CHILE’S HYDROGEN POWER PLAY
Will ambition and sunshine be enough to realize Chile’s hydrogen dream?
BY Tom Azzopardi
Still heavily reliant on imported oil, coal and gas, Chile is hoping to become a major energy supplier in the coming decades. Not only is the country a top producer of lithium, the critical ingredient in electric vehicle batteries, but it is looking now to convert an almost infinite potential for renewable energy into giant hydrogen exports.
Half the size of the United Kingdom and almost completely uninhabited (and inhabitable), northern Chile’s Atacama Desert offers the highest levels of solar radiation in the world. Chilean Patagonia also has world-class conditions for wind energy.
Carpeting just 60% of its surface area with photovoltaic solar panels could meet a fifth of the world’s energy needs if only the electricity could be loaded and shipped to the major centers of consumption.
Now the government thinks it has found a way – by using electricity to break down water into hydrogen, the new clean wonder fuel which activists and oil majors alike say could be the solution to mankind’s climate change conundrum.
Light and clean (if produced using renewable electricity), hydrogen could replace fossil fuels in a huge range of industrial processes, from power generation to chemicals production and heavy goods transport, where a viable alternative has not yet been found.
“We are in a very good position to produce green
- Pablo Terrazas, CEO of economic development agency CORFO
With power accounting for roughly 80% of the cost of hydrogen production, countries like Chile, with endless electricity at rock bottom prices (less than US$20/MWh) are in the lead.
And with Chile’s solar plants located within a just few kilometers of the Pacific coast, the Atacama has a key advantage over landlocked deserts in Australia and Saudi Arabia.
“We are in a very good position to produce green hydrogen – we have clean energy at very low cost and we have a mining industry that wants to produce more sustainably,” says Pablo Terrazas, CEO of economic development agency CORFO.
By mid-century, Chile could be exporting 160 million tons annually of hydrogen worth around US$30 billion, rivalling the size of its giant mining industry, and at costs that more than compensate for its huge distance from major markets in Asia and Europe, the International Energy Agency estimated in a study released earlier this year.
Several consortia are already now jostling to become the first to produce green hydrogen in the country.
In Chilean Patagonia, engineering firm Siemens Energy, carmaker Porsche and energy firm Enel have teamed up with state oil firm ENAP and local investor AME to build the world’s first industrial-scale integrated synthetic fuels plant from green hydrogen powered by local wind energy. From a pilot stage, they hope to scale up rapidly to be producing 550 million liters annually by 2026, enough to meet almost 5% of Chile’s fuel demand.
In the far-north, blasting services firm ENAEX is planning to produce green ammonia from hydrogen to provide carbon-neutral explosives to Chile’s copper miners and beyond. Working with French electric utility company Engie, ENAEX aims to complete a pilot plant by 2024 but that will just be a stepping-stone to an industrial-scale complex. It is looking for a partner that could offtake half the ammonia for export or to produce fertilizer.
ENAEX’s industrial-scale green ammonia project, which will be able to produce 700,000 tons of ammonia annually, is expected to cost US$2.7 billion. These kinds of sums will require large-scale project financing from global financial institutions.
“There is a lot of capital and investors which want to invest in green projects, but I don’t see that this is translating yet into more competitive interest rates.”
- Andreas Eisfelder, Head of New Energy Business Latin America at Siemens Energy
The number of banks and financial institutions committing themselves to support sustainable development and the fight against climate change is growing by the day. Chile has joined this rush, last year selling the first sovereign green bonds (worth US$ 2.2 billion) in Latin America.
But despite the demand, companies are not yet seeing the support they need to turn their blueprints into reality.
“There is a lot of capital and investors which want to invest in green projects, but I don’t see that this is translating yet into more competitive interest rates,” says Andreas Eisfelder, Head of New Energy Business Latin America at Siemens Energy.
And without capital, Chile’s burning sands will remain boundless and bare.
As well as hydrogen production, Chile also sees opportunities in converting existing industries to run on hydrogen, to meet the country’s goal of becoming carbon neutral by 2050.
Mining companies, including Anglo American, BHP and Codelco, are working on ways to convert their giant haul trucks, which can consume 4 tons of fuel a day, to run on hydrogen, either with fuel cells or mixing it with diesel.
Projects like this could create domestic demand which would support large-scale electrolysis projects while the tricky details of shipping liquified hydrogen around the world are worked out.
Leading the drive to hydrogen is Chile’s government, recently setting out an ambitious national strategy to become a top three producer of hydrogen with the world’s lowest costs by the end of the decade.
This will require breakneck development over the coming years. By 2025, the government aims to have 5GW of electrolysis capacity in operation or construction (up from zero today), in order to reach 25GW by 2030.
It is not mere ambition. With massive projects in Australia and Saudi Arabia already approaching construction, Chile is suffering FOMO (Fear Of Missing Out), worried that if it does not move now it could miss the golden ticket.
“If nothing happens over the next year, then we will be late,” says Pablo Wallach, ENAEX’s former ammonia buyer who is now leading the green ammonia project.
To speed things along, the government is rushing to close gaps in Chile’s environmental and safety regulations and has set aside almost 12,000 hectares of state land in northern Chile for hydrogen projects.
But there are still considerable challenges.
Even with Chile’s natural advantages, new hydrogen technologies are not yet competitive with fossil fuel alternatives, especially at a pilot scale.
One of the main challenges is the cost of the electrolyzers, which separate hydrogen atoms from water molecules which are only just beginning to be mass-produced.
“If the economies of scale effect is repeated with electrolyzers, the technology costs are going to be competitive much sooner than they are saying.”
- James Lee Stanciampo, general manager of Enel Green Power Chile
The technology is advancing rapidly, says Eisfelder. The capacity of new electrolyzer units has risen from just 1MW five years ago to almost 100MW today and should reach 1GW, seen as the breakeven point, by mid-decade, he says.
Similarly, production costs are expected to drop rapidly with many hoping for a similar reduction as was seen in prices for photovoltaic solar panels. Those costs have fall fallen from over US$10,000/MW to less than US$1,000/MW in the last decade.
“If the economies of scale effect is repeated with electrolyzers, the technology costs are going to be competitive much sooner than they are saying,” notes James Lee Stanciampo, general manager of Enel Green Power Chile.
But with rivals galloping ahead, companies are not waiting for the economics to work. ENAEX reckons it could take as long as 2035 for green ammonia to become competitive with the traditional Haber-Bosch process, says Wallach.
By getting ahead of the curve, Chilean businesses could carve a key share in new markets which will transform the global economy during the 21st century. To do so they will need help.
Despite Chile’s traditional aversion to subsidizing industry, CORFO plans to provide US$50 million to help finance early-stage projects to help cover gaps in their financing models.
In November, it launched a Request for Information to identify the range and scale of the projects being considered by investors. This will be followed early next year by Request for Proposals to assess how the aid will be distributed, explains Terrazas.
Other lenders are already stepping forward.
In December, Germany’s Economy Minister Peter Altmaier announced that it will provide Euro 8 million (US$9.7 million) to Siemens Energy to support the synthetic fuels plant in Magallanes as part of his country’s national hydrogen strategy.
ENAEX is looking for funds to build its pilot green ammonia plant and has held talks with the World Bank’s International Finance Corporation, Japan’s Joint Crediting Mechanism as well as industry and Chilean authorities.
“The US$50 million is a great signal, but we are probably going to need more,” admits Wallach.
And as the industry scales up, its need for capital is going to balloon.