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On 3 November 2020, Chile's Ministry of Energy presented a
"National Strategy for Green Hydrogen" with three main
objectives:
To have 5 GW of electrolysis capacity under development by
2025
To produce the cheapest green hydrogen in the world by
2030
To be among the world's three largest hydrogen exporters by
2040
These ambitions are accompanied by proposed measures that
include extending USD50 million to pilot projects, promoting
hydrogen-based end-user applications, possibly implementing carbon
pricing mechanisms, and launching "green hydrogen diplomacy" to
position Chile internationally. Together, the initiatives could
make Chile a leading participant in future hydrogen-based economic
activity.
Chile has surplus renewable resources and a power market
environment well-positioned to produce hydrogen at globally
attractive pricing. Significant solar and wind resources and
business-friendly power regulations already permit renewable
electricity generation - the primary variable in hydrogen
production costs - at among the lowest cost levels globally. The
country's power market is oversupplied, and its renewables target
for 2025 has already been met, leaving renewable players eager for
new business opportunities involving hydrogen.
Favorable new legislation and international partnerships
are needed to develop globally pre-eminent hydrogen
capacity
Like most countries around the world, Chile lacks regulations
specific to hydrogen production, storage, transport, and
consumption. Yet, to meet its objectives, it needs to give
certainty to investors. This requires the development of
well-drafted and investment-friendly regulation, state support for
business initiatives, and strategies to attract international
development partners.
Developing these foundational blocks must be done quickly.
Several countries and regions worldwide - Australia, the southwest
United States, and Colombia, for example - share characteristics
that make Chile attractive for green hydrogen production, and they
also have ambitious hydrogen objectives. As a result, Chile is
looking to progress with urgency its policy development, the
approval of project permits, and the delivery of financial
support.
Proposed policy measures demonstrate Chile's strong
commitment to green hydrogen
Proposed policy measures - most of which are still at the design
stage - as part of Chile's "National Strategy for Green Hydrogen"
include:
Accelerating research and development. The
Ministry of Energy will encourage hydrogen research and development
at research centers and universities
Offering financial support to projects. The
government has committed to provide up to USD50 million to help
finance pilot projects that may not be initially competitive while
operating at a small scale.
Accelerating permit processes. A task force
will help with the provision of permits for new projects and the
development of pilot programs.
Applying economic and volume incentives. The
government will discuss the possibility of carbon-pricing
mechanisms to make hydrogen more competitive with conventional
fuels. Another policy option is to impose quotas for green hydrogen
in gas pipelines.
Planning land use and creating production
hubs. The government is reserving almost 12,000 hectares
to develop solar projects for green hydrogen. Legislation may also
prioritise zoning for wind projects and promote hydrogen production
hubs.
Improving transportation infrastructure. A
legislative framework will be considered to resolve infrastructure
bottlenecks and transform seaports to handle hydrogen exports.
Finding hydrogen offtakers domestically and
abroad. Specific applications, such as refining, ammonia
production, and heavy goods vehicles, are identified for hydrogen
consumption.
However, Chile is seeking to be a pioneer in a field it knows
little about. Domestic experience in hydrogen is largely limited to
production at two oil refineries owned by the state oil company
ENAP. The government's co-operation with external advisers to
identify gaps in the regulatory framework is encouraging and should
help in attracting finance for the sector while companies and
agencies incorporate new standards into their operations.
A process to rewrite the constitution and the impact of
COVID-19 are likely to delay the green agenda
Chile faces a period of political and social instability. Social
unrest in late 2019 led to a referendum in October 2020 to start
drafting a new constitution. Changing the constitution became a key
demand by demonstrators during social unrest in late 2019, with the
current document viewed by objectors as consolidating a neoliberal
economic model that perpetuates deep inequalities. The new
constitution is likely to increase the role of the state in the
economy.
The constitutional process, which is likely to last at least two
years, threatens to change the regulatory framework that has
characterised Chile's business-friendly environment and raises
legal uncertainty for investors. However, the constituent
convention will likely have a similar composition to Congress and
each article of the new constitution will need a two-thirds
majority to be approved, mitigating the risk of more radical
left-wing groups succeeding in advancing significant state
interventionism in the economic model.
The next government to be formed in March 2022 - the
presidential election is due in November 2021 - is likely to
maintain the policy to develop green hydrogen, given the
cross-party support for the country's sustainable development
goals, particularly given Chile's lack of hydrocarbon resources and
its historical position as a net energy importer.
The policy to promote green hydrogen faces a risk of being
delayed into 2021-22, with the government confronted by the more
pressing issue of reactivating Chile's economy after the
COVID-19-virus pandemic (IHS Markit forecasts a 5.8% contraction in
Chile's GDP for 2020).
Posted 22 January 2021 by Carla Selman, Senior Research Analyst, Country Risk, IHS Markit