South Korea H2 power auction excludes some NH3 projects

South Korea has announced its first clean hydrogen and ammonia power generation bidding market, but the eligibility criteria could have consequences for the development of the low-carbon ammonia industry.

South Korea's trade, industry and energy ministry (Motie) announced plans on 24 May to auction 15-year power purchase agreements with domestic utility companies, including state-owned utility Kepco, as the government aims to galvanise 6.5 TWh/yr of electricity based on low-carbon hydrogen and derivatives.

The parameters outlined for eligible bidders in South Korea's new power generation market are likely to favour carbon capture-based low-carbon ammonia projects over those produced with renewable hydrogen via electrolysis. And stringent carbon capture thresholds will exclude a number of currently proposed carbon capture and storage (CCS) retrofits and newbuild CCS ammonia projects.

Bids will be ranked on price as well as other factors, including the carbon intensity of the hydrogen or ammonia used for power generation. Only a minor weighting will be given to South Korean ownership or participation in the project.

Emission thresholds promise project exclusion

Emissions will be measured in line with South Korea's clean hydrogen definition. Seoul previously set out four tiers for clean hydrogen carbon footprints ranging from less than 0.1-4kg CO2e/kg H2. This excludes emissions from shipping for the time being, possible ammonia synthesis and cracking, and handling of carbon captured during a CCS process. The highest ranking will be afforded to bids offering power generation from hydrogen or ammonia within Tier 1 and 2, which equates to less than 1kg CO2e/kg H2.

But most notably, the government has outlined that any CCS projects will need to capture 90pc of carbon emitted in order to qualify for the bidding market. The 90pc threshold will exclude several low-carbon ammonia production projects that operate on steam methane reforming (SMR). Retrofitted CCS capabilities on SMR plants typically are unable to capture more than 50pc of carbon emitted, while newbuild CCS SMR plants may be capable of capture rates of around 70-95pc.

Projects with autothermal reforming (ATR) are typically capable of higher carbon capture rates of 90pc or above, but also entail significantly higher costs.

A number of currently announced CCS-based ammonia projects will be excluded from bidding as a result. One of the most mature retrofit projects in the US Gulf with carbon capture rates of 50pc will be unable to participate. At least one Middle Eastern CCS-SMR project will also be prevented from bidding owing to the 90pc threshold.

Other emission abatement processes such as waste heat recovery will only qualify in emissions calculations if unused prior to the establishment of the clean hydrogen or derivative project, ruling out some previously used pathways to "low-carbon" ammonia production claims. Any abatements outside the hydrogen production system boundary will also be excluded.

For renewable hydrogen or ammonia projects, only up to 10pc of renewable electricity certificate (RECs) may be used for the basis of their renewable energy.

Motie also stipulated that for ammonia co-firing projects, an annual mixing rate of 20pc will be required. South Korea is aiming to have a 20pc ammonia co-firing demonstration completed by 2027, and to apply and commercialise 20pc ammonia co-fired power generation in 24 of the country's 43 coal-fired power plant units by 2030.

Cost favours carbon capture

The pricing of proposed bids will receive the heaviest weighting during the ranking process, consequently favouring projects with lower capital expenditure and operational costs. CCS-based projects currently have lower involved costs than ammonia plants planning to use renewable hydrogen as a feedstock.

Motie will accept bids based on either fixed or variable pricing. Any variable price mechanisms will need to be linked exclusively to the US natural gas index Henry Hub. Volatility in exchanges rates, inflation or freight costs will not be considered in pricing structures.

Natural gas indexation will also favour carbon capture projects where the main feedstock for ammonia production remains fossil-fuel based natural gas.

With the contracts being awarded from 2028 for 15 years, a preference for lower-cost CCS based projects from a main epicentre of global demand will have substantial implications for clean ammonia production, cementing carbon capture projects' place within the industry for the next 1.5 decades.

One Japanese company with investments in renewable ammonia projects expressed concerns that this could have a knock-on impact for the future of its projects, if South Korean governmental support is offered principally to CCS projects in the mid-term.

All bids will need to be submitted by 8 November. Bidding firms will need to provide power produced through co-firing of ammonia with coal, co-firing of hydrogen with LNG, or 100pc hydrogen use in turbines or fuel cells. The volume of hydrogen or ammonia required will be heavily dependent on the power generation pathway. Winners will be announced in December 2024.

By Lizzy Lancaster