Green hydrogen demand needs incentivizing in Chile, project trailblazer says

As Chile’s pipeline of green hydrogen projects grows and the State works to help get pickaxes swinging, a major hurdle hindering final investment decisions is persuading buyers to sign on the dotted line.

That was among the central takeaways from a project development panel during industry conference Hyvolution, being held this week in capital Santiago.

Globally, risk still surrounds the nascent sector, given the complexities of supply-demand coordination and the fact that electrolyzer technology has never been deployed on such large scales before, factors impacting capital availability and costs.

Securing offtake contracts, in turn future revenue flows, is seen as the key part of the jigsaw puzzle and vital to kickstarting the creation of local value chains and skills development ecosystems. 

Asunción Borrás, hydrogen business development head at generator Engie Chile and VP of Chilean hydrogen association H2 Chile, underscored this.

“We can work to reduce production costs as much as possible but there is only so much that can be done, and there will come a point where demand will also need incentivizing,” Borrás said.

Engie has proposed supplying 3,200t/y green hydrogen to explosives manufacturer Enaex for green ammonia production. With planned electrolyzer capacity of 26MW, the Antofagasta region project, HyEx, was granted a US$9.5mn subsidy by state development agency Corfo for electrolyzer acquisition support and is due to enter service by end-2025.

“We have local demand which, in turn, has a final client that has to end up spending and committing,” Borrás said. “Until now, we’ve found that there’s a lot of interest, above all in the mining sector, which is one of the final clients they have. But when it comes down to it, they have to commit and we have to get to the point where things are cemented and we sign.”

Inking the documents is a critical step to ensure Chile doesn’t fall out of the global vanguard, she added. To advance the HyEx project to construction, Engie has sought government help.  

Second phase work on HyEx, planned for sundrenched Antofagasta region, would involve installing 3GW of solar panels, 2GW of electrolyzer capacity, a hydrogen pipeline and associated industrial installations. 

HyEx and four other subsidy recipients need to achieve financial close this year to advance component procurement, a Corfo executive told BNamericas earlier in the week at the conference, organized by events firms Fisa, GL Events and H2 Chile. They are among the most advanced in the country, with four of the five planned for brownfield sites already covered by existing environmental licenses.  

Luis Sarrás, green hydrogen business development manager for South America at generator AES, outlined the importance of converting green hydrogen into a “country project” and carrying out public-private collaboration and diagnosis work in spheres such as regulations. 

Reducing the cost of technology acquisition is another area where the State could play a role in Chile, he said, citing as an example the investment carrots being dangled in the US under Washington's Inflation Reduction Act.

Electricity supply and technology acquisition are the biggest project cost components. 

While acknowledging the limited scope for major subsidies in Chile, Sarrás said that for projects in the country to reach final investment decisions, “we need, in some way, to organize demand, the technology, link up with the State, also find ways of attracting firms that develop technology locally and can finally deliver it at the price level needed, over the long term, in order to develop projects.”

Other challenges and ongoing tasks include early community engagement, project benefits evangelization, logistics infrastructure optimization, sharing and development, skills building and territorial planning, the latter area vital to determine which zones are apt, and which are "no-go areas" for projects, the conference was told.

Overall, some US$155bn in green hydrogen project investment is projected for 2025-30, according to Corfo forecasts. Engineering and studies work is underway, with the next phase for many involving permitting. Of the expected outlay cited by Corfo, US$110bn targets northern Atacama region and US$45bn far south Magallanes region. Both have abundant renewable energy resources and existing logistics infrastructure, with the north also home to many potential domestic offtakers, including the copper mining industry ecosystem.

Among the most advanced projects in Magallanes are those planned by HNH, HIF Global and Total Eren. State oil company Enap is joining forces with the three firms to turn Laredo port terminal in Magallanes into a green hydrogen logistics hub. Key markets for export-focused projects are South Korea, Japan and Europe.

Corfo last week announced a US$1bn facility to help de-risk projects and trim the cost of capital. Built using multilateral financing, the facility – due to be launched next year – is seen not only as a concrete measure to help the fledgling sector take flight but also as a demonstration of Chile's state-level push to build a green hydrogen industry. 

According to June data from H2 Chile, 50 projects have been announced publicly in the country: 62% are geared to renewable hydrogen, 30% to green ammonia, 4% to methanol and 4% to synthetic fuels. Some target the domestic offtake market, some the export sector, with Europe and Asia seen as key destinations.

Chile already has a green hydrogen strategy. An associated development roadmap, or action plan, is due to be completed and put out for public comment in August.