliser using e-ammonia.

Conclusion

The journey toward e-ammonia production presents a complex interplay of technical and commercial challenges that fertiliser producers must navigate to thrive in the evolving Power-to-X landscape. As outlined, managing renewable energy variability, selecting appropriate electrolyser technologies and technical expertise, proactive risk management, and innovation, are critical steps in this transition. With careful engineering and plant optimisation, strategic partnerships, targeted subsidies and off-takers, and a proactive approach to regulatory compliance and market adaptation, fertiliser producers can position themselves at the forefront of the Power-to-X revolution, capitalising on new revenue streams while contributing to the global decarbonisation agenda.

This article was written by AFRY experts, Abubakar Sohail, Josie Armstrong and Mitchum Bates, and it was originally published in the World Fertilizer Magazine Nov-Dec 2024.