Green hydrogen, a clean burning fuel produced through electrolysis using electricity generated from renewable sources, is making a lot of noise and has become a centerpiece of strategic conversations about fighting climate change, decarbonizing industries and transforming economies. It was also the sole focus of the recently held, Hydrogen Congress for Latin America and the Caribbean (H2LAC), co-organized by New Energy Events and the Inter-American Development Bank for the first time this year. During this two-day virtual event, an outstanding representation of regional stakeholders, including policy makers and global industry leaders, held key discussions around the development of a hydrogen industry in Latin America and the Caribbean, as well as the opportunities for the region to become a hydrogen world-leader. It’s clear that green hydrogen will play an important role in the clean energy transformation, though there is still a long road ahead.
How are countries positioning themselves
With such great representation, the discussion revolved around the importance of designing a road map for each country and the region as a whole.
“The entire region must bet on making green hydrogen the fuel of the future together. This is a new industry and we must collaborate.” emphasized Francisco Javier López Díaz, from the Ministry of Energy of Chile.
Chile launched its green hydrogen strategy in November 2020, becoming the first country in the region to do so. With 40 hydrogen projects already under development, it will be used mainly in the transportation and mining industries, and is expected to reduce 27% of GHGs. The country is positioning itself to be an exporter of clean energy, and hopes to generate $33 Billion in revenue from this industry by 2050. Chile is aiming to produce the cheapest hydrogen by 2030, at a target price of $1.30/kg, a significant reduction from the current market price of over $4.00/kg. Chileans see hydrogen as an important vector for economic growth and job creation.
Other countries such as Mexico, Costa Rica, Colombia, Brazil, Argentina, Peru, Uruguay and Paraguay are in the process of developing their hydrogen strategy. They have included hydrogen as a component of their national energy planning, decarbonization and transportation strategies. These countries are working on the regulatory framework and designing incentives for the hydrogen market to take off.
Each country must design a road map that includes:
- Identify their potential and competitive advantage, create awareness, identify barriers and determine the necessary inputs.
- Be comprehensive and incorporate a close collaboration between the public and private sectors.
- Most importantly, implement a proper regulatory framework with policies and compelling incentives that will attract private investors (national and international).
It’s worth noting that bilateral and multilateral institutions are keen on providing support to governments and private companies, and are expected to play a key role as the hydrogen industry develops in Latin America and the Caribbean.
“Policy changes need to come into play, and also financial support, such as what the Inter-American Development Bank and the World Bank could provide, to finance the cost of initial incentives to speed up the transition.” Fernando Alvarado, CEO of Deetken Impact Sustainable Energy.
At Deetken Impact, we understand that private capital will also be essential to fund these emerging opportunities. Projects will vary in scale and size, which will attract different types of investors. For example, in highly industrialized countries in South America, green hydrogen is expected to have a lower cost due to economies of scale and will be mostly used for industries, such as mining, and export. Alternatively, Central American countries, with no significant mining industry nor economies of scale will focus on green hydrogen as the means to transform the transportation sector.
The Vision for a Green Hydrogen Economy
Experts envision an economy in which hydrogen is used as the main source of energy, including long distance transportation, vehicles, heating and other industrial uses. The transformation is expected to generate hundreds of thousands of jobs and billions in revenues. This will require significant investments in infrastructure and development of the international markets, including an international trade framework for the exports and imports of hydrogen. A study by McKinsey estimates that the U.S. hydrogen economy could create over 700,000 jobs and generate revenues of $140 billion by 2030, increasing to over 3.4 million jobs and $750 billion in revenues by 2050.
In the end, it all comes down to cost. The biggest challenge for green hydrogen to take off is to reduce the price of renewable energy, electrolyzers, transportation and storage of hydrogen, which may only happen as it begins to go mainstream and manufacturing scales up. A 50% reduction in the cost will be required to achieve the price reduction goal.
Ten years ago, Latin America and the Caribbean began their successful transition to renewable energy. Visionary leaders in the region believe that this can be replicated to successfully become world leaders in the production and export of green hydrogen. In a panel moderated by the Inter-American Development Bank and integrated by policy makers representing Brazil, Chile, Colombia, Costa Rica and Uruguay, all panelists agreed that hydrogen will have a crucial role in the road to decarbonization and that it will represent a fantastic opportunity for the region to build a stronger economy. The time to get started is now.