Ammonia Co-firing faces setback in Japan and South Korea

The future of ammonia co-firing – an effort to decarbonize thermal power plants by mixing cleaner-burning ammonia with coal and gas – is facing headwinds after a decision by one of its main proponents, the South Korean government, to withdraw support for the technology.

“We welcome the shift away from coal-ammonia co-firing,” Younglak Hong, the Gas Policy Lead at the Seoul-based non-profit Solutions for Our Climate, told Gas Outlook. “The decision to exclude it from new support under the clean hydrogen portfolio standard is an important policy correction.”

Then, last month, in Japan, the main proponent of the technology, the Ministry of Trade, Economy, and Industry (METI) halved the budget for ammonia co-firing in its Green Innovation Fund, and reduced capacity plans for both the technology and also imports of mostly-gas derived ammonia.

The reason – high costs and failures or challenges in testing.

“In Japan, ammonia co-firing is entirely dependent on government subsidies,” Walter James, a Japan energy analyst at the US-based Institute for Energy Economics and Financial Analysis (IEEFA), told Gas Outlook. “It’s a surprise, but a confirmation that co-firing simply is not a viable strategy from a business or financial perspective.”

For critics, this is welcome news, as research has shown that co-firing has little climate benefit, due to the ongoing use of natural gas-derived gray ammonia and limited progress in producing or shipping green ammonia.

A recent report from IEEFA finds that co-firing “deployment lags behind the Japanese government’s timeline and would be significantly more expensive than existing renewable energy in Japan.”

Seoul’s recent decision should add to these concerns, says James.

“It should increase investor skepticism in ammonia co-firing to see the South Korean government saying we’re not going to go ahead,” said James. “My hope is that institutional investors and project developers, who might be pressured by the Japanese government to retrofit coal plants, become more skeptical of co-firing.”

Why Ammonia Co-Firing

The idea behind co-firing is relatively simple. By blending coal with ammonia, the plant can, in theory, both operate more cleanly and emit fewer greenhouse gases into the atmosphere.

Moreover, because Asia’s coal fleet is significantly younger than that of Europe or the US, it’s also seen as a way to use an existing asset and avoid it being stranded while also making progress towards net-zero.

Proponents argue that co-firing these fuels alongside coal can play a key role in reducing CO₂ emissions from Asia’s thermal power plants, especially in regions where they claim there aren’t enough solar or wind energy resources.

While, in the future, plans are for co-firing to utilize green ammonia, derived from renewable energies, so far, high costs and limited excess renewable generation capacity means that nearly all ammonia used today, including in Japanese pilots, is gray hydrogen. The biggest sources of Japanese ammonia are Indonesia, Australia, and Malaysia, all major natural gas producing nations.

Of note is a plan to build a massive blue ammonia project in Texas, led by ExxonMobil and Japan’s Marubeni. It would convert natural gas to ammonia, supplying 500,000 tonnes annually to Japan. Carbon capture and sequestration would be used to capture emissions, making it, in theory, a more climate friendly alternative to gray ammonia. But it’s unclear if blue ammonia is any better than fossil fuels, as a 2023 IEEFA study found that it also lacks any measurable climate benefit compared to fossil gas or coal.

South Korea’s Move

In fact, independent studies, including life-cycle analysis, show that co-firing either ammonia has little climate benefit, even if green ammonia is used. The high costs of co-firing, alongside limited benefits in terms of greenhouse gas reductions, mean that the technology, even under the best-case circumstances, will do little to reduce emissions in major Asian countries.

Those factors, says Hong, are what led South Korea to shift, alongside growing energy security concerns due to the Hormuz crisis.

“The current conflict has nevertheless highlighted the vulnerability of an energy system that depends heavily on imported fuels and maritime supply chains,” Hong said. “Replacing imported fossil fuel with imported ammonia would reproduce much of that vulnerability rather than fundamentally improve South Korea’s energy security.”

In Japan, despite significant government support, progress has been slow, and only four power plants are slated to adopt co-firing in the coming years. This means that ambitious plans to have 20 percent co-firing in the nation’s thermal coal fleet by 2030 likely won’t be met.

“Given that over 100 coal-fired power plants don’t have an ammonia co-firing plan at all, I think this 20% by 2030 is definitely going to be missed,” James said. “What the government is going to do in response to that, my guess is that it’s going to quietly downgrade the timeline, or be ambiguous.”

Future in Japan and Regionally

Not so long ago, ammonia co-firing was seen as a regional decarbonization technology. Japanese government-led initiatives like the Asia Zero Emissions Community (AZEC) were pushing for other countries in the region, including South Korea but also Indonesia, Malaysia, the Philippines, and Thailand, to adopt ammonia co-firing in their energy plans as a way to decarbonize coal-fired power plants.

But with Seoul’s shift, that seems unlikely.

“It pops the bubble and hype around ammonia co-firing,” James said, “and it leaves Japan as the only game in town.”

Despite these setbacks, ammonia co-firing remains part of Japan’s energy plans, and remains eligible for other subsidies, including the Long Term Decarbonization Power Source Auction system.

But there might be space for a shift, especially as Japan, too, has been hit hard by the Hormuz crisis, which has cut off access to a significant portion of its oil and gas imports from Persian gulf countries.

For James, this, and South Korea’s move provide an opportunity for a re-think.

“Hormuz and the energy crisis merits a review of the strategic energy plan, to try to lower dependence on Middle East fuel shipments, and reconsider cleaner energy sources as an energy security solution,” James said. “It makes sense to lower Japan’s energy ammonia co-firing ambition.”