RIO DE JANEIRO, BRAZIL – In the region, Chile and Uruguay have initiated an exploratory path to take their first steps, considering their natural advantages (abundance of renewable energy sources) with prospects that look encouraging.
Last week a webinar entitled “Challenges and opportunities of green hydrogen in Chile and Uruguay” was organized by Carey and Guyer & Regules. The event was attended by Uruguayan Minister of Industry, Energy and Mining Omar Paganini and his Chilean counterpart Juan Carlos Jobet.
Green hydrogen is produced by the electrolysis of water powered by renewable sources. This option – which is an energy vector and not a source – can then be transformed into several forms of energy, such as electricity, synthetic gas or heat, with multiple applications in industry or mobility. The production process using water and electricity from renewable sources is clean and has zero CO2 emissions.
The main cost of hydrogen is that of electricity to break down the water molecule. Countries with renewable energy available at lower cost are best placed to produce it.
CHILE AND ITS NEW COPPER
The Chilean Minister made reference to the launching of a space rocket in the first slide he used in his lecture on the future of this energy source. And he did so for two reasons. First, because hydrogen was the fuel used by Apollo (the rocket that reached the Moon) and, second, because he considered that the green hydrogen strategy is aimed at the long-term.
Chile intends to achieve carbon neutrality by 2050, a goal that will require a “deep transformation” of its energy matrix because there are economic sectors where replacing fossil fuels is not easy, such as long-distance road transport, as well as maritime and aviation transport, Jobet explained.
“The prospects are that 20% of global energy demand will come from hydrogen by 2050. There is an immense opportunity,” the Chilean Energy Minister said.
According to data from the McKinsey consulting firm that Jobet shared, there are currently over 240 green hydrogen projects underway worldwide. Of that total, 97 are linked to large-scale industrial use (refineries, electricity, steel and raw materials), in addition to 55 others for transportation (trains, ships, trucks and other applications).
According to McKinsey estimates, Chile would have the lowest cost of green hydrogen production by the end of the current decade with a value of US$1 per kg, followed by Australia (US$1.2) and the Middle East (US$1.3).
“By 2050 we could be exporting or consuming the equivalent of US$30 billion annually in this industry,” the Chilean Minister projected. To illustrate the magnitude of this potential, exports of copper – Chile’s main commodity for sale abroad – currently amount to US$35 billion per year.
Jobet said that to reach this volume of hydrogen production, Chile would have to multiply by 10 its electricity generation capacity (solar and wind) with an investment estimated at around US$300 billion.
The country launched its national green hydrogen strategy in late 2020 and has short-term goals. It aims to achieve an electrolysis capacity to produce 5 gigaWatts (GW) of green hydrogen by 2025. The government will grant a US$50 million incentive in subsidies to support 10 projects currently under assessment.
URUGUAY AIMS TO TAKE FIRM STEPS FORWARD
The Minister of Industry considers that green hydrogen will be in high demand in European countries.
Uruguay’s Minister of Industry agreed with his Chilean counterpart on the potential and future of green hydrogen worldwide and the natural advantages to produce it at a competitive price in Uruguay. Paganini recalled that the Uruguayan energy matrix is now 97% renewable and that there is a potential to significantly increase the installed capacity of both onshore and offshore wind farms. The same is true for photovoltaic farms.
Paganini conceded that despite the transformation process in the generation matrix in Uruguay, 37% of consumption still comes from fossil sources, a share that has remained constant in recent years. “There is a hard core in the transportation and industry sectors,” he acknowledged. More than half of fossil fuel consumption comes from heavy transport, long-distance travel, and ships.
The government aims to target 4% of the country’s vehicle fleet, responsible for 40% of CO2 emissions, with the production of 150,000 tons of green hydrogen. Another niche with a potential demand of 100,000 tons is green hydrogen as a natural fertilizer for agriculture, a sector that has increased its use of chemical fertilizers several times over in the past two decades.
The government is also considering the option of the port of Montevideo as a hub for the commercialization of green hydrogen for maritime transport.
PILOT PROJECT UNDERWAY
The Minister of Industry specified that the strategy in a technology that is in the full development process is to take it “step by step” so that the commercial risk for its development would be borne by the private sector.
Guyer & Regules partner Juan Manuel Mercant said that “there is always tension in this kind of processes related to energy and infrastructure between encouraging, favoring and benefiting their initial development and, on the other hand, waiting for the best moment to do so in terms of market needs (demand) while not running the risk of being late.”
To help in the learning curve and measure its potential, the Uruguayan government will subsidize a 10-year pilot plan to develop a small-scale (5 to 10 MW) hydrogen generation project for a small fleet of some 15 trucks and/or buses. The estimated investment in this project will range between US$12-18 million. In total, 36 interested parties from 16 countries have submitted bids. The plan is to launch the competitive bidding process before the end of the year and have the initiative operational by the end of 2023.
In the plan drawn up by the Uruguayan government, the export business is the second step, with a focus on Europe, where demand can be considered “unlimited,” Paganini said. The Minister added that to meet 1% of the energy consumption of the port of Rotterdam (Netherlands) with green hydrogen from Uruguay, the country would have to multiply its electric power generation capacity by three.
The pre-feasibility studies show that Uruguay would be able to produce green hydrogen at the plant at €1.3 (US$1.5) per kg, while its CIF price at the Dutch port would reach €2.7 per kg. “These are acceptable figures for the export business, although we are still at a premature stage for that,” Paganini said.
Mercant added that given the closeness between Montevideo and Santiago de Chile, it would be logical for green hydrogen to be transported through adapted gas pipelines or hydrogen ducts and from there reach other destinations and benefit, each country, from the different outlets that geography affords them. In fact, Europe is considering the development of these transport infrastructures.
The Minister announced that in the coming months a specific tax incentive will be passed within the Investment Promotion Law to encourage investments of different private players in green hydrogen.
Mercant considered that in the near future it will be necessary to issue regulations to ease or allow the development of this energy alternative. “We are looking at international experiences to be able to constructively contribute when the time comes,” he said.