Chile hydrogen financing: ‘You’ve got to have a contract, a good contract’

Chilean financial institutions are willing to help bankroll green hydrogen projects but several boxes will need ticking first, industry stakeholders were told.

Chief among them is securing offtakers, which in terms of projects targeting the domestic market, may also involve demand-side subsidies to help get the development wheels and cogs spinning.

Hybrid solutions will likely be adopted, involving project finance, potentially combined with debt and equity financing and, at least in the early days, de-risking and other products from the toolkits of multilaterals. 

“Financing will be there; what we always say is ‘contracts first,’” said Manuel José Ilabaca, an energy financing specialist at local bank Santander Chile, during a sector conference in capital Santiago. “Chile is quite a mature market in terms of access to finance.” Ilabaca, focused on the green ammonia export segment, added: “Whatever molecule you’re going to sell obviously has to have a contract, a good contract, one that supports the economics of the project.”

During a panel on financing projects for local offtake, Rodrigo Martín, head of corporate finance at state lender BancoEstado, echoed the message of Ilabaca, that banks were willing to help support the sector. Martín drew parallels with the early days of financing Chilean highway construction projects carried out under the public-private partnership model.

State support to incentivize demand – possibly the likes of contracts with publicly owned enterprises that could substitute high-carbon fuels or industrial inputs with green hydrogen or its derivates – is deemed a potentially important tool to help kickstart the local industry and build knowledge and know-how.

Of the 58 publicly announced projects in the country, just over half are designed to supply local offtakers, with the bulk of the balance export-focused, according to a presentation by hydrogen chamber H2 Chile.

Among the most advanced projects in Chile is developer HIF Global’s US$830mn Cabo Negro e-fuels plant, which recently entered the environmental review system. With electrolyzer capacity of 240MW, the project is planned for Magallanes region. Aiming for returns over 15%, HIF officials plan to use project finance to cover 70% of outlay and tap the debt and equity markets for the balance. An associated wind project of around 300MW planned by partner Enel Chile, Faro del Sur, should enter the review system by year-end, and several others are expected to join it over the coming months.

A demonstration e-fuels plant, Haru Oni, financed via equity injections by the project partners, is already operating in windswept Magallanes.

As things stand, Cabo Negro and a 10MW hydrogen project are in the environmental review phase, the latter submitted voluntarily. 

In terms of access to finance and associated costs in Chile, HIF's head of project finance, María Ignacia Varela, said this should not be a barrier, adding that the country needed to take advantage of the green hydrogen “window of opportunity” without delay.  Along with the financing aspects, other challenges facing the fledgling industry are in the spheres of technology risk, price and logistics.   

Meanwhile, the entrance of projects into the review system marks a shift from "PowerPoint" to a more advanced phase, Ilabaca said during the event, hosted by Universidad Finis Terrae, Latin American development bank CAF, UN sustainable finance initiative UNEP FI and local public-private development and innovation organization Fundación Chile.

All eyes will be on the progress of projects through the environmental and social review process, which often comes under fire for being complex and lengthy but has undergone some tweaks in preparation for the nascent hydrogen wave. Reform bills to speed up permitting are due to be submitted to congress by the end of this year.

By 2050, roughly US$330bn in accumulated hydrogen investment is expected, according to the country's national hydrogen strategy, which is due to be joined by an associated roadmap by year-end.

A role of Fundación Chile in terms of hydrogen is building early-stage links between projects and potential financial backers. 

Echoing HIF Global, Fundación Chile green hydrogen investment director Andrés Labbé urged action: "Although there has been progress at the local level, other countries are advancing faster than us, which is why we have to be more agile. The invitation to the financial sector is to be attentive and willing to evaluate projects early and incorporate an innovative approach in the way they are financed."

Cristina Hube, dean of Universidad Finis Terrae’s business faculty, told BNamericas on the event sidelines that development of the industry will require multistakeholder collaboration, with universities playing an R&D and business innovation role.

“Alliances between different organizations, finance, public sector and multilateral entities but also universities, which promote knowledge-creation, innovation, contribute to new business models, are key to this type of initiative,”  

CHILE PROJECTS

North

Developers, according to the H2 Chile presentation, have announced 24 projects targeting northern region Antofagasta, with half geared to meeting just local demand and 25% purely the export market. 

Fifty-nine percent are hydrogen, 33% ammonia and 8% methanol. The principal electricity source is solar power.

Central zone

Fourteen projects are in the central zone (Coquimbo, Valparaíso, Santiago Metropolitan, Ñuble and Biobío regions), all geared to meeting local demand. All planned output is hydrogen and the principal electricity sources are wind and solar.

South

Sixteen projects target Chile’s south: 14 in Magallanes region and two in Aysén.

Fifty-three percent are ammonia, 34% hydrogen and 13% e-fuels. Three-quarters target just the export market, with 19% geared to local demand.