Improving the competitiveness of Power-to-X projects in Chile

Ammonia synthesis represents the second largest hydrogen-consuming industry worldwide. In 2020, 33 million tonnes of ammonia were produced which accounted for 45% of the global hydrogen demand. The ammonia production industry annually generates nearly 0.5 Gigatonnes of CO2-equivalent which accounts for 1% of global greenhouse gas emissions.

Zero greenhouse gas emmision targets and recent disruptions of the fossil fuel supply chains have made ammonia produced from renewable energy more attractive. The expectations for green ammonia demand were changed by the energy supply challenges being faced in Europe; the new demand expectations will have to be supported with developments on new ammonia projects.

The cost of green hydrogen represents 90% of the production cost of green ammonia. The cost of renewable electricity, which could sum up to more than 70% of green hydrogen production costs, is expected to be the most important factor affecting cost reductions in the production of green ammonia over the coming decade.

The analysis of cost of electricity supply for grid-connected Power-to-X projects generally does not consider the impact of grid & reliability costs, which include transmission, ancillary services, make-whole payments, feed-in-tariff, among other costs that are usually passed on to energy consumers. These grid & reliability costs are relevant and can affect the competitiveness of Power-to-X projects.

Grid & reliability costs will be affected as electricity markets evolve to meet their zero-emissions targets. The projected grid & reliability costs in Chile are between 10 to 16 USD/MWh, which is relevant compared to the Levelized Cost of Electricity (LCOE) of a PV project developed in the northern part of the country. Currently, the LCOE of a PV project could be less than 20 USD/MWh in some locations. However, grid & reliability costs in Chile are lower than those observed in other markets such as Germany, New England and California. In Australia these costs, depending on the region, can be similar to those observed in Chile.

Power-to-X projects can be also developed off-grid by using a stand-alone power system to avoid the payment of grid & reliability costs. Off-grid Power-to-X projects require flexibility and storage, at different scales, to meet their operational requirements. Many countries have not defined technical standards related to the quality of supply and connection of large off-grid industrial facilities. Operational needs and requirements of off-grid Power-to-X projects should be carefully understood to properly define technical standards related to the quality of supply.

A benchmark of grid & reliability costs will be conducted for different markets and will be presented in order to provide a more complete view of the cost of electricity supply for a grid-connected Power-to-X project. Also, using the Chilean power grid as a case study, the impacts that the operational flexibility of a grid-connected power-to-X project can have on the operations and the cost of supply will be analyzed. Finally, different requirements and trade-offs for off-grid supply will be discussed to address the lack of standards related to the quality of supply and connection of large off-grid industrial facilities.