Chile working to fill Magallanes hydrogen supplier ecosystem gaps

Chilean researchers are working to help ensure that green hydrogen projects in the southernmost Magallanes region have the requisite suppliers and providers – ideally local players – on hand.

The core objective is to identify missing or weak links in the supplier and provider chain and propose policy measures to tackle the problem.

The study, due for completion by year-end and commissioned by the economy ministry, is being conducted by Chilean public-private development and innovation organization Fundación Chile and Magallanes-based consultancy Grupo Singular. It falls under the banner of Chile’s 2023-30 green hydrogen action plan published earlier this year.

Multiple projects to produce derivatives, green ammonia, and e-fuels are planned for Magallanes, a region with world-class wind factors but a relatively small industrial base and population. 

The work, which builds on pioneering 2023 research commissioned by the Chilean branch of the German development cooperation agency GIZ and the energy ministry, also involves mapping out the requirements of project developers and, in many cases, the large-scale providers they are working with.

“What the economy ministry is seeking is to, first, identify where the principal gaps are, and based on that, determine what could be the principal public policy instruments that permit the closing of these gaps in a limited time so that the industry, when it needs these services and products, has them to hand, ideally provided locally,” Andrés Labbé, Fundación Chile’s green hydrogen investment director, told BNamericas.

Given its isolated location, Magallanes has investment incentives, such as tax credits. These could be amended to encourage greater usage and, in turn, also spur companies outside Magallanes or the country to invest in the region, Labbé said.

A wide range of services will be needed, spanning the construction and operation value chain. Given the scale of the projects and the number of workers expected to enter the region, the local services industry would also need beefing up.

Labbé cited the importance of this early-phase work in helping prepare the region.

“There is a focus geared to avoiding, or reducing to a minimum, the negative impacts this could imply if it were to happen in a disorganized manner,” said Labbé. “The arrival of 10,000 workers there just for the construction phase is not just about moving people by plane, etc; services need to be in place, well established.”

Following the completion of the study, which will also address the services industry, state entities will work directly with the categories of suppliers identified in areas such as training, standards, and equipment financing.

Meanwhile, the GIZ study, also conducted by Grupo Singular, underscores the need for proactive measures, stating that “even when just a fraction of the initiatives materialize, local capacity, in terms of both providers and key public entities, are amply overwhelmed.”

Grupo Singular established six categories of services, inputs and equipment: project studies, manufacturing and construction, electric power, green hydrogen and derivatives production, green hydrogen and derivatives transport and storage, and final use or application.

Across the supplier chain, the bulk of companies with a presence in Magallanes are geared to manufacturing and construction and general services. For its part, manufacturing and services of greater sophistication would be provided by international companies until competencies are generated at the local level.

“The productive fabric of the region has no experience on the scale of what the hydrogen industry may demand in the territory,” Grupo Singular manager and GIZ report author Mauricio Ojeda told BNamericas.

“This means it’s necessary to improve a series of conditions and standards so that companies are better positioned to meet the demands of the industry.” 

Ojeda said developers were actively participating in the project to help maximize benefits for the region, both economically, socially and environmentally and that they were committed “to doing things right.”

He added that among local suppliers and providers “there’s expectation, there’s much hope that this industry takes off.”

Green ammonia and e-fuels would boost Magallanes’ exports, which have been impacted by dampened activity in key sector salmon farming. The other chief industry, oil and gas production led by state hydrocarbons company Enap, is unlikely to see a growth spurt. Enap is sharpening its focus elsewhere on sustainable fuels, including green hydrogen and derivatives, and is working with the private sector to adapt and expand existing infrastructure to help the industry take flight.

Fundación Chile and Grupo Singular, meanwhile, will also determine which products or services will have to be brought in from elsewhere 

“Work also involves looking at in which cases does it really make sense spurring things locally, because there are things that will probably be imported from other parts of Chile or from overseas directly,” Labbé said. “In other cases, yes, of course, it will fully make sense.”   

Projects

Green hydrogen projects have begun entering the environmental review system in Chile and pickaxes should start swinging in the second half the decade. Associated challenges include getting environmental licenses, adapting and expanding Enap’s logistics infrastructure and securing offtakers.

Two projects under review are planned for Magallanes: HNH Energy (green ammonia, 1.4GW wind, 1GW electrolysis) and Cabo Negro/Faro del Sur from HIF Global (e-fuels, 384MW wind, 230MW electrolysis).

Overall, based on project configuration information available at the time of the research, the GIZ study identified 16 projects targeting Magallanes, involving combined estimated outlay of US$36bn and requiring wind generation capacity of 36GW and electrolysis capacity of 14.7GW.

Associated annual production was put at 1.57Mt of e-gasoline, 170,000t of e-methanol and 11.5Mt of ammonia. Annual production of key input green hydrogen was forecast at 2.37Mt. 

Today, the ongoing projects are Haru Oni (an operational e-fuels demonstration plant), Cabo Negro/Faro del Sur, H2 Magallanes, HNH Energy, Llaquedona Green Hydrogen, Vientos Magallánicos, Gente Grande, Energía Verde Austral, Punta Delgada, Frontera, Cabeza de Mar, Green Patagonia, Aquarius, Sagittarius and Otway.

The companies behind these initiatives include HIF Global, Total Energies, Austria Energy, Copenhagen Infrastructure Partners (CIP), Ökowind, Sociedad Albatros, Alfanar, RWE Renewables, TEG Chile, EDF Andes, EDF Renewables, Acciona/Nordex, Free Power, GH Energy, Consorcio Austral and Otway Green Energy.