MC Exclusive: Govt may boost green ammonia production with Rs 10,000-crore viability gap funding scheme in Budget 2024-25

VGF is a partial government capital subsidy for large and long-gestation public-private partnership (PPP) infrastructure projects.

Finance Minister Nirmala Sitharaman may consider supporting the green ammonia industry by extending viability gap funding (VGF) for two years to boost production, people in the know told Moneycontrol.

Well-placed sources said that the Ministry of New And Renewable Energy (MNRE), Ministry of Chemicals and Fertilisers (MoCF), Ministry of Ports, Shipping and Waterways (MoPSW) and Ministry of Petroleum and Natural Gas (MoPNG) have written a letter to the Ministry of Finance to consider the proposal to launch a VGF scheme that will help boost green ammonia production by 2 million tonnes by 2025-26.

The MNRE, along with other industries, has sought Rs 10,000 crore in support for VGF from the finance ministry for green ammonia production.

"A viability gap funding mechanism is keen to lower the cost of capital for projects and make Indian green ammonia production competitive in global markets," stated the letter from the ministries dated June 24. Moneycontrol has read and verified a copy of the letter.

"Domestic urea production may be difficult to decarbonize, due to the requirement of both ammonia and carbon dioxide as feedstocks. However, currently imported fossil ammonia can be replaced by domestically produced renewable or green ammonia," the letter added.

As part of the proposal sent to the finance ministry the MNRE used a study done by the Climate Finance Leadership Initiative (CFLI) India, Council on Energy, Environment and Water (CEEW) and the Tata Group on the sector to arrive at the suggestions sent to the finance ministry, officials aware of the ongoing discussions told Moneycontrol.

VGF is a partial government capital subsidy for large and long-gestation public-private partnership (PPP) infrastructure projects. These subsidies make projects commercially viable, encouraging private investment and help with faster roll-out of projects.

Emails sent to the MNRE, finance ministry, MoPSW, MoPSW, MoCF, Tata Power and CEEW remained unanswered till the time of publishing.

"Ways to boost both green hydrogen and green ammonia have been under consideration for the last year and the latest proposal to launch a VGF scheme to boost green ammonia production is likely to be announced in the upcoming Budget 2024-25," a senior government official said.

If the recommendations are accepted fully, the VGF scheme will also be applicable retrospectively to projects announced after December 2021, some of which have struggled to raise funds to setup capacity, sources said.

The developments come as India is actively pursuing several green ammonia initiatives as part of its broader efforts to transition to renewable energy and reduce carbon emissions.

Future fuels

India has identified hydrogen and ammonia as future fuels to replace fossil fuels. In February 2022, the government notified the Green Hydrogen/ Green Ammonia Policy in a step towards boosting production locally. The government is leaning on financial incentives to make production competitive and lure private sector investment.

The government had last year approved an outlay of Rs 19,744 crore under the Green Hydrogen Mission.

Officials noted that fertiliser plants use hydrogen as feedstock, emphasising the need to develop green ammonia production alongside India's expanding green hydrogen sector.

According to an industry source, the government might introduce contract-for-difference schemes. In such schemes, the government would cover the price difference between the market price of green ammonia and the actual price of grey ammonia delivered to the country.

"With this kind of support, producers in India wouldn't necessarily need to be concerned about the price premium associated with green products like green ammonia. The government may choose to incentivise the demand side... This kind of the viability gap can be brought into potentially the full budget in July, mainly for green ammonia,"  another person familiar with the matter told Moneycontrol.

The estimated cost of green ammonia ranges from $700 to $750 per tonne. This creates a price gap of approximately $300 to $350 per tonne compared to the cost of grey ammonia.

Story so far

India has already announced 21 million tonnes per annum of green ammonia capacity which will drive about 4 MTPA green hydrogen capacity in next two to four years, according to a research report from New Energy and Industrial Technology Development Organisation published in April this year.

This is almost at India’s target of producing 5 MTPA green hydrogen by 2030.

Back in January 2024, the MNRE had announced two new auctions for subsidies to drive the uptake of green hydrogen in ammonia production and oil refining.

Upcoming auctions will be split between oil refineries and ammonia producers. Green hydrogen producers linked to refineries could receive up to Rs 50 per kilo, and ammonia producers up to Rs 8.82 per kilo of green NH3. The ammonia auction is capped at 550,000 tonnes annually, with refining auctions targeting up to 200,000 tonnes of hydrogen per year, pending guidelines on bidder capacities.