Once upon a time, during the glorious years 2021 and 2022, the whole market believed that green hydrogen and green ammonia were set for a break-through, and that hundreds of projects would be quickly built all across the world. At that time, stocks of hydrogen companies were at all-time highs and money to finance project development was very easy to get, by almost everybody. At that time, we were just coming out of the Covid crisis, and it seemed that the crisis had re-set the economic paradigm; the decarbonization of industries was finally within reach.
This was not just a hype or a bubble, there were very strong fundamentals to back this enthusiasm. Governments and global institutions had set a clear long-term direction for decarbonization, led by the Paris Agreement in 2015 and net-zero commitments from over 100 countries during that period. These were backed by a growing regulatory framework encouraging green hydrogen and ammonia projects, while at the same time penalizing their fossil alternatives. This framework included roadmaps, such as the RePowerEU plan, subsidies, such as H2Global or the Inflation Reduction Act, or taxes, such as CBAM. These provided the carrot and the stick needed to drive cleaner industries. Beyond governmental institutions, financial institutions and portfolio managers also had clear ESG goals, pushing them to re-route their investments towards clean projects and technologies, which seemed to facilitate the financing of green hydrogen and ammonia projects.
From a technological perspective, most usual hurdles related to innovation, TRL and uncertain market adoption seemed to be resolved, allowing the market to scale unimpeded. The world had just seen a decade of explosive growth in the development of solar and wind, making these technologies available at scale at prices significantly below their fossil alternatives. Moreover, electrolyzers, ammonia loops and storage equipment were considered commercially mature technologies, ready to scale. The integration was maybe still a challenge, and so was the large-scale manufacturing of electrolyzer, but these problems seemed to be only modestly difficult challenges. On the offtake front, there were clear use-cases, with the fertilizer sector already off taking 150MT/y of ammonia, and the chemical sector off taking another 30MT/y, providing a ready market of around 100B€/y of revenue for project developers, only taking into consideration existing markets. Beyond that, the energy sector also seemed ready to adopt green ammonia, with shipping, power generation and cracking to hydrogen as the leading growth drivers. Thanks to all these use-cases, official market projections suggested a global market for green ammonia growing to 688MT/y (IRENA, 2022) or even up to 1150MT/y (Mission Possible Partnership). At 750€/T, that would have meant a revenue for the green ammonia industry of 500 – 850B€. Not a bad place to be for a nascent industry ready to scale.
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And yet, here we are, 4 years later…
- No large-scale green ammonia production plant is running anywhere in the world.
- Barely any large green ammonia project has reached final investment and is being built.
- Many hydrogen and ammonia companies have gone bankrupt.
That’s a brutal reality check ; Feels like a veeery long hangover!
So what happened? How could such a promising and important market for the energy transition be so stuck in it’s tracks?
The main reason for that is price. Indeed, where traditional fossil ammonia costs 200-600€/T to produce, green ammonia costs minimum 700€/T in a very good location, and around to 1000€/T in most normal locations. That’s about twice the price of it’s fossil alternative. Now the next question is who’s willing to pay twice the price for a green product. The answer is very few actors, and only for very small volumes. This is mainly why the industry is stuck in it’s tracks at the moment.
So why is green ammonia twice as expensive as it’s fossil alternative, considering that it uses mature technologies and renewable electricity that have become cheaper than their fossil alternatives?
- The first reason is unfavorable thermodynamics. Indeed, where best-in-class fossil ammonia can be produced at an energy consumption of 7,7 MWh/T NH3 (new-built) or 8,3 MWh/T NH3 (existing), green ammonia generally requires 10-11MWh/T NH3. SOEC can bridge the gap, but I’ll come back to it later. On top of that, where energy is needed in the form of gas in the fossil alternative, it is needed in the form of electricity for green ammonia, a more refined form of energy.
- The second reason is financial. Indeed, the cost structure of a green ammonia production plant is highly correlated to its capital costs. As you can see on the chart above, typically 50% of the cost of ammonia is directly Capital expenditures (Capex), and the electricity costs using renewable electricity are also highly correlated to Capex. This means that the cost of capital, or in other words the expected return of investors, is a major driver of the cost of green ammonia. The expected return of investor is directly related to the perceived risk that an investor would take by investing in a project. Knowing that green ammonia facilities have not been built at scale yet, and that there is high uncertainty on it’s offtake, the perceived risk for investors is high. Consequently, the risk premium they charge to finance green ammonia projects is high, which weighs heavily on the Capex-driven project economics of green ammonia. On top of that, two macroeconomic phenomena started in 2022 that conspired to increase the cost of financing. The first is that inflation, which had been extremely low for over a decade, suddenly increased rapidly in 2021 following the re-opening of the value-chains after the Covid crisis, and has been at an elevated level ever since. A high inflation drives up the cost of financing. The second macro-economic phenomenon is global liquidity tightening. Indeed, the global economy goes through cycles where the central banks lend money at low-cost to stimulate investments, or instead at high cost to control inflation. Since 2022, central banks have been lending at high cost, thereby restricting the liquidity available for investment worldwide. With less liquidity available, project developers have been struggling to secure project financing since then.
Beyond price, another factor that slowed down green ammonia project development is insufficient regulatory support. Even though I mentioned earlier that there was regulatory support on many fronts, in practice, H2Global took more time than initially planned and it’s funds can only support a few projects, the IRA Production Tax Credit has still to be awarded to a single project and RePowerEU has shown to be nothing more than a roadmap.
Finally, long-term offtake with price guarantees has shown to be very difficult to obtain in the ammonia market, as the market is used to work on a floating price basis. Without long-term offtake and price guarantees, the risk for investors increases and the price for green ammonia along with it. That’s what I call the “Offtake-Finance conundrum”.
Now, is green ammonia finished or is there hope for a comeback?
Of course, if there was no hope for a comeback, I would not take the time and energy to write this article. I remain very confident regarding the long-term positive impact of green ammonia. To explain you why, I want to start by talking about the economic concept of the hype-cycle, first theorized by Gärtner in 1995.
The hype cycle, which is illustrated above, is the cycle through which most new innovations and technologies go through before reaching mass-market adoption. New technologies often get a lot of attention, support and excitement at an early stage (the Peak of Inflated Expectations), driven by it’s disruptive potential. Most often however, innovations fail in the short-term to deliver the adoption that is predicted during the peak, because of unresolved barriers, which disappoints a lot of its proponents and kills the hype (the trough of disillusionment). Hype levels then drop for a few years, during which the proponents of the technology continue to work in a much less hyped environment to progressively solve the challenges that plagued the technology. After this phase, the technology slowly and progressively delivers on its promise and slowly reaches its adoption potential (slope of enlightenment). If we look at green ammonia, we have been at the peak of inflated expectation in 2021-2022, and are now clearly in the trough of disillusionment. So until now, there is nothing abnormal as compared to so many other technologies (Artificial intelligence, blockchain, computers, solar panels, etc.) that have all gone through cycles of inflated expectations and disillusionment.
The question is now if and when green ammonia can come out of the trough of disillusionment. Here, I will argue that there are very good signs that the problems outlined earlier are progressively being addressed. On the regulatory front, governmental support programs have stepped up significantly since 2022. For example, H2Global has recently launched a new tender, which will support 6-8 projects instead of only 1 in the first tender, and budgets of 3-4B€. The European Hydrogen Bank has been successful in it’s first round, supporting 7 projects in Europe with 720M€ production subsidies, and has recently closed a new auction with 1,2B€ subsidy budget. Individual countries (Germany, UK, Australia, etc.) have also successfully launched their own auctions. Beyond the carrot approach of the subsidies, the European Union has also a stick ready with CBAM, which is going to charge 50% of the EU ETS to any ammonia importing to Europe, starting in 2026. That would correspond to a tax of 80€/T fossil ammonia from next year, which would progressively be increased to 160€/T by 2032 (assuming an ETS price at 100€/T CO2). Following RED III, there are going to be quotas for industries to consume 42% of their hydrogen-equivalent consumption as green. This will force them to buy green hydrogen (or ammonia) and therefore effectively creating separate markets for green and fossil ammonia respectively. Effectively, that would mean that green ammonia would be protected from the lower prices of fossil ammonia. Furthermore, the International Maritime Organization has now finalized the regulations for ammonia powered ships, which would help kick-off the maritime sector. The IMO is also finalizing the MEPC83 rewards, which will penalize dirty ships with up to 380$/T CO2 emission above the baseline and provide cleaner ships with 100$/T CO2 rewards below the lower baseline. That will provide a strong economic push for the transition to clean fuels in the offtake markets with the highest growing prospects for green ammonia until 2050.
Source: Cross Border Capital
Looking from a financial perspective, after 2 years of global tight liquidities, the chart above shows that central banks are in the process of easing liquidities globally, meaning that it will be easier in the coming years for project developers to secure finance. In an economic environment with more liquidity, higher-risk projects are receiving a higher percentage of total financing, creating a significant windfall for these projects. Green ammonia projects are set to benefit a lot from a more risk-on financing environment. We already see clear signs of this with the multiplication of Financial Investment Decisions (FiD) for blue ammonia projects recently (Blue Point project in Louisiana, TA’ZIZ in AbuDhabi, Woodside Energy in Beaumont), or in pre-FiD (Donaldsonville in Louisiana, St. Charles in Louisiana, Avina Clean Hydrogen’s Gulf Coast Clean Ammonia in Texas).
From a technological perspective, we can observe currently an oversupply of solar panels, wind turbines and electrolyzers manufacturing, reverting from an under-supply in 2021. This means that it is significantly easier for project developers to secure cheap equipment in the market, making green projects all the more competitive.
Therefore, despite significant negativism in the market, we can see that the global project pipeline for green ammonia projects is continuing to grow. This is evidenced by the Ammonia Energy Associations first quarterly publication in 2025, stating that it was tracking 485 low-carbon projects, with a total capacity of 451MT/y NH3 production. Out of these, it expected 43,5MT/y to be operational before 2030, which is the highest figure it has ever published. These figures do not sound like a dying market, don’t you agree?
Now, the big question is, what can all the market participants do to accelerate the transition?
Let’s start with governments and regulation. We have seen that governmental support is paramount for this market, and it seems that it will remain the case for at least a decade. Therefore, governments worldwide, both in export and import locations, need to step up their support to project developers, to bridge the still prevalent price gap between green and grey ammonia. This means more budgets for European program such as H2Global or the European Hydrogen Bank, and more national initiatives, which could use the European frameworks as a backbone. Furthermore, the European Commission and European governments need to be clearer regarding the penalties in case companies do not meet the REDIII quotas for the use of green hydrogen in industries. This would push the offtakers to proactively sign offtake agreements with green project developers, with the inclusion of green premiums.
And what about project developers? They need to focus on realistic actions that would improve their project economics. That means first selecting carefully the project location, with the highest potential and the least risk. Here, we are not just looking at the locations with the best renewable resources, but also with good grid back-up, low financing premiums, good infrastructures available, space available, etc. A careful location is the most critical decision to be made. Then, an objective technology selection is very important to optimize the thermodynamics and costs. Some optimizations here include objectively considering the procurement of Chinese alkaline electrolyzers, which are significantly cheaper than their western alternatives, and also considering the use of SOEC electrolyzers. SOECs can have a 20% higher energy efficiency than their alkaline and PEM alternatives, if integrated with an ammonia loop. This brings their energy consumption down to 8MWh/T NH3, almost parity with best-in-class conventional plants. Another aspect to consider is the flexibility of each technology, and their ability to accommodate the variable loads coming from renewable power plants. Beyond technology selection, the sizing and integration is also critical to project economics. Indeed, for a given ammonia output, how big should the electrolyzers be? How big should the ammonia loop be? How big should the renewables and the buffers be? These questions should be methodologically addressed to optimize the project economics. Finally, project developers should develop innovative economic schemes to reduce overall costs. Here, an example would be to include the final offtaker as a project equity partner, as Stegra has successfully managed in H2GreenSteel. Another example would be to develop reward mechanisms for project partners based on the project success. The idea here is that green ammonia production is a complex value-chain, with many actors involved. If every actor takes their margin and risk premiums along the chain, the entire value-chain will be less competitive. Alternatively, if all project parties get a minimum remuneration to cover their immediate costs, and get an upside based on project success, global cost parity between green and grey ammonia would become much closer. Now, this last point is of course easier said than done.
Finally, offtakers have an important role in developing a messaging and communication, to be able to pass on the higher costs to their end-customer. This is for example important in the fertilizer sector, where large food brands could communicate around the use of green fertilizer. With more sustainable food products, end-customer could accept a few percent price premiums on the end-product. In the shipping or the chemical sector, we could also see companies communicating about their green end-products/services while at the same time front-running the quota requirements from RED III and FuelEU Maritime by securing competitive compliant ammonia ahead of the 2030 deadline.
Now I hope that I have convinced you that the market is slowly coming out of the trough of disillusionment, and is starting to climb the slope of enlightenment, as defined by Gärtner. The hype is gone, but the concrete results of years of hard work by the market actors are starting to manifest. And because good news often come in pairs, macro-economic factors are turning green again, with reduced inflation and higher liquidity. Evidence of this reversal can regularly be seen when following press announcements. For instance, we can see significant developments on ammonia transport infrastructure, with over 30 ammonia storage terminals currently being built or expanded in the world, to facilitate imports of ammonia as an energy carrier. These investments are being performed by some of the world’s largest utility companies (JERA, Mitsui, Uniper) and mid-stream oil&gas companies (Vopak, Chane, LBC). This evidences the confidence of these actors in the future of clean ammonia and is lifting future bottlenecks when trading volumes will increase. We can also see concrete steps being taken in the shipping sector, where over 100 orders have been placed in the last 2 years for ammonia-ready ships. These ships will mostly be delivered in the timeframe 2027-2030, which is an early sign indicating a faster uptake for ammonia in the maritime sector around this timeframe.
There is still a lot of work to be done to make green ammonia a mainstream decarbonization process, but the groundwork and the foundations have been laid. Now the key is to keep working and stay focused on reducing the price gap as well as developing the use-cases. The potential of green ammonia to decarbonize industries is tremendous, and concrete results slowly start to show. By 2050, when green ammonia have reached its full potential, it would have contributed 5 to 15% to the global efforts to reach net-zero emissions. A this point, we will be able to relax with the feeling that all the hard work during the 2020’s have gone a long way to make our world a more sustainable place.
This is the vision of Proton Ventures, and why our employees are working very hard everyday with our clients, to make this vision a reality. We help project developers to make the best technological choices and to design the most efficient project value-chains. If you are looking for an experienced engineering company to support you in your project development journey, we are always looking to support!