Chile awards six new green hydrogen projects

The Chilean National Development Agency (Corfo) selected six green hydrogen production projects for development in late December, accelerating the country's effort to become a world leader in the emerging clean energy.

Winning bids would result in more than 45,000 metric tons (mt)/year of new green hydrogen capacity, with each of the plants expected to begin operations in 2025 or earlier.

Representing commitments by international energy and chemicals companies of more than $1 billion in investment, the projects are:

• Faro del Sur. Enel Green Power Chile, a subsidiary of the Italian energy firm Enel, will produce 25,000 mt/year in the Magallanes Region, using 240 MW of new wind power. "The green hydrogen is expected to be sold to HIF Chile, a company that will produce ethanol and e-gasoline for export to Europe," Corfo said. Chilean industrial firm AME is the lead developer, and it's joined in a consortium by state-owned oil company Enap, German engineering firm Siemens, and Enel. Construction has started on this project.
• HyPro Aconcagua. German chemicals company Linde will produce 3,000 mt/year of green hydrogen in the Valparaiso Region, using 20 MW of power. The output will replace part of the current production of gray hydrogen that they have installed in the Aconcagua oil refinery for National Oil Company (ENAP), Corfo said.
• HyEx-Green Hydrogen Production. French utility and oil and gas producer Engie will produce 3,200 mt/year in the Antofagasta Region using 26 MW of new power. Chilean mining services firm Enaex will buy the green hydrogen as a feedstock to produce green ammonia for export.
• Antofogasta Mining Energy Renewable. French industrial gases producer Air Liquide will produce 60,000 mt of e-methanol using green hydrogen, captured CO2, and 80 MW of renewable energy.
• Hydrogen Green Bahia Quintero. GNL Quintero, a Chilean natural gas and LNG firm, will produce 430 mt/year of green hydrogen from a plant in the Valparaiso Region, using 10 MW of new power.
• H2V CAP. CAP, a Chilean mining and steel company, plans to produce 1,550 mt/year of green hydrogen in the Biobio Region, using 20 MW of renewable power.

Also in December, the H2 Magallanes project was announced, and it will include 10 GW of wind capacity in southern Chile to power an 8-GW green hydrogen electrolyzer and an ammonia plant. Total Eren, the developer subsidiary of French energy giant TotalEnergies, is the lead developer.

Private sector answers the call

With the new projects, Chile says it now has more than 40 green hydrogen projects proposed or under development, according to a report in September by IHS Markit Senior Director, Latin America Gas and Power Etienne Gabel.

"Chile wants to be a powerhouse in the global hydrogen industry. It's taking quite relevant steps from the policy side to place itself as one of these front-runners in Latin America and worldwide," Gabel said 20 January in an interview.

"The country has unparalleled solar and wind resources and business-friendly power regulations," Gabel added. "On the policy side, they are doing everything they can."

Large, established global companies recognize the government's interest in green hydrogen and the advantages that Chile's access to renewable power can bring. "The private sector is answering the call," Gabel said. "Overall, this [round of approved projects] is very promising.... Whether this will materialize in billions of dollars of investment remains to be seen. But this first step looks good."

National Strategy for Green Hydrogen

Chile's ambitious plan was laid out in November 2020 in its National Strategy for Green Hydrogen. It set as goals having 5 GW of electrolysis capacity under development by 2025, being the world's lowest-cost green hydrogen producer by 2030, and becoming one of the world's three largest hydrogen exporters by 2040.

It's picked a promising sector at a critical time, according to the International Renewable Energy Agency (IRENA).

"The technical potential for hydrogen production significantly exceeds estimated global demand. Countries most able to generate cheap renewable electricity will be best placed to produce competitive green hydrogen," the IRENA said in a report published 15 January.

The IRENA identified Chile as one of several countries (along with Morocco and Namibia) that are net energy importers today but which "are set to emerge as green hydrogen exporters," it said.

Green hydrogen could reach cost parity with natural gas-derived hydrogen by 2030, and even sooner during times when natural gas prices spike as they did in Europe in 2021, according to the IRENA.

With carbon emissions as the driving force, the IRENA estimates hydrogen will represent up to 12% of global energy use by 2050 and could rewire energy trade as countries that have been dependent on fossil fuels from the Middle East or Russia will have new options from emerging green hydrogen exporters.

Chile has definitely lined itself up for export markets, as Gabel noted that the country has free trade and tax agreements with countries that account for more than 80% of global GDP, more than any other country. However, it must now produce green hydrogen at low prices to compete with other options, and the national strategy plan has set $1.50/kg by 2030 as the goal.

Investment in renewable generation

To produce green hydrogen, Chile needs more renewable power, and the National Energy Commission (CNE) announced 17 January the terms of its new power auction. It's seeking bids for 5,250 GWh/year for 15 years, starting from 1 January, 2027.

Bids must be submitted by 17 June.

Indicative of the promise seen by investors, Chile's most recent power auction last year was for 2 GW of wind, solar, and storage, and bids for more than 16 GW of generation and storage were received.

For green hydrogen alone, the government's plan is that it will have 200 GW of renewable power capacity installed by 2040. The government estimates this will cost $220 billion. For context, renewable capacity to serve domestic power needs would be about 24 GW in 2040, or little more than one tenth of what is envisioned for green hydrogen.

Today, IHS Markit says Chile has nearly 8 GW of renewable power capacity.

The drive to support green hydrogen complements the country's determination to use the dry desert areas and wind-prone regions for solar and wind power, said the Institute of the Americas in its 2022 Energy Landscape and Outlook report.

"Both the private and public sectors have a broad agreement and concrete will to achieve carbon neutrality by 2040," wrote Trinidad Castro, a non-resident fellow at the Institute.

Government estimates are that the country has nearly 1,700 GW of solar power potential and nearly 200 GW of onshore wind power potential. This is approximately 70 times the country's current energy needs, according to Corfo.

What could go wrong

Although Chile appears to have a head start on most other countries in developing green hydrogen, it faces a number of challenges if the industry is to reach its potential.

For one thing, Gabel said, the country's location on the southwestern coast of South America leaves it distant from the expected key markets of Asia and Europe. Chilean exporters will have to overcome a cost disadvantage in shipping. This is why making low-cost hydrogen is so important to the nation's green hydrogen plan.

Cost could also influence the form in which hydrogen is exported. Most of the 40 projects that have been proposed are planned with ammonia as the primary end-product, not hydrogen, Gabel explained. This is because ammonia is much easier and cheaper to ship, he said. Ammonia can be used by an importing country in that form, or it can be converted back to hydrogen at an additional cost.

Another challenge is that Chile's government is not offering much in the way of direct financial incentives for developers. The six projects approved in December are in line to receive a total of $50 million of government funding. But that's only 5% of the estimated total investment of $1 billion—and the money will be distributed to each operation only after it begins production.

"It's been in the nature of the government in Chile for decades to be hands-off, free market," Gabel explained.

In a best-case scenario, green hydrogen's growth will follow the trajectory of renewable power in Chile, where the 8 GW of current capacity already has exceeded the country's 2025 goal of providing 20% of power production.

"Chile was at the forefront of the renewable energy boom in emerging markets, but not because the government provided subsidies or feed-in tariffs," Gabel explained. "That worked very well for renewables because Chile's resources are tremendous, and renewable technologies in their own right are competitive [with fossil fuel power]. But green hydrogen is not competitive compared to alternatives yet."

The government itself poses another potential challenge for the green hydrogen industry, as the country's politics have been unsettled since a series of social protests in late 2019. Those led, eventually, to the election of 35-year-old Gabriel Boric as the country's new president in December 2021. The youngest president in the nation's history, Boric's left-leaning politics represent a possible change from the business-friendly governments of the past decades, as he has spoken about raising corporate taxes and giving affected communities a greater voice in decisions on infrastructure, such as energy projects.

As a related matter, Chile is rewriting its constitution. The process has encountered "a bumpy start" since the first meeting of the constitutional assembly in July, according to the US-based Wilson Center. The assembly is required to produce a draft constitution by July 2022.

With the rewrite of the constitution, some matters that are central to infrastructure could be changed, Gabel explained.

In particular, there's a lot of talk about water—not surprising, given that the country is in the midst of a 10-year megadrought. "Currently, private parties can own water, but under the new constitution it's likely to become a public right," Gabel said. "And there's talk of including an article about environmental protection in constitution. There may be others related to rights of indigenous peoples. And when the second referendum to approve or reject the new constitution comes out, social unrest could occur again."

Add it up, and the country's priorities could change in ways that make it harder to maintain the momentum on green hydrogen.

But there are clear signs as well that there's no going back on green hydrogen. On 19 January, Minister of Energy and Mining Juan Carlos Jobet unveiled an update to the national hydrogen plan, "Plan + Energy: Green Hydrogen," which will be published by the end of the month. According to news reports, it will include information on how public lands will be used for hydrogen and energy projects; procedures to speed up construction or expansion of hydrogen and ammonia export terminals; and outreach to the public on the environmental review process for projects.

"Both the left and the right [politically] want a big hydrogen industry," Gabel said.

Posted 20 January 2022 by Kevin Adler, Chief Editor