What’s needed to propel Chile’s green hydrogen industry out of the starting gates?

In terms of green hydrogen tailwinds, Chile boasts world-class renewable energy resources, spare land, a state-level push and a stable operating environment – just parts of what is a complex jigsaw puzzle. 

To help the fledging sector take flight, concerted efforts are seen necessary on various fronts, chief among them faster permitting, offtake agreements, territorial planning, skills training, midstream infrastructure, access to early-stage financing, regulation and demand-side incentives.

Multiple projects are in place. The challenge today is advancing them to construction, getting pickaxes swinging. 

“There is no silver bullet,” Marcos Kulka, executive director of industry chamber H2 Chile, told a financing conference hosted by the local office of German international cooperation agency GIZ.

“We need to solve this part of the equation,” he said, underscoring the vital role of the State in helping the sector advance. 

GIZ officials, meanwhile, presented the agency's free-of-charge and bespoke finance brokering service, designed to help get projects out of the starting gates.

On the supply side, almost 60 projects have been publicly announced in Chile, a large chunk geared to covering local demand. For such projects – and also for export-scale schemes proposed by independent project developers – there is brisk demand for development-stage financing. Given associated risk and other factors, financing creativity is needed to secure capital, the conference was told, with potential sources being venture capital funds, family offices and offtaker-equity investors. Once projects have been developed and secured an environmental license, the prospects for external financing improve, the event heard.

Several green hydrogen initiatives have begun the permitting journey in Chile, a project development speedbump that the government is trying to flatten via two reform bills presented recently. Pilot and demonstration projects are already operating.

To help nurture sector growth, authorities have launched multiple initiatives, among them a green hydrogen roadmap, a US$1bn financing facility and a Magallanes logistics development plan. The government's fiscal pact encompasses the sector while national oil company Enap has announced midstream infrastructure adaption schemes in far south Magallanes region, a production pilot and an e-fuels usage MOU with segment trailblazer HIF Global. 

To get a legal-economic perspective on the matter, BNamericas spoke with Chilean lawyer José Miguel Hernández, a partner at law firm Evans Group.

BNamericas: Where do you think work is needed the most?

Hernández: The hot topic in terms of hydrogen, overall, is permitting. 

In recent months we’ve seen some good country-level initiatives. 

There is a transversal consensus where political, academic, governmental, and parliamentary institutions agree that hydrogen can become a very important industry for the country. In this regard, there’s no doubt.

The problem rests in the area of permitting. When we’re talking about hydrogen projects, everything that needs doing in Chile is on a large scale, on scales that have never before been seen in Chile.

In Magallanes region [for example], the smallest of the multiple [projects] announced will have 2-2.5GW [of installed wind generation capacity]. The biggest wind project we have today is 800MW, [Colbún’s] Horizonte. Then take into account transmission, desalination systems, ports, new highways. The quantity of permits that will be involved in these megaprojects, in Magallanes as well as in Antofagasta, Iquique, Tarapacá [in the north], is going to generate a tremendous amount of permitting work.

Permitting delays are experienced by projects today, with the heavy flow resulting in permits not being issued because of the capacity of the State to evaluate them, and to resolve this we have an issue that needs monitoring incredibly closely.  

We don’t gain anything by agreeing that hydrogen could become a great development engine for the next 30 years if we don’t have the way to resolve the issue of making projects a reality and at the speed the world needs.

If in Chile a maritime concession continues taking 7-8 years, environmental impact evaluation three years, electricity concessions two and a half years, the advantage will pass to multiple other countries that have the same competitive advantages as us, for example, Morocco, Australia, India, China, Brazil, Mexico.  

If we don’t resolve this problem, the issue of permitting agility and speed to advance projects, it’s possible the good intentions will be wasted and our competitive advantage will erode and we’ll fall out of the vanguard.

BNamericas: There’s a lot of investment at stake for Chile.

Hernández: When we’re talking about these megaprojects the amount of money that will need to be invested is considerable, sums never before seen in Chile, even in mining.  

Therefore, if Chile doesn’t give guarantees of legal stability, guarantees that permits will emerge, issued on time and properly – that we don’t have a system where everything is contested – these investments, given the amounts at stake, probably won’t come to Chile and will go to countries that are much reliable to invest in.

BNamericas: The government has just announced permitting reforms with a goal of addressing these issues. What are your thoughts on the matter?

Hernández: This initiative is positive. It reflects that the issue has been acknowledged politically, that things cannot continue as they are. 

But we don’t gain anything by having laws if they are not carried out. Many sectoral permits covered by law have timeframes, maritime concessions have timeframes but what occurs is that these are not complied with. And why is this? In some cases, it’s because there isn’t enough people to process them, there’s a lack of staff. Sometimes it happens because there’s also a certain administrative ideologization in terms of the awarding of permits, which is a very serious matter.

It [the draft legislation] is good on paper, in terms of disposition – it means that authorities have risen to the challenge, they understand the problem – the important thing is putting it into action and that resources are provided … in order to have people in place to get projects permitted in the timeframes established by law. 

BNamericas: What about hydrogen regulations? There must be many needed, but what jumps out?

Hernández: Hydrogen-specific rules are missing. There are hydrogen safety rules being considered by the comptroller general’s office. 

There’s still no clear unity with respect to rules on hydrogen and rules on ammonia. Let’s remember that ammonia will be an initial carrier for the exportation of hydrogen. 

Hydrogen and ammonia rules in place today are different. Hydrogen is considered a fuel and ammonia a hazardous substance. 

It’s necessary to generate special rules with experts. The regulator needs to involve people that know about hydrogen to harmonize the hydrogen and ammonia industries.                                                                 

BNamericas: The local hydrogen association has underscored the important role the State can play in getting the industry up and running. What role do you see for the State?

Hernández: An issue here is its role in helping spur things along. 

There’s still a lot of uncertainty around hydrogen. Nobody really knows whether hydrogen will finally be the solution to fossil fuels. Today it’s a bet. Twenty years ago, solar energy was a bet. It wasn’t competitive initially; it was very expensive. Given the world reached agreement and the technology developed, today solar energy is a hyper-competitive alternative. 

Today, hydrogen isn’t competitive. In terms of price, a kilogram of green hydrogen costs four times as much as a kilogram of gray hydrogen. But with international regulations, the penalization of fossil fuels, advances in technology, this gap will shrink.  

But Chile cannot be considered attractive just because it has the [renewable energy] resources. We have to consider to what degree is the State willing to generate incentives so that this investment arrives in Chile. We’re talking about tax breaks and subsidies, even the State carrying out projects. In Magallanes there is talk of thousands of megawatts of wind capacity but there’s no highway to transport the turbines that are going to arrive. There’s not even a port in Magallanes to receive the entire industry that’s going to arrive. 

Who’s going to be responsible for the port, who is going to be responsible for the highway?

No developer has yet dared to say, ‘I’m going to invest US$400mn in a port.’ The industry is still unknown. I think the State needs to be a bit more aggressive, a bit more motivational, to bring in the investment. It’s not enough having just the resources or fast permitting.

BNamericas: On that note, state oil firm Enap has announced maritime logistics initiatives in Magallanes to adapt existing infrastructure.

Hernández: Regarding Enap, that’s positive. It’s positive that a company with a presence in the region contributes assets to incentivize development of the industry, but these assets are absolutely insufficient. Enap doesn’t have ports. It has docks but they’re small. 

And, unfortunately, its gas pipelines aren’t suited to the hydrogen industry. Many are in a state of disrepair, and they weren’t built to transport hydrogen or ammonia. It’s therefore important that Enap’s at the table but it’s a public company with a series of limitations regarding areas it can operate in. For example, hydrogen is not included and, as well, Enap doesn’t have capital, and we’re considering here billions of dollars in investment. 

Enap says it has a budget of US$40mn to improve its dock in Laredo. This is an absolutely insignificant sum when you consider the level of investment required. 

BNamericas: Any final thoughts?

Hernández: Via my work, I see a lot of willingness to invest, especially on the part of international firms. But, today, Chile has lost some of its competitiveness. It’s easier, for example, to do permitting in Burgundy in France than in Magallanes in Chile. 

There is the will, there are companies, and Chile still holds an important position in terms of legal and political stability. But it is not enough just having sun and wind and land. 

If we think this alone will make us hydrogen leaders in the world, forget about it. There are lots of countries with these conditions.