NRF Japan energy update – December 2023

The world continues to wait on the Japanese Ministry of Economy, Trade and Industry (METI) for the support the hydrogen/ammonia sector needs to kick-start the industry. Many projects we are working on are awaiting the announcements of the METI joint-subcommittees (including the Hydrogen and Ammonia Policy Subcommittee) and ultimately the new legislation which will need to be approved by the Japanese Parliament. We are carefully monitoring the updates.

In the draft interim report dated 6 December 2023 publicized by METI (found here - December Meti Report), greater detail was placed by the subcommittee on Contracts for Difference (CfDs) rather than a fixed payment system or tax credits. Global ammonia/hydrogen projects are awaiting the details of these subsidies so that the required project financing, and the bankability of such projects, can be properly considered/calculated. 

Key takeaways from the 6 December announcements included:

• H2/NH3 suppliers should be able to start to apply for subsidies from next summer in 2024. Assuming so, clear guidelines and announcements from METI will need to be made in the early part of next year; and
• the principles that will apply to the subsidy will include: a) prices will be determined on a project by project basis but be available for 15 years; and b) where hydrogen/ammonia is produced overseas, foreign exchange fluctuations will be accounted for in the pricing formula.

Other topics considered in detail by the METI subcommittee included:

• the need for institutional measures to promote the supply of low-carbon fuels
• required safety matters that will need to be considered to expand the supply (and use) of low-carbon fuels; and
• measures that will boost the new energies markets and expand usage of hydrogen and ammonia

We are keenly awaiting METI’s next announcement and will report again on its next release. Many of the projects we are working on are stalled pending the announcements from METI and we anticipate acceleration of the market once METI's guidelines become clear as to the support to be offered by the Japanese government.