Production of e-Ammonia in Developing Countries Bears Double Costs, Study Shows
A new study released by UMAS and UCL Energy Institute Shipping and Oceans Research Group shows that poor access to funding and higher costs of capital in developing countries could almost double the prices of e-fuels they produce, compared to developed economies, even when renewable energy resources such as onshore wind and solar are superior.
The report, "The Cost of Capital Challenge in Delivering a Just and Equitable Transition for Shipping," compares the costs of producing e-ammonia - a promising low emission shipping fuel - across Australia, Brazil, India, and African nations. The study leverages the wealth of global data available on renewable energy projects to compare the levelized costs of energy (LCOE) across these locations.
The analysis finds that renewable projects in Brazil, India and Africa face higher funding costs and are more limited in the amount of finance they can access and so, even with high-quality renewable resources, these projects can struggle to bridge the overall cost of renewable energy achievable in countries such as Australia, where costs of capital are lower.
By adding the steps required to produce hydrogen and synthesize e-ammonia, the impact of changes in costs of capital and project timescales is explored using project financing models. The analysis shows that e-ammonia projects in African countries could require offtake prices 80% higher than equivalent projects in Australia due to these funding constraints, which creates a fundamental barrier to achieving the IMO's vision of an equitable transition.
Without targeted financial support mechanisms, future e-fuel production could concentrate in already-advantaged economies, and thus risk leaving developing nations behind, despite their favorable renewable resources. The report proposes for a portion of the IMO funds to enable grants and concessional finance to help offset the higher financing costs in low-income countries.
