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In a major development for the maritime sector, ammonia-powered ships have emerged as a major solution for minimizing carbon emissions. As of September 2024, nearly 430 ammonia-ready maritime vessels are operational or on order.
The zero-emission vessels promise to transform long-distance maritime routes. However, their mass adoption is encountering multiple commercial hurdles.
According to Oliver T. Edwards, a carbon footprint guru, the timeline for mass deployment is closely linked to the drop in green ammonia production costs. These costs are expected to be reduced by 2030 and break even by 2050 as renewable energy becomes readily affordable. For now, leasing models help minimize upfront capital needs for shipowners.
Leading the transition
The move to ammonia-powered ships has brought together multiple stakeholders, including financiers, shipowners, innovators, and governments. Shipowners are at the forefront of this transition, adopting innovative vessels to meet increasing environmental regulations.
Financiers are hesitant as they look at the risks of investing in this budding technology. However, public institutions and governments will play a huge role by providing the required capital support.
On that note, an ammonia-powered ship design by Maersk Mc-Kinney Møller Centre for Zero Carbon Shipping (MMM Centre) gained approval in principle (AiP) from two reputable classification societies.
The use of ammonia fuel for container ships is in the development stage. Nonetheless, a recent study from the Global Maritime Forum, explaining the MMM Centre’s NoGAPS design project, discovered that the cost gap between ammonia ships and traditionally powered ships may be eliminated as early as 2026. In the case of a published Nordic Innovation model, the ship is owned by a special purpose company (SPC), a legal entity designed particularly for operating and owning the vessel.
The appeal of ammonia
Ammonia may soon become a game-changer to help decarbonize the shipping sector. Ammonia offers a great path to zero carbon emissions in the maritime space.
The creation and deployment of ammonia-powered ships are unfolding in shipping hubs globally. For instance in Europe, the European Union is expected to support the shift using grants and subsidies to scale up ammonia infrastructure.
In the United States, the Inflation Reduction Act (IRA) has reduced the financial costs on shipowners, helping facilitate the move to zero-emission vessels. Creating a massive global ammonia fueling network is important for the mass adoption of the new shipping technology, according to Edwards.
Nonetheless, the market’s readiness for large-scale ammonia adoption relies on the speed of infrastructure development and enough capital support.
Commercial challenges
Despite the massive potential, the shift to ammonia-operated ships faces multiple challenges. Infrastructure restrictions, high costs, and market uncertainties pose major challenges. Ammonia is more expensive than traditional fuels, which increases financial risks for shipowners. The shipowners have not seen any regulatory incentives or operational savings to offset their initial investment.
Financial providers are worried about the long-term viability and return on investment. Moreover, the absence of a global ammonia-fueling ecosystem increases uncertainty. On the other hand, technology risks include rapid obsolescence and possible technical issues.
Resolving the challenges
Several solutions have been created to resolve these commercial challenges. Innovative capital structures like sustainability-linked loans, equity investments from shipowners, and government grants will help minimize the financial risks. Nonetheless, the capital support meant for the deployment of ammonium fuel ships is concentrated in North Asia and Europe.
These solutions strive to mitigate deployment costs by blending private and public investments. Shipowners have turned to multi-fuel vessels to reduce costs and risks during the transition phase. Such strategies will attract competitive financing and boost the adoption of ammonia-powered ships. Hence, a sustainable maritime future will arise.
The successful implementation of ammonia-powered ships will depend on resolving these issues and securing support from all stakeholders as the maritime space transitions towards a greener future.
