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6 January 2022

Europe licks lips as Chile kicks off global hydrogen tendering

The results are in from the world’s first green hydrogen tender, with the Chilean government offering up 240 MW of capacity to a national subsidiary of Italian utility Enel, alongside regional power producer AME. With European stakeholders pushing their way in, this paves the way for an international approach that will be imperative to the early development of the necessary hydrogen market for global decarbonization.

The $16.9 million awarded through the ‘First Call for Green Hydrogen Project Funding in Chile’ will dedicate funding towards electrolyzers in the first phase of the Faro del Sur project at Chile’s southern tip. Driven by locally sourced wind power, of which there is an increasing abundance in the county, the project will produce an initial 25,000 tons of green hydrogen per year. Fully realized, the figure could be closer to 88,000 tons per year.

The funding is promoted by Chile’s Production Development Corporation (Corfo), which has allocated up to $50 million in funding for green hydrogen projects.

As per the requirements of the tender – which also mandated that projects must have a capacity of at least 10 MW and powered solely by renewable power – the Faro del Sur project will have to be commissioned by the end of 2025.

This will make it part of the first wave of projects of its size to come online worldwide, although somewhat behind the 20,000 ton-per-year project that China’s Sinopec expects to be the world’s first solar-PV-powered hydrogen plant when it comes online in 2023. Chile’s delay behind this, however, is likely to be due to an extended lead-time to develop the required wind power to power its electrolyzers, when compared to solar development.

The Magallanes region of Chile where the project is being developed is unlike the country’s North in its lack of solar potential, but is home to some of the strongest winds in South America. Wind speeds can average over 14 meters per second, above a global average of close to 4 meters per second, helping to produce some of the lowest-cost clean power in the world at under $24 per MWh. By 2030, the South American nation is hoping to have 70% of its electricity coming from renewables.

With electrolyzers operating for more hours per day, Rethink Energy expects that green hydrogen will become cost-competitive with existing fossil-fuel based hydrogen supplies by 2024 – one year ahead of the 2025 timeline outlined by Chile energy minister Juan Carlos Jobet. By combining wind and solar power, electrolyzers could be in operation almost continuously. Jobet has also previously stated that Chile could be exporting $30 billion of green hydrogen by 2050, and that currently there are already 60 projects under development by more than 100 international and local companies.

The Ministry of Energy has suggested that Chilean wind power in the Magallanes alone could produce 13% of future global hydrogen demand, capturing half the South Korean and Japanese markets and 20% of the Chinese market. So far the Minister has signed MoUs with Singapore and the Port of Rotterdam concerning future hydrogen exports.

Chile is fast becoming one of the most attractive countries in which to develop a hydrogen project. Rethink Energy recently stated it as the second most attractive renewables market in Latin America. The Atacama Desert in the North of the country has the absolute best solar resource of anywhere on earth, already helping to decarbonize the energy-hungry mining industry in the region, which produces one-third of the world’s copper.

In the far-south Aysen and Magallanes regions, wind speeds rival those enjoyed by offshore wind farms in the North Sea and the Taiwan Strait. Expansion plans announced in 2021, which will involve $3.2 billion across 128 tendered projects, will also use HVDC lines to alleviate any transmission woes between these two contrasting regions, while tumultuous politics has so far steered clear of impacting the country’s energy transition.

With such potential, it is no surprise that there was huge interest in the ‘First Call for Green Hydrogen Project Funding in Chile.’ Corfo received applications from 12 national and foreign companies, including: Engie, Linde, Air Liquide, and Copenhagen Infrastructure Partners (CIP), along with local steel producers, miners, and LNG terminals. Proposals were also spread across ten potential sites stretching across the length of the country.

Notably, half of the bids came from companies headquartered in Europe, with many stakeholders eying the exceptional opportunity for exports from Chile back to home markets.

Germany this week managed to push its $1 billion Berlin H2Global initiative through the European Commission, which aims to subsidize the production of green hydrogen projects in non-EU countries for import. Many expect that it will be cheaper for Germany to source hydrogen this way than through using its stretched domestic renewables resources, with the funding set to kickstart around 500 MW of electrolyzer projects.

The scheme will create a new Hydrogen Intermediary Network Company (Hint.Co), which will manage the trading of the imported green hydrogen. It will issue requests for proposals for green hydrogen and ammonia projects, awarding ten-year hydrogen purchase agreements to victorious bidders. One-year hydrogen service agreements (HSAs) will then be tendered to potential off-takers in Germany such as steel, chemicals or transport companies, with Hint.Co offsetting cost fluctuations in a similar mechanism to Contracts for Difference.

Germany has already signed partnerships with Canada, Chile, Japan, Morocco, Saudi Arabia, the United Arab Emirates to co-operate on green hydrogen. With vast land resources and renewables potential, along with relatively low population densities, these countries, along with the likes of Australia, Kazakhstan, Ukraine, Oman, and many African nations, are prime candidates to produce excess green ammonia and hydrogen for low-cost exports into demand centers like the EU.

The EU’s Hydrogen Strategy, as announced last year, also outlines an aim to see 40 GW of electrolyzers installed in its neighboring non-EU countries by 2030, on top of 40 GW from within the bloc itself.