As Russia’s war in Ukraine and the related natural-gas price crisis piles economic and political pressure on countries reliant on fossil-fuel imports, many nations are hoping that imported green hydrogen can be their saviour — that they can simply swap a fossil fuel for a greener molecule.
Germany, reeling from the strategic error of relying on Russian fossil fuels, is at the forefront of this movement, rapidly signing international hydrogen co-operation partnerships with countries such as India, Namibia, Morocco and, most recently, Canada, in a bid to speed up the import of green H2.
Canada has some of the cleanest energy in the world and a proven record of building cost-effective electricity generation at scale — particularly hydropower — and it is now signalling a willingness to tap into these resources and export green energy.
Using clean electricity to produce green hydrogen, or its derivative ammonia, and exporting it to Germany is certainly a laudable idea, but is it achievable — or affordable?
A case study — Project Nujio’qonik GH2
In August, Prime Minister Justin Trudeau and Chancellor Olaf Scholz met in Stephenville, Newfoundland, to sign the Canada-Germany Hydrogen Alliance. The location was significant as it has been proposed by a local consortium as a green hydrogen hub known as Project Nujio’qonik GH2.
Combined with a deep water port and existing grid connections, the consortium sees it as an attractive location to fast-track the export of green hydrogen.
The first phase of the project is a $2.6bn, 1GW onshore wind farm coupled with a $1bn, 500MW electrolyser to make the hydrogen, which would then be combined with nitrogen from the air to produce ammonia for export.
Ammonia is widely considered to be a more cost-effective method of shipping hydrogen than pure liquid or compressed H2, due to its higher energy density by volume and relative ease of handling.
According to the consortium’s environmental assessment report, 164 wind turbines will be erected west of Stephenville. With an estimated net capacity factor of 43%, the levelised cost of electricity would be approximately $50/MWh.
According to the IEA, it takes 10MWh of electricity to make a tonne of green ammonia so we already have embedded $500/tonne in energy costs. The problem is the low capacity factor means a very expensive ammonia plant sitting idle for much of the time. This would increase the total cost of ammonia to almost $1,500/tonne.
To solve this problem, the developers are oversizing the wind turbines, which could mean the electrolyser running closer to 66% of the time and decrease the cost to closer to $1,300/tonne.
But ammonia plants have another problem. The Haber-Bosch process is not compatible with variable energy sources as it needs to be running at close to 100% capacity, so the developer would either need to buffer hydrogen with expensive storage or connect to the grid to ensure 24/7 power.
Ironically, Canada is most probably one of the only countries where dispatchable green energy is cheaper than the variable type. So assuming the Nujio'qonik project can get low-cost hydropower from the local utility when the wind is not blowing hard enough, the developers will be able to run their 500MW electrolyser at near full capacity. This would bring down the cost to $1,050/tonne and if they can sell back excess electricity at the same price, it makes it another $80/tonne cheaper.
But is this cheap enough?
Compared to historical prices, where ammonia has traded between $200-400/tonne, this is very expensive. The project developers could try to access cheap debt and investors willing to accept lower rates of return. If they can do this, they could potentially get to $800/tonne.
To compete with historic prices, they would need to cut the capital costs from $2.6bn to $1.28bn to reach $400/tonne and to $570m to hit $200/tonne. This is not going to happen, but recently ammonia has been trending at about $1,000/tonne and traded as high as $1,600/tonne due to high natural-gas prices (conventional ammonia is made from hydrogen derived from unabated fossil gas).
Due to those sky-high prices, several ammonia producers in Europe have simply shut down production. But if that high price persists, is it worth shipping green ammonia to Europe?
What does it cost to ship ammonia?
Stephenville to Hamburg is approximately 3,000 nautical miles (5,500km) and travelling at 18 knots (33.3km/h), it would take about seven days to travel.
The University of New South Wales in Australia recently published a paper on hydrogen shipping methods, which calculated that ammonia was the most economical clean fuel. Using the accompanying hydrogen shipping calculator, we see that exporting from Canada would incur a shipping cost of $40 per tonne of ammonia.
Eastern Canada to Germany would be one of the cheapest international shipping routes — far cheaper than Doha, at $80/tonne, or Western Australia at $115/tonne. When looking at the cost in energy, $40/tonne on an energy-content basis is just over $2/MMBTU ($7.70/MWh), most probably not a showstopper to energy-desperate customers.
Then what will Germany do it with it?
Hydrogen is often cited as a potential direct replacement for fossil fuels — for use in vehicles instead of petrol or diesel, for use in domestic heating instead of natural gas, or to replace fossil gas at power stations — where Germany sources 14% of its electricity. Many proponents believe swapping H2 in power plants would be the easiest to achieve.
Others disagree. Paul Martin from the Hydrogen Science Coalition believes that “hydrogen proponents reach for ammonia not by choice, but out of desperation over the immutable and undesirable properties of hydrogen itself.”
The problem is efficiency and the lack of.
Take 10MWh of electricity and you can make one tonne of ammonia. This contains 18.6GJ (lower heating value) — or roughly 5.2MWh of primary energy. To turn primary energy back into dispatchable electricity means using some form of ammonia-fired gas turbine. Assume the same efficiency as a natural gas turbine, and this would lead to a further energy loss of 40-60%. You will be left with 2-3MWh of electricity from the original 10 MWh.
Can it be made cheap enough to mask this inefficiency?
Not at $840/tonne of ammonia. This is the equivalent of $170MWh for primary energy and $300-425/MWh for wholesale dispatchable electricity — or an eightfold increase from the original Canadian wind source.
What about the need for heat?
German households use a lot of natural gas in winter, and hydrogen could be used as an alternative. A tonne of ammonia cracked back into hydrogen is an endothermic process meaning it will contain 5.88MWh of energy. This will cost $142/MWh. Natural gas has recently spiked to $200-350/MWh but it has historically trended at $20-30/MWh.
Is this acceptable for Germany?
A common saying among economists is that a cure for high prices is high prices. And at these power prices, it brings into play local wind and solar installations, long-distance transmission and demand response. $425/MWh is the equivalent of running solar at 2% capacity factor or wind at 5%, so there will be many companies that can be much more efficient and come in under this price. Effectively, this will eliminate the competition from Canadian green hydrogen as a source of electricity.
For residential and commercial heating, heat pumps can extract 30MWh of heat for every 10MWh of electricity but historically the price of gas has been so cheap that efficiency has not been a consideration. With the narrowing of this price gap between natural gas and electricity, it is making more sense to move to heat pumps. Ammonia cracked into hydrogen does not solve this problem and instead the estimated price only exacerbates it.
Sensibly, this would leave green ammonia to focus on meeting the demands of fertiliser and other chemicals. It will still struggle to compete with fossil fuel-based ammonia in the long term. Based on the above estimates it is two to four times more expensive, but other projects will learn from these early attempts and bring down the costs to a point where the extra amount should be acceptable.
John Poljak is the founder of keynumbers.com, an Australian website dedicated to analysing energy and economic issues.