Argentina , Chile and Brazil
Q&A

Chile, Brazil best positioned to reap green hydrogen first-mover advantage

Bnamericas
Chile, Brazil best positioned to reap green hydrogen first-mover advantage

Hydrogen production is developing fast in some Latin American nations as policymakers and investors grapple with the region’s vast potential and unique challenges.

Chile’s US$50mn financing round for private pilot projects is due to be awarded next year by development agency Corfo. The country’s first project, the US$51mn clean methanol and gasoline production plant Haru Oni, broke ground in Magallanes region earlier this year. Authorities have also struck cooperation agreements with port authorities in Rotterdam, Antwerp and Zeebrugge, among others.

In Brazil, several players are eyeing green hydrogen opportunities. A forerunner was Fortescue Future Industries, which in March inked an MoU with Porto do Açu Operações to build a 300MW green hydrogen plant at Açu port in Rio de Janeiro state. It has also signed a deal with Pecém port in Ceará, as have Australia’s Enegix, Brazil’s White Martins and France’s Qair, which additionally closed an agreement with the Suape port in Pernambuco.

In Argentina, the government announced a multibillion-dollar plan by Australian company Fortescue Future Industries, which is eyeing initial outlay of around US$1bn in its Pampas green hydrogen project planned for Río Negro province. The government is also exploring other blue hydrogen opportunities to leverage its abundant supply of methane and natural gas.

BNamericas spoke with three analysts from consultancy Wood Mackenzie about the market. Flor de la Cruz and Bridget van Dorsten are focused on hydrogen research, and Gabriel Dufflis is focused on Latin America’s power sector.

The analysts provided insights into the region’s competitiveness in the international hydrogen market.

According to the experts, access to cheap renewable resources in countries such as Brazil, Chile and Argentina, as well as relatively efficient maritime access to some of the biggest expected hydrogen consumers, including the US and Europe, could allow Latin America to become a strong player in this budding industry.

BNamericas: What makes Latin American countries attractive for green hydrogen investment?

Van Dorsten: We recently put out at a report looking at 24 different countries. Some countries that have the biggest advantages are those that have the cheapest renewables, as the operating cost of producing green hydrogen is the major component that drives the levelized cost of hydrogen over time.

And when I speak about that, I’m talking about the dollar-per-kilogram cost of green hydrogen. Chile and Brazil were two countries that had some of the greatest potential for the lowest cost of green hydrogen as compared to some other countries globally, but also compared to other colors of hydrogen, blue, grey or brown.

The fact Chile and Brazil have some of the lowest dollar-per-kilogram cost as compared to most other countries puts them in a very convenient spot to get the first mover production prices. The cost of producing energy makes up 75% of the total cost of green hydrogen. So it’s a huge component.

Dufflis: The strength of Latin America in terms of producing green hydrogen is the low electricity cost the region will experience in the future. One thing we see happening is that electrolyzers won’t be buying electricity from the grid, but rather most of the projects will be self-consumption projects, meaning the developer will build its own solar or wind facility together with the electrolyzer.

This makes it more competitive, because you don’t have to pay the transmission infrastructure costs. You don’t have to pay special fees to the local electricity sector. Although we see wholesale electricity prices decreasing in the long-term, those projects will be self-contained.

Chile’s north has one of the greatest solar potentials in the world, with the highest capacity factors available. Brazil has similar resources with wind in the north-east, the best in the world for electricity generation, which makes the levelized cost of electricity of those sources in particular the most competitive in the world, essentially.

This is the strength of the region. Of course, there is a limitation in terms of the potential markets within the region. The main consumption hubs will be somewhere else: in Europe, the US and Asia, and then shipping comes into the equation. But the region will have, essentially, the cheapest molecule in the world.

BNamericas: Are Chile and Brazil well-positioned in terms of shipping green hydrogen?

De la Cruz: As an example, shipping from Chile to the Netherlands is much closer than Australia to the Netherlands, through the Panama Canal and across the Atlantic. In terms of shipping, Chile does have an advantage.

In our preliminary data, it’s about two-thirds the distance, so in terms of shipping costs, it should have an advantage. The same applies to Brazil when it comes to shipping to Europe, which will be a major consumption hub. For shipping to, for example, Japan, Australia has a clear advantage there. But Latin America has the possibility to access some of these other markets. The European hub or the US Pacific Coast in California.

BNamericas: Could other types of hydrogen, such as blue hydrogen, be produced in gas-rich regions, becoming more competitive than green hydrogen?

De la Cruz: That depends partly on international legislation and which type of hydrogen is going to get accepted and what levels of emissions are considered for each type.

Currently, the EU is developing a standard for low-carbon hydrogen, and it has to meet a certain percentage of emissions to be accepted, to count as low-carbon hydrogen. So this scenario would hinge on whether this type of hydrogen would even be accepted, or make the cut. 

If it does, and is more cheaply produced, it could have an advantage over green hydrogen. However, in some countries, including, for example in Chile, green hydrogen is already cheaper than blue hydrogen.

Van Dorsten: In other countries that are gas rich, like Saudi Arabia and Russia, blue hydrogen is going to be competitive, especially in the former.

Saudi Arabia has access to both solar and natural gas, and so that will be an interesting market to watch in terms of which one overtakes which and in which the country decides to invest more.

Overall, considering the hydrogen market is so young, seeing both blue and green hydrogen come online, regardless of type, is good for the market in general. The more we see the hydrogen market be saturated with operational hydrogen projects, and not just announced projects, the better off the whole market will be.

De la Cruz: When comparing announced projects around the world with the amount of hydrogen we need, we are still short by about 500Mt (million tons) to achieve a 1.5°C scenario in 2050. So there is space for many more projects of all types.

BNamericas: What makes green hydrogen so attractive for renewables developers? What are the challenges they may face in Latin America?

Dufflis: Renewables developers are pushing worldwide to create electricity demand, because in many countries demand growth is expected to be modest or even decrease in the long term.

When we talk about Latin America, the decarbonization path in terms of the electricity matrix of these countries has easier targets to achieve than some other parts of the world, meaning the decarbonization process will happen quickly, and then you need to create additional demand to be able to sell more renewable projects.

From the electricity supply side, there will be pressure to develop the hydrogen market faster and faster, but maybe, the demand side won’t be ready for it by the time the electricity market wants it to happen. There is a kind of gap that could happen there in the future.

There is still huge potential to fulfill in other regions. Brazil can multiply its wind capacity, Chile can do the same for solar and Argentina as well.

There is a challenge of integrating those renewable resources into the electricity grid, but this is a challenge hydrogen developers won’t face, because as we mentioned, we expect those projects will be self-contained. This is a different path.

If those developers want to go for hydrogen projects, then there is a different challenge of having demand for those projects instead of the usual challenge for a project needing to secure a transmission connection, which depends on the government developing the country’s transmission infrastructure.

Also, the regulatory path tends to take longer in Latin America than in other countries. It’s interesting to see how governments, especially in Brazil and Chile, are trying to organize themselves to be ready for the moment when more serious projects will start to appear. They are trying to be ahead of the market.

In Chile we have seen this with other things, but in Brazil it is a new development. The country is trying to create a national policy before the market actually requires it. This is a new factor going on.

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