Chile preparing green hydrogen financial assistance program worth nearly US$730mn

Chile’s state development agency Corfo has established a US$728mn pot – which may swell in size – to help spur private investment in green hydrogen projects. 

The initiative, known as PFCH2V, is chiefly designed to mitigate financial risk.

Core objectives are delivering to projects, through participating financial intermediaries and, possibly directly at a later stage, loans with favorable interest rates and terms, as well as guarantees and credit lines for debt repayment and liquidity. 

An associated goal is crowding in private investment, particularly for operating projects that are scaling up – a phase when risk should be lower and commercial lender appetite stronger.

“What the facility seeks is to provide risk mitigation and cost minimization,” Corfo director of financial risk Carlos Berner said during a finance seminar hosted by renewables-focused strategic communications firm ATA Insights. “These are two essential elements to be able to bring in debt, that is, private debt.”

The facility is geared to three principal industry facets: green hydrogen production – which encompasses both renewables generation and production facilities – demand, and the manufacture of components such as solar panels, wind turbines and electrolyzers.

Officials aim to launch the program in 3Q24, dovetailing with the financial close needs of projects currently in the pipeline. “Independent of this, we’re always available to discuss what other alternatives we can generate for projects that want to achieve financial close before then,” Berner said.

Chile has multiple gigawatts of green hydrogen projects in the pre-construction phase which, in turn, will require billions of dollars in investment, overall, to get built.

In a presentation, World Bank senior energy specialist Janina Franco said risk mitigation instruments “could lead to a reduction in the levelized cost of green hydrogen and help Chile achieve a successful early entrance into the market.”

Flavia Buitrago, project finance associate at the Chilean offices of Sumitomo Mitsui Banking Corporation, said the financial services company had “received an increasing amount of interest in financing for these types of projects.”

From the point of view of commercial banks, Buitrago said, for a project to be considered bankable officials look at three main areas: sponsor profile/credit risk, offtake/demand and the actual financial structure of the project. 

“What we see, as with any other project, is that the key part is the due diligence of each of the projects, based on analysis of the bankability of aspects specific to the project in question and of the industry in general,” Buitrago said.

She added that the company has already financed individual components of typical projects, such as solar PV farms, desalination plants, electrolyzers and port works. So that officials can analyze the bankability of green hydrogen projects as a whole, that is, consider all components together, “what we see is that there needs to be a structure that permits the grouping together of all this infrastructure ...”

Development bank money accounts for the bulk of PFCH2V. A US$400mn loan announced Wednesday by the IDB forms part of the pot, Berner said in response to a question from BNamericas.

IDB has committed US$400mn, the World Bank US$150mn, KfW US$110mn and the European Investment Bank US$110mn. 

Chile has also been awarded just over US$17mn in subsidies and technical assistance. 

Around US$728mn is earmarked for PFCH2V, while some US$50mn is targeted at Corfo subsidies and the operation of the facility and of the H2V inter-ministerial hydrogen promotion committee. 

More than 40 green hydrogen and green hydrogen derivatives projects of myriad configurations and sizes have been announced in Chile. The country has published a green hydrogen strategy and an associated roadmap is due to be finalized in August. 

Corfo – which offers other instruments to help accelerate investment – has already executed a subsidy program to help developers in the vanguard cover electrolyzer acquisition costs. Last quarter the agency launched a request for information (RFI) call targeting companies interested in fabricating or assembling electrolyzers and associated components. Assembling electrolyzers near to where they will be used is cheaper and simpler than importing complete units, which are bulky, according to an International Energy Agency report.

Another source of local project support is H2Uppp, a German government program designed to help spur emerging market hydrogen and Power-to-X initiatives in the early phases, when technical assistance and concessional capital is typically most in demand.

Delivered in Chile by the local unit of German technical cooperation entity Giz, H2Uppp offers to qualifying projects market intelligence, studies support, training, business model development, and financial advice. For German and European companies – or consortia involving Chilean firms – H2Uppp offers financing of between 100,000 and 2mn euros (US$107,798-US$2.16mn).