India's green ammonia drive hits the first speed bump

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India's ambitious foray into the green ammonia market is encountering early-stage hurdles, as the deadline for its inaugural tender was recently extended due to a surge in bidder queries. The extension highlights the government's acknowledgment of the sector's nascent state, and the need for bidders to fully understand the complexities involved in a rapidly evolving industry.

In June, the state-owned Solar Energy Corporation of India (SECI) had invited bids for the selection of ammonia producers for the annual supply of 5.39 lakh metric tonnes (MT) of green ammonia.  The bids were invited under the SIGHT (Strategic Interventions for Green Hydrogen Transition) programme of the National Green Hydrogen Mission (NGHM). The last date for submission of bids was July 29, according to a Mercom report. However, the revised tender document shows the deadline has been extended to September 30.

Green ammonia is made by mixing nitrogen from the air with hydrogen produced from water using renewable energy (RE) sources, like wind or solar power. It is primarily used in the production of fertilisers, as a clean fuel for shipping, and as a potential energy carrier that's used to store and transport hydrogen.

Early hurdles in the tender process

"As the industry is nascent and with no precedence of such tenders, bidders need more time to study and be prepared to meet the tender requirements. Quite a few pre-bid queries were raised, indicating keen participation. SECI is evaluating them, and a response is awaited. Finalising the project design (quantum and location of production, delivery location, mode of delivery, etc) requires extensive analysis by the developers, without which the price discovery may be too high (pricing in unknowns) or too low (impacting viability)," said  Sambitosh Mohapatra, Partner and Leader - ESG, Climate and Energy, PwC India.

SECI did not immediately respond when asked about the extension and queries submitted by potential bidders.

"Initially, the SECI aggregated a demand of up to 0.54 million metric tonnes per annum (MMTPA) under this tender, which was later increased to 0.74 MMTPA. While the volume is reasonable, it is not substantial. Moreover, the demand is distributed among 14 offtakers / projects across nine states (Gujarat, Odisha, Tamil Nadu, Goa, West Bengal, Karnataka, Andhra Pradesh, Madhya Pradesh, and Maharashtra), complicating transportation and delivery logistics, even if a single green ammonia producer secures the entire 0.74 MMTPA," said  Amit Kumar, Partner, Leader – Climate Ecosystem, Grant Thornton Bharat.

The RFS (Request For Selection document) lays out a strategy to incentivise green ammonia production in India. Under the plan, green ammonia producers (GAP) must establish manufacturing facilities, including storage and transportation infrastructure, to supply to the SECI, with all setup costs borne by the producers.

While the Green Ammonia Purchase Agreement (GAPA) will be valid for 10 years, financial incentives in Rs / kg will be granted for only the first three years from the date of commencement of supply.

Kumar noted that SECI’s offtake period of  10 years is less attractive compared to export markets that offer longer commitments.  "Larger green ammonia players who have diversified their capacity across various offtakers with different offtake periods may have the flexibility to supply under SECI’s 10-year term. However, midsize players who need to set up dedicated assets may face challenges, as their debt repayment period could exceed the offtake period," he added.

Concerns over commercial viability

SECI's incentive starts at Rs 8.82 / kg in the first year, drops to Rs 7.06 / kg in the second year, and further to Rs 5.30 / kg in the third year of production and supply. The price of green ammonia in the SECI tender is Rs 65  per kilogram (+ the incentive).  As of now, the estimated cost of green ammonia ranges from $700 to $750 per tonne, a difference of about $300 to $350 per tonne compared to the cost of grey ammonia.

"Producers are concerned about commercial viability due to the capex-intensive nature of the business, which results in low profitability and ROI. Additionally, future improvements in technology and cost reduction could pose a challenge to the first-mover advantage. The entities developing the green ammonia infrastructure should be given a reasonable rate of return above the capex incurred, determined through a market driven reverse auction. SECI should recommend that the government bridges the cost gap between grey and green ammonia and guarantee offtake for 20 years," said Chirag Kotecha, Whole Time Director, Matrix Gas & Renewables.

Matrix is also looking to participate in the green ammonia tender.

"We request the government / SECI to provide adequate subsidies and grants for the initial years, allocate land for infrastructure, offer infrastructure development funding, allow bidding in dollars denominated rupees (in line with the oil and gas segment), reduce import duty on electrolysers, and lower GST on green ammonia manufacturing facilities," Kotecha added.

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

In July, Moneycontrol had reported that  Finance Minister Nirmala Sitharaman may consider supporting the green ammonia industry by extending the Rs 10,000-crore viability gap funding (VGF) by two years to boost production. However, the government is yet to make any such announcement.