Argentina’s US$8.4bn green hydrogen project: Awaiting the fine print

Argentina hit the headlines after the government announced, during COP26, a massive green hydrogen project that could pull in investment of US$8.4bn.

The country had already announced an associated cooperation agreement earlier in the year.

Official details surrounding the project are limited. Project backer Fortescue Future Industries – a unit of Australian miner Fortescue Metals – did not immediately reply to a request from BNamericas for further information.

What is known is that the company is eyeing a site near Sierra Grande, a former iron ore mining town in Río Negro province 32km from the coast. 

The aim is to build production capacity of 2.2Mt/y by 2030 to serve the export market, state news agency Télam said. Wind capacity of around 2GW would be needed, according to local press.

A 500MW solar plant, in either Salta or Jujuy province, would also be required to compensate for wind intermittency in Río Negro, local media outlet Desarrollo Energético reported.

Fortescue is also eyeing neighboring Paraguay, where British hydrocarbons firm President Energy's green hydrogen unit Atome is advancing a production plan.

Cash-strapped Argentina – which also unveiled an energy transition strategy which envisages that 90% of additional installed capacity from 2022-30 will come from low-emission sources – has capital controls in place to help bolster the country’s pressured currency, a factor that has been dampening investment appetite. 

Against this backdrop, an opposition lawmaker has been trying to advance a hydrogen promotion bill that extends an existing law’s validity by 20 years and sharpens the focus on green hydrogen and tax incentives. The law was passed in 2006 but never implemented.

To find out more about the potential impact of the green hydrogen project, BNamericas spoke with Diego Calvetti, lead partner for Energy and Natural Resources at the Argentine offices of professional services firm KPMG.

BNamericas: If the project is carried out, for potential investors, what message would it convey?

Calvetti: Clearly, the announcement of this type of investment transmits a very powerful message to the investment community, although the details of the project are not known. It is a significant, quality leap in the renewable energy sector and opens the door to a technology that, until now, had not been widely disseminated in Argentina.

Once we know the details of the project, I believe that different messages for the investment community may be revealed; especially everything related to access to the exchange market and the import regime, taking into account that, due to the stage of development of this technology in the country, it should clearly be an export-oriented project with many imported components. Likewise, it would be desirable to have a specific regulatory framework to “shield” the potential for future investments in this field. 

Argentina has a hydrogen promotion law, passed in 2006, but associated regulations were never published; therefore, it has not entered into force. Under discussion are modifications to this law that seek to give greater impetus to the development of the sector’s potential.

BNamericas: How significant would this investment be for Argentina, given its economic challenges?

Calvetti: For Argentina, and indeed for any country, the fact that a private investor considers a direct investment of this amount is very significant. 

I reiterate that, to understand the impact and especially its timing, it is necessary to know the details of the project, which start from the establishment of the physical location – already announced as the province of Río Negro – the construction of the wind farm that will supply electric power for the separation process, followed by the hydrogen-generating unit, its subsequent storage and transport. 

In other words, [it is] a complex network of investments whose impact can surely be seen at different moments in time.

BNamericas: Regarding green hydrogen, how great is Argentina's potential as a producing country?

Calvetti: Hydrogen generation is a process that involves two main resources: water and electrical energy to produce electrolysis that breaks down the hydrogen molecule contained in water. Likewise, and as it happens in other parts of the world, the water to be used can be desalinated sea water. Even recent tests, still in the experimental stage, allow for directly obtaining sea water without a desalination process. 

Clearly, the best option from the point of view of productive efficiency is fresh water or river water. But there are alternative methods that, although they affect the profitability of the projects, do not make them unfeasible, given technological advances in this area.

With this, what I would like to highlight is the enormous existence of these resources in Argentina, whether it be access to water, in any of its forms and sources, or the fact of having 70% of the country's surface area, mainly from northern Patagonia and the south regions, with winds of a power and constancy that, today, mean wind farms that are in operation have an average utilization factor of 60%. 

In addition, and until this technology has a greater penetration in the country, in terms of use, the enormous coast of Argentina allows us to think of projects that are clearly oriented to the export market.