Who is really winning in India’s green ammonia tender?

India has concluded its renewable ammonia supply tender with state-owned Solar Energy Corporation of India (SECI), allocating all the planned 724,000 t/yr renewable ammonia to participating fertilizers companies.

India's tender has garnered a lot attention from the clean ammonia industry globally, not least because the winning bids were largely priced far below market expectations, leaving some to question whether the price makes much sense for participants over the 10-year period.

Winning bids ranged across 50.00-64.74 rupees/kg ($568.07-739.98/t) on a delivered basis, and will remain fixed over the full 10-year period. Government subsidies from India's new and renewable energy ministry (MNRE) have been promised for the first three years at a gradually declining rate, averaging at $80.90/t. The announced prices do not include the trading margin, which procurers will have to pay SECI, which is approximately Rs1.5/kg ($17/t). Goods and services tax (GST) is also not included, although the Indian government did announce plans to lower the GST rate to 5pc from 18pc on ammonia, effective from 22 September, in a bid to help reduce raw material costs for fertilizer producers.

DAP can be produced using ammonia, and either phosphoric acid or from phosphate rock.

Phosphate fertilizer producers using seaborne imports of fossil-fuel (grey) ammonia at average prices of close to $370/t cfr, as well as phosphoric acid at a current price of $1,258/t, are already making a loss of around $100/t DAP, even with the new GST rate. This is despite government subsidies from the department of fertilizers totalling Rs31,299 for the current kharif season.

PPL, CIL, IFFCO, and MCFL all produce DAP with phosphoric acid. For DAP producers using phosphate rock — which includes some of IFFCO and PPL's production — current raw material prices give margins of around $20/t.

Producers using renewable ammonia purchased at the volume-weighted average $605/t under the tender extend losses by up to 52pc if using phosphoric acid, and push margins into negative territory if using phosphate rock (see table).

Phosphate producers, who are already haemorrhaging cash at current productions margins and have now agreed to renewable ammonia supply contracts above current market price levels, remain adamant the government will have to provide additional subsidies to cover any cost gap with traditional ammonia supply throughout the 10 year period.

Zero-sum game?

It is not only fertilizer producers procuring the renewable ammonia which are facing viability concerns. The location of some announced projects leaves questions over whether delivered prices will be achievable after factoring in transportation costs.

Project developer Acme secured six wins in the tender, or a total of 370,000 t/yr, to supply plants in Vishakhapatnam, Kandla, Paradeep, Zuarinagar and Haldia. Five of these plants are located within 550km of one of Acme's three planned projects. But Iffco's fertilizer plant in Kandla is at least 1,600km away from Acme's nearest announced project (see table).

Several other producers securing wins in the green tender have yet to break ground or secure financing on projects, with some admitting the timeline could be tight.

The agreed sale price will not be possible to achieve without additional government support according to one auction winner. Argus forecasts the price for grey ammonia delivered to India could reach parity with the lowest renewable bid ($568/t) by 2035, and could breach the $700/t cfr mark by 2043.

At the moment, renewable producers are required under the tender rules to start deliveries within 36 months of signing the agreement, which means most deliveries will not start until 2029. This timeframe could potentially face delays as payment security mechanisms have yet to be established, meaning renewable and traditional markets could reach price parity at an earlier point in the 10-year timeframe.

If prices are to remain fixed across the 10-year period and grey ammonia delivered prices are to average at $568/t cfr between 2029-2039, project developers could lose $270.5mn across the period on average against market prices, before even accounting for a potential low-carbon premium.

Future price increases for grey ammonia could negate the overall cost impact to fertilizer producers felt in the nascent years of the tender. But they will also lock in market-rate losses for renewable ammonia suppliers, on top of transport costs, which will already severely reduce netbacks on the awarded delivered prices. And both sides have expressed expectations for further government support, leaving some observers to question how realistic delivery of the supply contracts is for all parties involved.

By Lizzy Lancaster