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Would the use of fuel ammonia lead to an increase in the unit cost of electricity generation?

A. Ammonia is an advantageous option to achieve carbon neutrality with minimal increase in unit of electricity generation, comparing to other alternatives.
  • There are various solutions for carbon neutralization of various power generation methods. For example, in thermal power generation, CO2 Capture and Storage (CCS) and fuel conversion to biomass can be considered. Levelized Cost of Electricity (LCOE) is an effective tool to evaluate and compare the cost of power generation for each of these methods. Currently, LCOE evaluations of power generation methods for carbon neutralization are being conducted by various organizations.
  • For example, in a report1) published by the International Energy Agency (IEA)*1 in October 2021, the LCOE for coal-fired power generation in Japan is estimated about 110 USD/MWh, assuming coal and carbon prices in 2030. On the other hand, it is estimated that 60% co-firing of blue ammonia (ammonia produced from natural gas with CO2 emissions captured by CCS) imported from the east coast of Saudi Arabia would result in an LCOE of about 140USD/MWh on the same report. This means that the increase in fuel cost due to ammonia co-firing is offset by the reduction in CO2 emission cost, resulting in a relatively small cost increase.
  • On the contrary, the Japanese Agency for Natural Resources and Energy (ANRE) has set target prices for domestic solar and wind power generation (both onshore and offshore) in 2030 at 7 yen/kWh and 8-9 yen/kWh, respectively (approximately 60 USD/MWh and 80 USD/MWh at an exchange rate of 110 yen/USD) 2). These target prices for renewable energy are lower than the LCOEs for coal mono-firing and ammonia 60% co-firing as estimated by the IAE above.
  • In general, since LCOE evaluates the average lifetime generation cost of a power source, it is necessary to consider the optimal power source configuration by taking into account location, site, and availability due to fluctuations in power demand. For example, if renewable energy sources such as solar power are inexpensive and can provide a stable supply, then introducing them is the right measure.
  • According to the International Renewable Energy Agency (IRENA)*2, offshore wind power, which requires high capital investment, accounts for 84% of Japan’s renewable energy potential, while the relatively low-cost solar and onshore wind power together cover only 33% of total energy demand in Japan. Furthermore, most of them are of low power quality and have low operating rates3). This suggests that the choice to cover future energy demand solely from domestic renewable energy sources is risky in the case of Japan.
  • Therefore, as countries like Japan, which currently rely heavily on coal-fired power generation, aim to become carbon neutral, the conversion to the introduction of fuel ammonia into thermal power generation is a very promising option in terms of supply capacity, adjustability, and energy security. Fuel ammonia is not a panacea, but it is a major option.

*1   International Energy Agency (IEA): An international organization that promotes global efforts to ensure energy security, economic growth, and environmental protection within the framework of the Organization for Economic Cooperation and Development (OECD). Participation is required of OECD member countries that meet the stockpiling standard (90 days of a country’s daily net oil imports in the previous year).

*2   International Renewable Energy Agency (IRENA): An international organization that promotes renewable energy on a global scale. 168 member countries as of February 7, 2023.

  1. International Energy Agency (IEA), “The Role of Low-Carbon Fuels in the Clean Energy Transitions of the Power Sector”, IEA Report, Oct. 2021【Link
  2. [In Japanese] Agency for Natural Resources and Energy, “Wind Power Generation”, Handouts distributed at the 63rd Procurement Price Calculation Committee Meeting (2020.11)【Link
  3. International Renewable Energy Agency (IRENA), “Global Hydrogen Trade to Meet the 1.5°C Climate Goal: Green Hydrogen Cost and Potential, Part 1: Trade Outlook for 2050 and Way Forward” (2022)【Link

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