Green hydrogen projects represent a big opportunity for investment funds, a Chilean energy company executive said.

Latin America is taking its first steps along the green hydrogen highway, with Chile in the vanguard.

Local and foreign government agencies are among those providing critical early-stage financing support, with the traditional financial industry deemed unprepared for the level of technological uncertainty and amount of funds needed.

With government agencies nurturing the industry – as they did in the early days of the solar PV industry – the ground is becoming fertile for some niche players to enter the fray.

“Today, we need specialized financial entities and here you turn to investment funds that specialize in this type of financing,” said Enrique Rosselot, a senior manager at Chilean energy solutions firm Imelsa, during Vostock Capital’s Hydrogen Latin America Congress in Bogotá.

“There’s a big opportunity here for investment funds.”

ALSO READ: Chile, Brazil best positioned to reap green hydrogen first-mover advantage

José Martínez, managing partner at Colombian investment management company Incuba, said the main challenge rested on the demand side.

Martínez told the conference: “You need to see demand as the generator of green hydrogen production; I wouldn’t worry about the issue of project finance in hydrogen … we’re going to see it. Everything boils down to where the cash flow comes from.”

CHILE

Work has started on Chile’s first plant, the US$51mn Haru Oni clean methanol and gasoline production facility, and countries including Argentina, Brazil, Paraguay, Colombia and Uruguay also have green hydrogen on their radars.

Dozens of green hydrogen projects have been announced in Chile, with a batch applying for pilot scheme financing from state development agency Corfo among the most advanced.

Corfo received 10 bids earlier this year for financing, with average project electrolyzer size of 20MW. Award announcements could be made by the end of the month, the conference was told. Projects will need to come online by the end of 2025 and the exercise is also expected to help officials devise future hydrogen development regulation.

Latin America, with its abundant renewable energy resources, is well positioned to ride the green hydrogen wave, with Chile chiefly eyeing the Asian market. Based on estimates, the country is positioned to produce the fuel at a cost that would make it competitive with diesel, the conference was told.

Latin American countries must accelerate plans for clean hydrogen to avoid falling behind the rest of the world in the burgeoning sector, according to an expert.

Despite high levels of renewable electrolysis potential in the region, only Chile and Colombia have developed concrete strategies, said Arthur Deakin, the co-director of energy at Americas Market Intelligence.

“Chile is a powerful example to other countries in Latin America because they launched their strategy in a very quick way,” Deakin said during Vostock Capital’s Hydrogen Latin America Congress in Bogotá.

“I think that many neighboring countries and other countries in the world spend a lot of time discussing laws … to draft a bullet proof plan. That’s not good because it only delays the launch of the strategy and many times the countries are left behind others that are already attracting investors and are gathering years of experience.”

“The idea should be to launch a strategy in a faster way. It might have some errors but they can be fixed along the way. There are a lot of challenges but continuity is key,” Deakin said.

According to Deakin, Latin America is home to only eight of the world’s 359 existing hydrogen projects, most of which are shared between China and Europe. After a slow start, the US is beginning to make up ground under the administration of President Joe Biden, he added.

Deakin warned that Latin American nations such as Brazil, Peru, Mexico and Argentina risked losing a vital competitive edge.

“In terms of national strategies only Chile has a concrete strategy that they launched last year, and Colombia recently published a roadmap,” he said.

“Private associations in Brazil, Argentina, Peru and Mexico are discussing how to implement and foster hydrogen projects but no laws or regulations have been implemented yet.”

Panelists during the event agreed that hydrogen is not yet competitive for use in fuel cell cars and heating systems. However, Deakin argued it already made economic sense to use the technology for applications such as the production of chemicals, aviation fuel and glass manufacturing.

He named Bloom Energy, GE, the New York Power Authority, BP and Daimler as entities that are playing a pioneering role in global hydrogen development.

Five pillars will determine if a country becomes a hydrogen exporter, according to Luis Miguel Diazgranados, senior consultant Latin America for sustainable energy and mobility consultancy Hinicio.

Apart from cost, market flexibility, such as the existence of free trade agreements, will be a key driver, Diazgranados said in a presentation at Vostock Capital’s Hydrogen Latin America Congress in Bogotá.

The other three factors are macroeconomic stability, policy support and export experience.

“What we see is that the consuming countries begin to communicate or begin to have conversations with the producing countries that are developing hydrogen roadmaps such as Colombia, Chile, and Uruguay,” he said.

The consultant highlighted that the three principal forecast hydrogen demand markets – Europe, Asia, and North America – will have to import the alternative fuel to meet their objectives.

He added that by 2030, Europe looks to import up to 3Mt/year of renewable hydrogen; Japan will have to import nearly 100% or 0.11-0.3Mt/year, particularly as it phases out nuclear power; and that South Korea has the potential to import 0.3Mt/year.

Regarding hydrogen’s transport, its shipment in gaseous form is not feasible, said Diazgranados, adding that dispatch options include liquefaction, liquid organic hydrogen carriers and green ammonia.

These transport technologies, however, are currently limited to experimental and pilot projects, he added.

“The demands that these countries, the European Union and Asia, are going to have are very promising and Latin America is excellently positioned to take advantage of the low costs that can be achieved in its geography together with the political momentum that we are seeing in several countries in the region,” Diazgranados concluded.

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