Implementing an Industrial Decarbonization Strategy | ENGIE Impact

Implementing an Industrial Decarbonisation Strategy for Carbon-Intensive Industries

Brief | Read Time 11 min
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Heidi Dumesich Sustainability Consultant
Amy Steel Senior Manager, Sustainability Solutions - APAC

At a Glance

  • ENGIE Impact's partnership with Yara, a leader in ammonia and fertiliser production, demonstrates how heavy industries can solve complex energy challenges
  • Start major decarbonisation projects by setting ambition and scale while accounting for technical and commercial challenges
  • A roadmap should prioritise emission avoidance, work within defined parameters and focus on low-risk yet future-flexible technologies
  • Develop partnerships and plan early, the current decade will be critical to lay a foundation for long-term success

Achieving Net Zero will require commitments to energy transformation journeys that go far beyond the incremental changes most companies are accustomed to and incentivised to make. This is particularly true for companies in hard-to-abate industries, characterised by high emissions and energy intensity.

These industries are among the most difficult to decarbonise due to technical factors such as the need for high-temperature heat, process emissions and the availability of alternative fuels, as well as commercial factors such as low margins, capital intensiveness and long asset life.

The complexities associated with decarbonisation strategies for heavy industrial companies are reflected in the comparatively slow pace of progress that has been made thus far and can be illustrated by the type of challenges and efforts needed to decarbonise an energy-intensive fertiliser manufacturing facility in the remote Pilbara region of Western Australia.

Ammonia, the building block for the ammonium nitrate fertiliser, is one of the most emissions-intensive commodities produced by heavy industry—nearly twice as emissions-intensive as crude steel and four times that of cement on a per-tonne basis, according to the IEA. About 96% of the hydrogen (H2) required to produce ammonia is derived from fossil fuels, consuming 3-5% of the world’s natural gas supply and generating 1% of global emissions. As a result, fertiliser has a massive carbon footprint.

To address its emissions, Yara, a world leader in ammonia and fertiliser production, partnered with ENGIE and ENGIE Impact to decarbonise the hydrogen supply for one of its fertiliser plants by producing green hydrogen via electrolysis. Its ambition is to take the Pilbara plant from zero renewables to more than 1GW of renewable power capacity by 2030, enough to power its entire production of fertiliser and ammonia. Together with Yara, ENGIE Impact designed a four-step decarbonisation roadmap strategy that can serve as a model for the phased, collaborative approach heavy industry should take to solve its complex energy challenges. It also demonstrates why starting early is critical to success.

Manufacturing decarbonization is economically viable with 5 proven technologies

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The Hurdles to Implementing a Decarbonisation Strategy

Heavy industry companies often underestimate how long the Net Zero transition takes. Through our work with clients, we have identified five common challenges businesses face when it comes to implementing their decarbonisation plans.

1. Technological Readiness

Many of the technologies considered crucial for decarbonising heavy industry operations have yet to be proven at scale, face uncertainty about the future availability of alternative fuels, and are expensive compared to the current alternatives. As a result, the supply chains needed to drive the implementation of these technologies are immature. Green hydrogen, for instance, ticks all these boxes. Projections have shown that the cost could come down significantly provided favourable policy initiatives, public and private investment, and an ecosystem of hydrogen off-takers, but the pace of rolling out green hydrogen projects has thus far been slow.

2. Financial Commitment

Large-scale projects often require significant upfront capital investment, which can deter companies from reaching their targets, or even from setting them in the first place. Companies may lack the expertise to find sources of funding and thus may struggle to obtain the capital for projects they wish to develop. They might also lack the expertise to evaluate the initial cost of pursuing Net Zero and the potential cost savings of achieving it.

Conversely, the commercial and environmental costs of waiting to invest in your transition are also very high. Not only is the natural gas market volatile, with prices slated to rise, but the cost of catching up with competitors that are acting now and planning for the future could be prohibitive. Looking at the bigger picture, the Climate Council estimates the global economic losses of failing to act at A$24.1T annually by 2100. For Australia, the figure is A$129B annually.

3. Operational Challenge

Adapting current industrial practices to more sustainable alternatives poses operational challenges, as doing so requires rethinking the ways of working. Operational excellence is typically expressed in terms of minimising downtime, maximising production volumes, etc. During the transition to the renewable energy phase, however, the potential for significant operational disruptions is very real and very costly, disincentivising operational teams from embarking on a decarbonisation journey.

4. Availability of Alternative Energy Sources

Sourcing renewable energy is one of the keys to reaching Net Zero, but this can be a major challenge for many organisations. Its sites might be in a remote location of the world that has not yet developed green energy infrastructure, or perhaps the business does not have enough space to develop renewable energy onsite. Australia, for instance, despite having ideal conditions for renewables, has difficulty integrating renewable electricity generators into the grid because their variability and intermittency increase the complexity of balancing supply and demand. This also makes it difficult to maintain a stable frequency and voltage.

5. Stakeholder Buy-in and Corporate Governance

Setting decarbonisation targets is a critical piece of the puzzle, but a corporate will not reach those targets without a company-wide governance strategy to develop and execute their transformation strategy while managing the many risks. It can be a challenge for a large organisation to develop and implement a strategy, as it requires all stakeholders and all functions to be on board—from C-suite finance and sustainability officers to site managers, investors and customers.

If these stakeholders are not engaged, aligned and committed to the decarbonisation process, a company runs the risk of having their progress stalled due to internal resistance.

A typical example is a failure to commit the necessary funds to a long-term transition due to adherence to the traditional business model of quick returns on investments rather than the total cost of ownership. Corporate leaders need to establish governance to ensure the strategy is being pursued company-wide, yet according to ENGIE Impact’s Net Zero Corporate Readiness Report, over 60% of business leaders believe coordination across departments is not taking place.  

Clearing The Implementation Hurdles in Heavy Industry Companies

Having identified five challenges that energy-intensive businesses face when implementing their decarbonisation plans, we now offer five tips to overcome these barriers.

1. Set the Ambition and Scale

The first step of any major decarbonisation project is to set the ambition and scale while accounting for technical and commercial challenges and feasibility. A heavy-industry business with multiple sites and a broad geographical footprint must decide whether to start at the asset or portfolio level. Due to the complexity of decarbonising energy-intensive operations, it is best to first select an asset that can serve as a good test case, the learnings from which can be applied more broadly to future projects.

In 2017, Yara and ENGIE Impact initiated discussions that would lead to the selection of Yara’s Pilbara plant as the best fit for a green hydrogen project, due to the favourable potential for renewables, proximity to Asian markets, a history of reliable energy exports and the stability of Australia’s regulatory framework. The ambition from the start was to develop the hydrogen project, named YURI, into a flagship that could serve as the start of a new industry value chain delivering renewable hydrogen and ammonia as feedstock for renewable chemical production, as well as a renewable fuel for power generation, transportation, and shipping for local and export markets. The ambition was not lacking, but they needed a feasible plan and access to capital.

2. Develop a Detailed, Investment-Grade Roadmap

This is key to getting such an ambitious project off the ground. It should provide a structured, analysis-driven approach for decision-makers, prioritise emission avoidance ahead of reduction, work within clearly defined parameters (budget, scope, and timeline) and focus on low-risk yet future-flexible technologies.

It is also extremely important to start sooner rather than later, as decarbonising heavy-industry operations takes time and requires full organisational commitment. Many decisions are required along the way, requiring close collaboration between consultant and client.

The first step at Pilbara was gathering information to understand the technical process and identify the points of attention. The next was to model the potential renewable energy system and create a set of scenarios to determine the optimal size and mix of wind, solar, batteries, and backup fuels needed in each of the phases.

The result was a four-phase plan ENGIE Impact designed with Yara to transition the Pilbara plant over the course of ten years from 0% to 100% renewable energy, fully eliminating the use of fossil fuels to make fertiliser and ammonia nitrate.

3. Take a Phased Approach

It is important to build a trajectory step by step, learning as you go, because there are so many variables and uncertainties to consider, investments to be made and approvals to be secured. Each challenge should be tackled one at a time. It is when businesses try to face multiple challenges simultaneously that delays occur, and cost overruns start to add up.

Phase 0 Phase I Phase II Phase III
Target Year 2023 2026 2028 2030
Key Outcomes Solar PV Integration + Assess Green H2 Supply Scale-Up Renewable Share Plant Expansion and Renewable Scale-Up Ramp up Green H2 and Ammonia Production
Electrolyser [MW] Per Phase 10 150-500 1000 500
% Of Green H2 in Feedstock <1% 6-20% 60% 80-100%

The first phase in the YURI project might only cover less than 1% of their emissions, but it’s the first step to introduce a renewable influx to their very non-renewable system. The subsequent steps address what is needed to upscale the project with additional renewables, potentially building power lines and pipelines, identifying cost reductions on technologies, and so on. Significant adaptation is needed to prepare for the transition, along with significant amounts of financing.

4. Obtain Financing

The extensive planning and collaboration done upfront was important for financial as well as technical reasons. Without a detailed roadmap and initial assessment, it is difficult to get a commitment from investors for the large amount of capital needed for such a project. With the first phase fleshed out and priced, ENGIE Impact and Yara submitted its feasibility study for a grant from the Australian Renewable Energy Agency to partly fund its first phase. They were awarded A$42M ($28M US/EUR), on a total project of A$70M ($47M US/EUR). While this is very expensive for the creation of 10 MW of renewable-powered electrolysis capacity, the per-unit cost will decline as the project scales up.

Commercial feasibility is the key remaining point that needs to be addressed in progressing the project. YURI Phase 0 is a demonstration project to combine different technology components into a new integrated process. It has a high strategic value in the sense that bringing physical renewable ammonia to the market is a prerequisite to proceeding further with negotiations to deliver hydrogen or ammonia to potentially interested customers. It is therefore a very important step in solving the chicken-and-egg problem in the market today: Interest currently exists, but to create demand, the product must be available.

5. Continued Collaboration

When undertaking heavy industry projects, particularly in the mining sector—where the use of land, resources, and energy have environmental and social impacts, require extensive government permitting and affect the local population—early and frequent collaboration is not a luxury. Yara has earned a strong reputation in the highly industrial Pilbara region and the YURI project has been initiated with support from national, state and local government, local and regional stakeholders and local Aboriginal traditional owners. The stakeholder engagement conducted reduces the risks related to community acceptance of the project.*

Looking broader than an individual project, whether it concerns scaling up renewable hydrogen, wind, or solar projects, all are driven by global efforts to accelerate and reduce the costs of energy transition and decarbonisation. Everyone has a stake in mitigating the impacts of the climate crisis. And our interconnected networks share the need for resilience, which is why we encourage collaboration among committed private sector companies and progressive governments so they can mutually benefit from tapping renewable energy sources and streamlining the infrastructure to deliver it—keeping everyone’s costs and emissions down.

Learn how Henkel successfully partnered with ENGIE Impact to develop and deliver emission reduction at speed and scale. View discussion →

Start Early, Plan Carefully

It has taken several years to move from the initial assessment of utilising renewable hydrogen to power ammonia production at one of Yara’s fertiliser manufacturing sites to developing a high-level, phased roadmap, and then on to a joint investment and implementation strategy. Only now, five years later, is the first phase ready to commence. Multiple lessons have been confirmed along the way.

First, time is of the essence. For individual companies and heavy industry in general, the current decade will be critical to lay the foundation for long-term success. Develop your partnerships and start planning early, as there is a high cost to be paid for waiting. Delaying action reduces the amount of project time to learn and adjust to unexpected circumstances, and often forces developers to tackle multiple transformation levers all at once. Timely action de-risks the entire process and provides a competitive advantage for those getting out ahead of other companies.

Second, a phased approach facilitates the securing of capital and financial commitments. The financial applications should be factored into the phasing strategy, as the lead time to invest and obtain approvals can be long. Therefore, large organisations should start applying for financial opportunities sooner than later.

Overall, phasing the approach helps keep the whole process on track, enables it to be monitored, and allows the organisation to pace itself in the race to Net Zero.

As a result of developing a thorough roadmap and collaborating with the local client, it was recently announced that the first phase of the Yuri project will produce up to 640 tons of renewable hydrogen per year as a zero-carbon feedstock for Yara Australia’s ammonia production facility. It is scheduled for completion in 2024. Realisation of this first phase keeps on track the ambition to develop a “Pilbara Green Hydrogen Hub”, serving local and export markets, and building on existing export infrastructure and abundant renewable energy resources in the region.

*Note: In the spirit of reconciliation, we acknowledge the Traditional Custodians of country throughout Australia and their connections to land, sea and community. Murujuga is the traditional Aboriginal name for the Dampier Archipelago and surrounds. It is being nominated for inscription on the World Heritage List to have its unique cultural, spiritual and archaeological values internationally recognised at the highest level. The rock art is deeply meaningful for the Traditional Owners. It provides a link to stories, customs and knowledge of their land and connects them to the events and people of the past and their beliefs today.

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