Japan’s move to replace coal with ammonia in its power plants could result in significant financial losses, warns Asia Research & Engagement (ARE). According to the organization’s new report, Japan’s Ammonia Strategy, coal-fired power plants could face steep financial challenges if they incorporate ammonia co-firing.
ARE’s report highlights that, under a scenario where 50% of coal is replaced with blue ammonia, the production costs could exceed revenues. Furthermore, the subsidies required to offset the high costs of ammonia would need to be up to ten times larger than current allocations aimed at helping industries transition to low-carbon fuels.
Japan’s 7th Strategic Energy Plan outlines that thermal power is expected to contribute between 30% and 40% of the nation’s electricity by 2040. To meet its emissions targets while maintaining this level of thermal power, Japan’s coal operators will need to adopt decarbonization strategies, with ammonia co-firing seen as a potential solution.
However, ARE’s modeling suggests that even with a modest 20% co-firing rate, coal plant operators could face an earnings before interest and taxes (EBIT) margin of -48%. At a 50% co-firing rate, losses are expected to increase to 112%, rendering the transition to ammonia co-firing financially unsustainable.
To support this shift, the Japanese government has committed approximately $20 billion to its “Contracts for Difference” subsidy program. This initiative aims to bridge the cost gap between low-carbon hydrogen—along with ammonia—and traditional fuels, over a 15-year period.
ARE estimates that subsidies for coal power generation could need to be five to ten times greater than the current funding for low-carbon transitions, depending on the final role of coal in Japan’s energy mix.
The think tank also noted that as renewable energy sources and battery storage continue to expand in Japan, the economic viability of coal power is likely to diminish further. This, in turn, could make ammonia co-firing even less feasible.
In light of these findings, ARE recommends that Japan focus more on expanding alternative energy sources and improving its power grid, rather than continuing to invest heavily in coal plants transitioning to ammonia co-firing.
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