Relocation of fertiliser industry out of Germany to more renewable-rich regions inevitable - report
Clean Energy Wire
The production of fertilisers with fossil fuels has no future in Germany given the country's climate targets, according to a report by the German Energy Agency (Dena) in cooperation with the Climate Neutrality Foundation (SKN), which outlines a roadmap for the transition to using green ammonia instead.
However, the relocation of a large portion of the industry abroad is unavoidable in the long term because renewable electricity will remain more expensive in Germany compared to sunnier or windier regions such as Spain or Namibia, according to the report.
Ammonia is a key ingredient in fertilisers and traditionally made with fossil gas. Green ammonia is made on the basis of green hydrogen, which is produced with electrolysis using renewable electricity.
Green fertiliser production should nevertheless be established domestically and maintained through policy measures to reduce geopolitical risks and secure supply, the authors argued.
“The fertiliser industry is a key sector of German industry – and at the same time heavily dependent on fossil natural gas,” said SKN director Rainer Baake. “Anyone who wants to keep this industry in Germany must restructure it so that it can operate without fossil fuels by the mid-2040s at the latest.”
In view of Germany’s 2045 climate neutrality target and the expiration of free emission allowances for the fertiliser industry under the European Emissions Trading System (ETS) by 2039, the report argues that new supply chains must be established for imports from sunny and wind-rich countries to facilitate the transition.
The abundance of renewable energy makes climate-friendly production significantly cheaper in other regions than in Germany. For example, procurement costs for green ammonia of approximately 693 euros per tonne are expected in Namibia by 2035, compared to some 1,130 euros in Germany.
The report examined three value chain options for green ammonia: production entirely located in Germany, a route using hydrogen imports from Spain, and a route using ammonia imports from Namibia, which is then processed in Germany. It found the third scenario to be the most cost-effective.
“German industry must prepare for the fact that in the long term, no ammonia production will take place in Germany” with the exception of a state-supported national base production of around a quarter of domestic demand, the report states.
Germany’s energy-intensive industries continue to grapple with the challenges of long-term survival given that future production will be more cost-effective in more renewables-rich regions – a factor known as the “renewables pull” effect. These energy cost advantages are expected to gradually lead to the partial relocation of energy-intensive production operations abroad.
