Japan coal plants face losses with ammonia co-firing

Costs are seen to surge for plants using half blue ammonia

Replacing coal co-firing with ammonia could cause major losses for Japan’s coal-fired power plant operators and their investors, according to Asia Research & Engagement (ARE).

In its new “Japan’s Ammonia Strategy” report, ARE warned that “production costs would be double revenues at plants that replace 50% of coal with blue ammonia, whilst subsidies to offset high ammonia costs would need to be up to 10 times greater than those currently allocated to industries transitioning to low- carbon fuels.”

Japan's 7th Strategic Energy Plan projects thermal power will make up 30% to 40% of its power generation in 2040. To sustain this level whilst meeting emissions goals, thermal operators must advance decarbonisation, with co-firing low-carbon ammonia being the chosen route for coal plants.

“Our modelling shows that even at a modest 20% co-firing rate, coal plant operators are looking at EBIT margins of –48%,” said Mira Cordier, research analyst, energy transition at ARE.

Once the rate increases to 50%, ARE expects 112% losses, which would make the strategy unviable to transition the coal fleet, she added.

The Japanese government has allocated about $20b to a “Contracts for Difference” subsidy programme for hard-to-decarbonise industries. This is designed to cover the cost gap between low-carbon hydrogen (and its derivatives, including ammonia) and the price of conventional fuels over a 15- year period.

ARE estimates that the total fuel subsidies for coal power generation could be five to ten times greater, depending on its eventual share in Japan’s electricity mix.

The think tank said “continued upward trends in renewables and battery storage deployment are likely to further erode the economic viability of Japan’s coal power and render the expense of developing ammonia co-firing even more prohibitive.”

It will be more logical for Japan to focus on scaling alternative electricity sources and strengthening its power grid, it added.