Can Chile be a Leading Green Hydrogen Producer?

Dozens of countries over the last two years have announced plans to become major hydrogen producers. Many of these countries have made commitments to invest significant government resources over the next 10 years to make it happen.

Of course, not all countries have the same ability to fund the development that will be needed to become a global leader in the production of hydrogen. A large portion of the countries that have announced their intentions will fail in their attempts. Some will not even follow through with their plans.

That is why it is almost laughable when a small country with a population of 19 million located at the most southern tip of the world declares that it will produce the cheapest green hydrogen on the planet and among the top three exporters of the fuel two decades from now.

That is, until you find out it is Chile. A country that has earned a reputation for punching well above its weight in the global marketplace. It started with copper, then with lithium, and in recent years, a renewable energy market that has become global recognized for transforming itself without any subsidies.

According to the 2019 Climatescope ranking prepared by Bloomberg NEF, Chile holds first place in Latin America and second place in the world, behind India, as an attractive emerging market for investment in renewables, out of a total of 104 countries.

In terms of creating green hydrogen, Chile is well placed to be a global leader due to its access to very competitively priced renewable energy. The north of the country has the highest solar radiation in the world and access to a long coastline where it can desalinate water or in a best-case scenario use seawater directly. The south of the country has considerable and constant onshore wind generation that rivals the energy production that offshore wind projects can produce. To complement wind and solar, the geothermal potential of the country is massive which is currently underutilized.

The renewable energy potential is 70 times greater than Chile’s current electricity generation capacity – equivalent to more than 1800 GW. There is spare capacity that can be used in the production of green hydrogen. Solar generation in the central part of Chile is already more competitive than fossil-powered electricity generation and 70% of the power grid is expected to be renewable by 2030.

To be fair, there is much more to the equation then just cheap renewable energy. We are talking about a level of infrastructure, technology, and research that will rival anything done previously. This is why Chile has been aggressively building relationships with Australia, the United Kingdom, United States, and the European Union, to name a few. The idea is to collaborate on the development of technologies and industrial processes that will be key to get the price of hydrogen competitive. They will create and share their systemic approaches to the production, storage, transport and end-use of hydrogen making it easier to build out the infrastructure needed to sustain the future industry. 

The country does not need to outspend its future competitors.  Instead, it hopes to leverage these relationships, the same as it has over the last 30 years through its trade networks, to keep it competitive. Surely, as technologies are developed globally, the low renewables costs and market access will pull investment (and related technologies and expertise) to Chile from wherever it ends up being developed. 

Chile – 3 Stage Approach

Chile has set out a three-stage approach to develop the green hydrogen industry. The first stage set between will 2020-2025 is all about domestic ramp up and preparing the country for exportation that will come at later stages. The country will focus on being introduced into local oil refineries, replacing imported ammonia, replacing diesel as a fuel source for mining haul trucks, introduce the fuel to heavy-duty trucking, long-range buses, and lastly, blending up to 20% into existing gas destribtion networks.

The second (2025-2030) and third stages (2030 onwards) will capitalize on export markets and leveraging scale to expand. This will start with signing offtake and investment commitments for ammonia and hydrogen exports.

In the last two stages, the hope is that new technologies and scale will bring down the price of green hydrogen allowing it to be used even more broadly as a global fuel source. Future applications for ammonia in shipping and synfuels in aviation are promising opportunities for additional scale-up.

What is Chile hydrogen goals?

Chile’s goal is to be a top destination for hydrogen investment in Latin America by 2025 with at least 5 GW of electrolysis capacity operating and producing 200k/tons of hydrogen per year.

By 2030, the country wants to be a leader in the export of green hydrogen and derivatives, with a 25 GW of electrolysis capacity operating, and the cheapest green hydrogen on the planet with a price of less than 1.5 USD/kg.

Conclusion

There is no doubt that these are some stretch goals for a small country. There is plenty of hurdles that will need to be cleared for Chile to meet its ambitious targets.

This will involve technological advances to lower the cost of electrolysis. Water is still a concern since the north of Chile is the driest desert in the world. The ability to use sea water or lower the cost of desalination will be needed. Lastly, Chile will need to prove that it can obtain the investment dollars needed to build out the infrastructure given that the country has not committed the same level of public funding as other countries. The country is betting that its low-cost renewable energy will make it attractive for private investment.

As of today, hydrogen is more than double the cost of diesel, so the cost-benefit is not there to create the widespread demand that will be needed to justify the investment. Chile plans to fill the shortfall in demand by integrating hydrogen and renewable technology into the mining sector to drive growth in the medium term.

Time is already ticking on the countries plans as we move into 2022.  We will cover in more detail in the next blog, the project pipeline that is already advancing. This should give some perspective whether Chile can really set itself up as a leader in green hydrogen production.

Ax Legal is an advisory firm that works with foreign companies in Latin America. Our team of legal and commercial advisors have a distinguished track record of helping foreign technology and services companies to grow and operate in Latin America. Over the years, we have worked with starts up, mid-size businesses, and publicly listed companies. The one common factor that connects are clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.

To better understand how we can support you in the Region, please contact Cody Mcfarlane at cmm@ax.legal