Chile leads Latin American push to clean hydrogen
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This week, we delve into Chile's clean hydrogen actions and the heavy influence of U.S. policy. Also below, refining and chemicals sectors boost global hydrogen demand, Algeria to study clean hydrogen exports to Europe and Tata and Lindab sign MoU on green steel.
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Chile leads Latin American push to clean hydrogen
Chile, with abundant natural resources and a thriving economy, is leading the charge for clean hydrogen in Latin America where strategies toward the developing industry vary.
Chile's renewable energy resources could supply 70 times the country's current electricity generation capacity and produce up to 160 million tons (Mt) per year of clean hydrogen by 2050, according to a National Green Hydrogen Strategy that was fully adopted by President Gabriel Boric’s government after he was elected in 2022.
The national plan raises electrolyzer capacity, either operating or under development, to 5 GW by 2025 and 25 GW by 2030, and sets a price for clean hydrogen at just $0.8-$1.1 per kilo by the end of this decade.
Chile accounts for around half the potential low-emission hydrogen production announced in the region, according to the International Energy Agency (IEA).
The plan is backed by significant support to finance and promote investment in clean hydrogen, including a 225-million-euro ($245-million) fund from the European Investment Bank (EIB) and KfW Development Bank, a $150 million loan from the World Bank, and a $400 million loan from the Inter-American Development Bank (IDB).
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“The government of Chile wanted to send a message that they understood they have something unique on their hands and it is this ability to create enormous amounts of power in relatively uninhabited vast lands for clean hydrogen production and for export,” says Christiaan Gischler Blanco, Lead Energy Specialist at IDB.
“By producing this new fuel that not only can be produced in the north and south of Chile...you can use electrons to split the molecule of water into hydrogen and oxygen and then the hydrogen produced can be exported in the form of clean ammonia and clean methanol. That is the game changer.”
Chile’s development agency Corfo has injected $50 million of public funds into six hydrogen projects in order to reach a cumulative electrolyzer capacity of 396 MW by 2025.
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These projects will be run by Enel Green Power, Air Liquide, Engie, GNL Quintero, CAP, and Linde, and are expected to attract investments of $1 billion to produce more than 45,000 tons a year of clean hydrogen, according to the Green Hydrogen Organization.
Clean hydrogen projects planned by 2030, power capacity in 2022
Different pathways
Latin America generates around 60% of its electricity from renewable sources, double the global average, mainly due to hydropower which accounts for 40% of power generation.
In the short and medium term, countries in Latin America will be net exporters of clean hydrogen, local decarbonizers, or focused players, or a combination of these, according to the World Economic Forum and Accenture report ‘Accelerating the Clean Hydrogen Economy in Latin America’.
The region could fulfil 25% to 33% of global demand by 2030, followed by Australia (22%-31%), and Africa (9%-13%), says Jörgen Sandström, Head, Transforming Industrial Ecosystems, Centre for Energy and Materials, World Economic Forum.
“While the first pathway is setting up their capabilities to fulfil mainly Europe’s demand, the other two pathways rely on local demand to scale and grow, setting the foundations to then become exporters in the long run,” Sandström says.
“Therefore, the expectation is for those that follow the local decarbonizer and focused player to develop the industry mainly driven on domestic demand.”
Hydrogen demand in the region reached 4 Mt in 2023, according to the IEA’s ‘Global Hydrogen Review 2024’, mostly for oil refining and chemicals manufacturing, while almost all of that (90%) is produced using imported natural gas.
Meanwhile, 80% of nitrogen-based fertilizer demand is met by imports, the IEA noted.
Opportunities within the clean hydrogen market differ by country.
Mexico and Colombia can leverage large existing hydrogen demand from oil refineries, Brazil’s iron ore industry (accounting for 90% of Latin America and Caribbean iron ore trade) could develop hydrogen-fuelled direct reduced iron (DRI), while Chile could use hydrogen to decarbonize its mining sector as well as export it elsewhere.
Panama’s shipping industry could become a hub for low-emissions shipping fuels and is already targeting 5% of bunkering from hydrogen derivatives by 2030, the IEA said.
Based on announced projects, Latin America and the Caribbean (LAC) could produce 7 million tons of low-emission hydrogen by 2030 but, according to the IEA, only about 0.1% of those projects are in operation, under construction, or reached a final investment decision (FID).
“Action is required in the short term to unlock LAC’s potential, balancing domestic demand with export ambitions,” the IEA said in its report.
Facing challenges
Latin America faces similar challenges to building its clean hydrogen economy as seen elsewhere, including low investment and low demand, potential distortions from the U.S.’ massive Inflation Reduction Act (IRA), and poor coordination amongst regional producers.
The U.S.’ inflation act promises billions in production and investment tax credits for clean hydrogen projects, allocated in line with the levels of emissions produced per kilo of hydrogen. However, the credits have been delayed while the government, faced with an upcoming election, struggles to put a final stamp on how it defines clean hydrogen.
Many hydrogen projects in Latin America face uncertainty as they await the inflation act rules to be finalized.
“All of this [inflation act] money can pose a problem for Latin America. If the market in the United States is being heavily subsidized by the government, that means that it will be harder for many of these countries to become competitive,” says Juliana Rubio Associate Director of the Americas Program for Center for Strategic and International Studies (CSIS).
Hydrogen exporters will need to be able to show that the hydrogen is clean as defined by the destination countries. For example, products destined for Europe will need to conform with European Union regulations. While a coordinated effort across Latin America would help build a unified market from scratch, regional differences make that unlikely.
The region known as Latin America consists of 33 countries spread across North, Central, South America and the Caribbean, with Spanish, Portuguese, English and hundreds of indigenous languages and local dialects spoken.
“A problem that Latin America has is the lack of cohesion. No one country is big enough to produce hydrogen, especially green hydrogen, at a scale where it is profitable,” says Rubio.
“There needs to be some sort of regional cooperation for this market to really take off.”
By Paul Day
Other major news in hydrogen…
Global demand for hydrogen rose to 97 million tons (Mt) a year in 2023, up 2.5% from a year earlier, and was concentrated in refining and in the chemical sector, the International Energy Agency (IEA) said in its ‘Global Hydrogen Review 2024’ report.
Algerian companies Sonatrach and Sonelgaz have signed a Memorandum of Understanding (MoU) with Germany company VNG, Italian companies SNAM and SEACORRIDOR, and Austria’s Verbund Green Hydrogen, to jointly study the viability and profitability of clean hydrogen production in Algeria for export to Europe.
Tata Steel Netherlands and Swedish group Lindab have signed a MoU to supply Zeremis green steel once the steel mill in IJmuiden switches to hydrogen-based steel production, Tata Steel said in a statement.
The global hydrogen project pipeline has grown by a factor of seven from 2020 to May 2024, while projects that have reached FID have also seen a seven-fold increase in committed investment, the Hydrogen Council said in its Hydrogen Insights 2024 report.