CHILE AIMS TO WIN GREEN HYDROGEN RACE - Willkie ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
FEATURES
CHILE AIMS TO WIN GREEN
HYDROGEN RACE
WHILE THERE ARE A NUMBER OF COUNTRIES CONTENDING TO BE GLOBAL LEADERS IN COMMERCIALISING
GREEN HYDROGEN AT SCALE, WE THINK CHILE MAY BE POSITIONED TO ASSUME A GLOBAL ROLE IN THE
NASCENT GREEN HYDROGEN INDUSTRY GIVEN A COMBINATION OF POLICIES, RESOURCES AND CONDITIONS
THAT WE EXPLORE IN THIS ARTICLE. BY MARIA-LETICIA OSSA DAZA, JORGE KAMINE, MATTHEW VITORLA AND
JAVIER PEREZ-MARCHANT, WILLKIE FARR & GALLAGHER LLP.
The year 2020 will undoubtedly be remembered • The culmination of various factors improving
for the global pandemic and its devastating the economics of green hydrogen, including
and disruptive effects on people’s lives, global expanded investment in projects, lower energy
markets and national economies. Moreover, and technology prices due to the deployment of
it independently proved to be a year of global renewables and other market forces.
shocks for energy – first due to the oil price • An accelerating pace of new green hydrogen
war between Russia and Saudi Arabia, followed projects, including 50 viable global projects
by the collapse of demand as a result of the announced in the past year with a total
pandemic-related lockdowns around the world. hydrogen production capacity of four million
It may also come to be remembered as the tons per annum.
year that a diverse group of forces converged As many commentators and critics have
to accelerate a global push to expand the observed, we have been here before. The recent
development and use of hydrolytic or green surge of attention has focused on hydrogen,
hydrogen generated from renewable energy as specifically green hydrogen, as an energy carrier
a cornerstone for the energy transition to a net- that can play a pivotal role, together with
zero carbon emission global economy. Those electrification in decarbonising key sectors of
forces have included: the global economy, specifically industry, the
• New or expanded public policies in many built environment and transport.1 In the past,
advanced and emerging economies to accelerate waves of enthusiasm for hydrogen have waned
the energy transition in their countries given in the face of challenges to making hydrogen a
another record year of adverse weather changes cost-competitive energy carrier manufactured
and natural disasters and parallels drawn at scale to allow it to compete and displace
between the global pandemic and dangers of hydrocarbons. The current wave of interest can
climate change. Those policies have also linked be attributed to a convergence of essential and
pandemic recovery and economic development catalytic factors described above that appear
to incentivising investment in energy and certain to lead to sustained momentum behind
infrastructure, particularly the expanded the development of a global hydrogen industry.
deployment of electrification and use of renewable As noted above, chief among these factors
energy. Green hydrogen production and use have is the accelerating global push for the energy
been a key part of those public policies, with transition away from hydrocarbons and, where
Australia, Chile and Spain emerging as regional green hydrogen allows for advancing those
forerunners. Those policies have spanned various goals through sector coupling, in achieving
levels of government with the support of an array net-zero emission targets in power generation,
of international and non-governmental actors all transportation and industrial processes. An
focused on promoting green hydrogen. equally important factor in the resurgent focus
• Last year also saw a wide range of private on green hydrogen has been the broad and rapid
sector industries making significant deployment of renewable energy generation
commitments towards the decarbonisation of facilities worldwide, which has significantly
their companies, manufacturing, and supply reduced the price of electricity, particularly in
chains. There was an emphasis on reorientation countries such as Chile.
of the corporate strategies of major energy Given that electricity accounts for up to 60% of
companies and other major corporations the total production costs of green hydrogen,2 a
towards reducing carbon intensity, incorporating significantly lower price of electricity translates
green hydrogen as part of changes intended to into a lower cost factor for green hydrogen
address business, consumer and public concerns production, which increases the possibility of
about advancing towards net-zero emission making it cost-competitive with other energy
targets, and improving ESG (environmental, carriers.3 Hence, as further discussed below,
social and governance) outcomes and impacts, Chile’s substantial deployment of and significant
including those related to carbon intensity and capacity for expanding renewable generation
climate change. and its potential to supply a large, decarbonising
Reproduced from Project Finance International February 10 2021 © RefinitivHYDROGEN AND CHILE
mining sector and promising export market, as renewable generation has yielded increasingly
well as its strong regulatory and institutional lower electricity prices in Chile.8 This trend is
foundations, mean that Chile is well positioned expected to continue steadily into the future
to be a leader in developing a scalable, with Chile’s more immediate planned expansion
cost-competitive green hydrogen industry of installed renewable capacity (expected to
that effectively navigates the financeability double in the next few years) as well as its vast,
challenges inherent in nascent technologies and untapped resources.9 According to the Hydrogen
applications. Council Report, these factors could enable Chile
to achieve the world’s lowest production costs
Chile for green hydrogen, making it cost-competitive
While there are a number of countries not only in Chile but also in the growing export
contending to be global leaders in market.
commercialising green hydrogen at scale, we • Strong domestic demand and export potential – In
think Chile may be positioned to assume a global addition to favourable cost conditions, Chile’s
role in the nascent green hydrogen industry hydrogen industry is positioned to benefit from
given a combination of policies, resources and strong domestic demand – generated primarily
conditions that we explore in this article. by the large mining sector, the country’s largest
• Chilean energy policy and electricity prices – As fuel and energy consumer, as it sets out to
noted above, the market competitiveness of achieve carbon neutrality goals – as well as
green hydrogen turns primarily on the price from its ability to export, at low cost, significant
of renewable energy.4 Chile made significant amounts of hydrogen to key locations in the
headway towards driving down the cost of Asia-Pacific market (ie, China, Japan and South
renewable-sourced electricity by encouraging Korea) and the United States where hydrogen
an immense mobilisation of the renewables consumption is expected to be stronger and
industry, starting in the late 2000s and achieving develop faster.
a greater penetration of renewables than The domestic hydrogen market is expected
many other advanced economies.5 Building on to be buoyed in large part by Chile’s mining
advantageous natural geographic conditions6, industry, which has already begun a transition
Chile’s success with renewables has been away from its traditional fuel sources by
the result, in part, of policies creating strong turning to renewable energy and supporting
incentives for investment in renewable projects. sustainability-focused research and development.
Chile introduced a 10% renewable energy Green hydrogen and its derivative products,
target in 2008, which was increased in 2013 such as green ammonia, will be able to play a
to 20% of energy consumed nationally.7 Chile key role in helping this major Chilean industry
also introduced other favourable regulatory achieve its net-zero emission targets when
features credited with significantly boosting the used as an alternative power source for heavy
renewables industry’s development, including machinery and mining vehicles. In addition,
exemptions from transmission tolling and VAT Chile’s National Oil Company (Empresa Nacional
charges on critical imported equipment and del Petroleo, or ENAP) is already engaging in the
other services used in constructing renewable development of a major green hydrogen project
energy projects, simplified reporting and pricing that will produce components of synthetic green
frameworks for distributed generation assets gasoline and other eFuels.
and an aggressive coal retirement strategy. This With respect to exportation, Chile has
scheme of industry-friendly features was built strategically leveraged its geographic and
on the strong legal foundation that has made economic conditions by consistently investing in
Chile an attractive investment target for years, its port infrastructure and by developing a strong
as described further below. network of trade and tax treaties that facilitates
Chile’s continuing success in stimulating access to high-demand markets and lower
dynamic renewable energy development transaction costs. With the rise of renewables,
should impart a good deal of optimism for Chile’s trade and shipping infrastructure could
the green hydrogen industry. The experience see a corresponding transition from importing
with renewables has provided the national fossil fuels to exporting green hydrogen and
government of Chile (the Chilean government) related products.
and other institutions a set of familiar policy In South America, Chile’s position as a leader
tools that have already proven their viability. We in the green hydrogen race may enable it to
discuss below several ways in which such tools strategically assist other countries to make
might be applied in the early stages of the green progress in their renewable energy transitions.
hydrogen industry. In fact, Chile recently committed to helping
In addition to the value that renewable Colombia become a partner in the region and to
energy development has in serving as a model coordinating efforts across the region to develop
for government and industry with respect to a broader hydrogen market. Chile’s work to
green hydrogen technologies and applications, create a strong network in the region will help
the expansion of renewable energy generation position its industry to benefit from the steady
is itself a major component of green hydrogen’s growth of neighbouring developing economies,
massive potential in Chile. The boom in such as those of Colombia, Brazil, and Peru.
Reproduced from Project Finance International February 10 2021 © RefinitivThe large North American hydrogen market energy and infrastructure projects in Chile and
also represents a significant opportunity for other parts of Latin America. Infrastructure
the Chilean hydrogen industry’s future. The funds were raising record amounts of capital to
expansion of ambitious carbon emission targets deploy in the region. Given intense competition
and other favourable policies supporting electric and tightening margins for financing
vehicles and fuel cells, including those supported renewables, we increasingly saw investors
by the Biden-Harris administration, would and lenders expanding the types of projects
significantly accelerate the shift in demand from that they sought to finance. The pandemic
grey and blue hydrogen to green hydrogen and certainly disrupted those trends and seems
could outpace the domestic industry’s ability to to have ushered in more conservative plans.
transition its production to renewable energy.10 Nevertheless, even the second half of 2020 saw
Moreover, the United States has already seen steadily increasing interest in hydrogen among
the development of several green hydrogen- investors.
fuelled projects, including large projects to Most green hydrogen projects that have been
supply power to major cities in California and discussed in the press appear to rely on financing
Florida, such as the Los Angeles Department from corporate balance sheets and occasionally
of Water and Power’s (LADWP’s) proposed on grants or other support from government,
Intermountain Power Project/ACES Project, such as the Haru Oni pilot project in southern
which will convert existing coal-fired generation Chile, which aims to produce sustainable eFuels
projects supplying electricity to the City of Los using green hydrogen.
Angeles into gas-fired and ultimately green As credit and capital markets return to their
hydrogen-fuelled projects. pre-pandemic levels of activity and confidence,
• Developing industries in an advanced economy – we would expect that well-structured green
Chile is consistently recognised as a regional hydrogen projects in Chile should be able to
success for having built an attractive economic access third-party debt and equity financing.
and regulatory framework from a foreign As with any project financing, sponsors will
investment perspective. The first Latin American need to present projects with sound economics
country accepted into the OECD, Chile has based on creditworthy offtake arrangements
achieved one of the highest levels of GDP per and sustainable production, transportation, and
capita in South America and provides foreign storage costs, as well as minimal exposure to any
investors with easy access to its competitive and lingering technology risks.
dynamic domestic capital market. There is no In addition, some commentators have noted
doubt that Chile has become a leader in foreign that hydrogen projects tend to involve project-
direct investment in Latin America and the on-project risk that will make it more difficult
Caribbean for a number of reasons, including to secure financing. Based on our experience,
its stable institutions, which have shown strong sponsors in a burgeoning industry will be
themselves to be resilient amid recent social able to structure their projects to address these
unrest and the ongoing constitutional process, issues as costs continue to drop. We also believe
and a favourable tax scheme, both generally and that project sponsors and policymakers may be
with respect to infrastructure projects, which able to look to the financing of certain other
combines a simple structure with favourable energy projects for useful ideas and models for
incentives for foreign investors. addressing these issues and mobilising financing
Although the Covid-19 pandemic has for green hydrogen projects.
affected the country’s development forecast, Chile’s National Green Hydrogen Strategy
as it has for other developed economies, the (Estrategia Nacional de Hidrógeno Verde, the
Chilean government has been committed to National Strategy)11 sets as one of its primary
its recovery plan by increasing investment in goals addressing the significant hurdles that
critical infrastructure. Chile’s green recovery every nascent technology faces: navigating
plan is expected to provide the private sector regulatory frameworks not designed to
with attractive investment opportunities in the accommodate the new technology and obtaining
energy, infrastructure, public works, water, access to financing at a cost of capital that makes
and transportation sectors, and will prioritise scalable projects feasible with an attractive
projects involving emission reductions and equity return. The scope of the National Strategy
other sustainability features. Green hydrogen demonstrates recognition that governmental
and other renewable projects are thus well support through either direct financing or other
positioned to benefit from the recovery plan, incentives, eg, tax and permitting relief, will be
and the prioritisation of such projects appears critical to ensuring that green hydrogen facilities
to have emerged as a global trend amid the are financeable.
pandemic, which has highlighted sustainability
as a key social and environmental issue.
Strategies for financeable projects
Prior to the pandemic, debt and equity financing
The large North American hydrogen market represents
seemed readily available from a variety of a significant opportunity for the Chilean hydrogen
sources for a wide range of well-structured industry’s future
Reproduced from Project Finance International February 10 2021 © RefinitivHYDROGEN AND CHILE
• Providing direct support to green hydrogen projects In addition, CORFO awarded a consortium
and other development initiatives – With the first of foreign and domestic universities with a
green hydrogen pilots in Chile still in their concession and over US$190 million in funding
early stages, the Chilean government has been to form and operate the Clean Technologies
quick to recognise that access to financial Institute (Instituto de Tecnologías Limpias, or
assistance will be key to their success. In its ITL), which will focus its research efforts on
initial targeted development programme, the development of a green mining industry in
the Chilean Economic Development Agency, Chile, including applications of green hydrogen
CORFO, is providing direct financial support and innovation with respect to renewables.
to green hydrogen projects and promoting CORFO will also offer US$50m in direct grant
innovation and research efforts directed funding available for early-stage projects. The
towards expanding hydrogen applications in tender for this pool of grant funding is expected
key industries. to be available as early as March 2021.
Substantial grants have been awarded to At the same time, the Chilean government
projects in the pre-feasibility and engineering is working diligently with international
study phases under CORFO’s Innova High organisations, financial institutions, and
Technology Program. One of these projects is the development banks in an effort to grant
Hydra Project being run by Engie, in partnership developers of green hydrogen projects access to
with Australian research agency CSIRO and either government-backed financial guarantees
major players in the mining sector, to examine for new projects or bank financing on terms
replacing the powertrain of mining vehicles with similar to concessional financing, which is not
hydrogen-powered fuel cells. usually available to Chilean projects.
CORFO’s Innova High Technology Program It is worth noting that a recent request
has also provided to the Hyex project, also for information issued by CORFO for the
developed by Engie, which focuses on producing development of green hydrogen projects on
green ammonia, a key component in mining government land caught the attention of
processes, and to the Caex project, led by Anglo several investors. As reported by the Chilean
American and the Catholic University of Chile, Development Agency, the initiative has
which promotes the use of a hybrid diesel- received at least 18 expressions of interest from
hydrogen-powered engine in mining trucks and interested parties in diverse industries – energy,
machinery. mining and green hydrogen derivatives, among
Santiago de Chile Skyline © Lukas Bischoff | Dreamstime.com
Reproduced from Project Finance International February 10 2021 © Refinitivothers. The proposed projects, which entail standards arising from a disparate body of
an aggregate private investment of US$12bn, regulations. The Chilean government thus had to
involve the development of facilities to produce build from the ground up a legal framework that
green hydrogen or its derivatives in locations addresses the uncertainties that might endanger
with an ample supply of renewable energy the feasibility or financing of a green hydrogen
resources, easy interconnection to the electrical project.
grid and good transportation access. In this regard, the Ministry of Energy &
The Chilean government has also announced Mining retained the German development
that specific tax benefits are likely to be included agency, GIZ, to issue a hydrogen regulation
in forthcoming legislation that will introduce proposal based on international standards. The
the initial set of green hydrogen regulations. proposal, issued in April 2020, suggested that
The benefits are expected to be tied to the use initial efforts focus on key regulations that will
of hydrogen-powered electric vehicles, which enable the industry to grow relating to hydrogen
may include tax deductions for the purchase of infrastructure, transportation and storage, and
a vehicle or the cost of green hydrogen-based the use of hydrogen in freight vehicles to ensure
fuel. Other incentives currently being discussed that the industry has sufficient clarity to grow in
by Chilean officials range from increasing the its early stages.
current carbon tax rates on the use of fossil Comprehensive safety regulations and
fuels, to eliminating fossil fuel subsidies to regulations customised for other applications
the freight and transportation industries, to will follow in order to support the continued
introducing a temporary tax holiday for green expansion of the industry. Eventually, a mature
hydrogen. legal framework will include municipal
In addition to these new potential benefits, regulations and updated labour and work safety
developers of green hydrogen projects will standards, as well as regulations for the use of
still have access to the typical suite of tax hydrogen in specific vehicles. The Ministry of
and investment incentives under the Chilean Energy and Mining is aiming to draft and issue
tax framework. A tax-reduction mechanism regulations within the time frame suggested by
commonly used in renewable energy projects, the proposal, which entails completing the key
the VAT refund, allows developers to recoup regulation by 2024 and a secondary regulation
certain costs paid on goods and services. by 2028, with the final layer following thereafter.
Developers may also benefit from the zero-VAT The Chilean government is acting rapidly to
regime for certain imported capital goods. implement this proposal. In January 2021, the
• Establishing a favourable, efficient regulatory Ministry of Energy & Mining, joined by the heads
framework – As noted above, Chile has a history of several Senate Committees – Energy, Mining,
of successfully recognising the importance of Science and Technology, and Future Challenges
developing a clear and favourable regulatory – presented the H2V Initiative, which is designed
framework for growing industries that are to coordinate the upcoming regulatory policies
facing high investment costs and uncertainty and proposals relating to the development of the
associated with new technologies. Support green hydrogen industry in Chile. Key policies
from governmental authorities with respect to that are expected to be issued as part of this
permitting and reporting requirements is key to initiative in 2021 include an “electromobility
actually achieving viable projects and to further plan”, which will provide for tenders to supply
reducing project financing costs. hydrogen-fuelled buses for public transportation,
As regulatory regimes adapt to accommodate certain regulatory changes to disincentivise
green hydrogen, traditional lenders and other the use of diesel in industrial processes and,
sources of credit will be more comfortable notably, the proposed regulations governing the
entering the new market. As a more immediate production, storage, transportation and use of
accommodation, the Chilean Energy & Fuels hydrogen in the mining sector.12
Superintendency (Superintendencia de • Creating a robust export market – One of the
Electricidad y Combustibles) is working with the pillars of Chile’s National Strategy is securing
Ministry of Energy & Mining to provide some a strong market for the exportation of green
flexibility in granting permits requested by hydrogen to allow the industry to replicate the
green hydrogen pilot projects and in allowing scale and financial success of Chile’s mining
developers to apply international industry industry, which has historically been the main
standards in the absence of local regulations. driver of the country’s economic activity. As
As part of Chile’s effort to mitigate the part of this effort, the Chilean government,
regulatory and legal risks that can drive up employing what it has designated as “green
financing costs, the National Strategy calls for hydrogen diplomacy,” is actively promoting
establishing a legal framework that will be
independent from political changes and provide
clear incentives and guidance to investors.
Chile’s current regulatory regime refers to
hydrogen only in the context of hazardous
As regulatory regimes adapt to accommodate green
substances, and provides only a handful of hydrogen, traditional lenders will be more comfortable
generic safety, transportation and storage entering the new market
Reproduced from Project Finance International February 10 2021 © RefinitivHYDROGEN AND CHILE
the creation of international cooperation development of a scalable industry with
agreements to support innovation and research adequate access to investment.
on green hydrogen’s potential applications and From a policy perspective, Chile had a
is currently negotiating with public agencies good deal of success stimulating demand for
and private organisations from Germany, Japan, renewable energy projects using government-
Singapore, Spain, and the United Kingdom. supported auctions of offtake agreements,
As discussed above, the Chilean Government mandates and portfolio standards in a way that
has also agreed to assist Colombia in designing could be emulated to increase the demand for
its own green hydrogen roadmap for joining green hydrogen projects, which could help
Chile as a large-scale hydrogen producer and reduce costs and improve overall economics, as
exporter. The agreement also provides for discussed above. In some cases, the auctioned
the creation of a regional plan to promote power purchase agreements involved public
the development of the hydrogen industry, entities or government support to raise the
which may provide Chile with greater access creditworthiness of the offtaker and reduce the
to potential hydrogen buyers in the region. overall credit risk of the project, which in turn
Combined with Chile’s trade policies and served to lower the cost of financing.
shipping infrastructure, the cost competitiveness Again, similar approaches could be employed
that Chilean green hydrogen is expected to to expand the deployment of green hydrogen
achieve will mean that it will be supplying not projects in the short to medium term. For
only the growing domestic market, but also the example, the LADWP Intermountain Power
regional and broader international markets as Project/ACES Project will be a transformative
well. With plentiful buyers, low export costs and power and underground storage project
the potential for long-term supply agreements, with improved bankability given LADWP’s
green hydrogen developers should be able to involvement as an offtaker. As we have seen with
demonstrate to investors and lenders that their the evolution of the renewable energy industry,
projects mirror the favourable economics that those government supports can be reduced over
drove the success of Chile’s mining industry. time and ultimately eliminated as the projects
• Addressing offtake risk –- As green hydrogen become more cost-competitive and accepted by
projects mature and become more familiar commercial debt and capital markets.
to industry and investors, they may find that • Structuring to resolve project-on-project risk –
long-term revenue agreements with reputable As previously noted, some observers have
offtakers provide another solution to attracting noted that green hydrogen projects will have
investment and lowering financing costs. difficulties being financed because of project-
In Chile, green hydrogen and its derivative on-project risk: a hydrogen production facility
products (such as green ammonia or green may require the construction of other facilities
methanol) present the mining industry and such as storage or transportation facilities for
retailers with an alternative to fossil fuel-derived the hydrogen, the production may be primarily
products. intended for another project that will distribute
A prime example is the Haru Oni Highly or utilise the hydrogen, or the hydrogen
Innovative Fuels (HIF) project mentioned above, production may require the construction of
which has brought together Porsche, Siemens infrastructure to supply inputs such as the
Energy, Andes Mining & Energy (AME), ENAP and electricity and water supply (or perhaps the
Enel as partners. The project, which has received renewable energy generation project itself).
substantial financial support from the German While the interdependency of these parts of
government, will supply a German oil company the project certainly introduces additional risks
with eFuels and will also be able to provide to be addressed, we have the experience and
green methanol to ENAP.13 tools to structure these complex projects – much
As we know from past experience with other like LNG-to-power projects, renewable energy
novel or innovative energy projects, this type of projects requiring new transmission facilities
long-term offtake contract with a creditworthy (or vice versa), and midstream projects serving
offtaker is key to demonstrating the demand larger manufacturing or production facilities –
necessary to support the development of a into bankable projects.
stable, domestic market for green hydrogen In some cases, it may be a matter of using
projects in Chile and the bankability of a tolling arrangement, minimum capacity
those projects. Government support, in the payment or reservation charge to ensure
form of funding, guaranties and other credit that a key part of the project is not exposed
enhancements, bolsters confidence with to commodity, volumetric or other variable
offtakers that the project will have access to offtake risk. It may mean requiring termination
the financial resources necessary to realise the payments where the offtake project does not
project and fulfil the offtake contract, which proceed. In all cases, the party making those
in turn improve the project’s financeability payments must be creditworthy (or provide
and ultimate rate of return. Like the trajectory appropriate credit enhancements).
observed in the development of renewable Another example would be to structure the
generation in Chile, these structural elements incorporation of hydrogen as a post-financing
work together to push and accelerate the phase of a project, as appears to be the case
Reproduced from Project Finance International February 10 2021 © Refinitivwith New Fortress’s Long Ridge Energy Competitiveness_Full-Study-1.pdf (the Hydrogen
Terminal, which is a gas-fired project in Ohio Council Report).
that will ultimately run on hydrogen but 4 – In the Chilean context, renewable energy
that will start with a blend of natural gas and means energy from non-conventional renewable
hydrogen. In our experience, we would expect sources (energíasrenovables no convencionales),
to see strategies like these used to overcome such as solar photovoltaic, wind, small
this type of risk and allow the financing of these hydroelectric, biomass, geothermal, and tidal
projects to proceed. sources.
5 – Starting from having virtually no facilities
Conclusion in 2011, Chile now has more than 6,000MW of
Despite the potential challenges, we remain renewable generation installed, representing
very optimistic that the momentum around a around 25% of total installed capacity.
transition to a hydrogen economy will continue, Furthermore, Chile is currently on the path
both in Chile and globally, given the range of to meeting 70% of its electricity demand with
private sector companies – from oil majors to renewables by 2050.
renewables companies – and the diverse group 6 – Chile possesses outstanding conditions
of public sector actors that are committed and for the development of renewable energy, in
actively engaged in different aspects of the particular the complementary pair of solar and
transformation. wind energy, with the Atacama Desert in the
This year will be an important year in north boasting one of the world’s best solar
assessing the pace of those advances and irradiation indexes, and an extensive coastline
whether such pace will follow more conservative and southern region presenting excellent wind
predictions or accelerate. Of course, it will be resources.
important to see how we emerge from the 7 – See Law No 20.257, dated as of April 1 2008;
pandemic midyear. We will also be watching Law No 20.698, dated as of October 22 2013.
the trajectory of previously announced green 8 – Chile’s energy auctions have consistently
hydrogen projects and the implementation of yielded low prices for energy due to growing
Chile’s National Strategy. participation by renewable generation. In the
In introducing the National Strategy and most recent auction, held in 2017, the winning
building on its competitive advantages and bid was priced at US$21.48 per MWh, when
past successes with renewables deployment, the average price in previous years had ranged
Chile has emerged as a likely candidate to between US$47 per MWh and US$79 per MWh.
perform well in the global green hydrogen 9 – Chile has the potential to develop more
race. Sponsors and developers of green than 70 times its current renewable generation
hydrogen projects, together with the Chilean capacity, around 1,300GW and 1,800GW. See
government, will nevertheless need to address Hydrogen Council Report.
the complex commercial and legal challenges 10 – On January 27 2020, President Biden
and uncertainties that exist in Chile, and signed an executive order on key climate
around the world, in order to attract favourable change actions, which included a direction
financing terms and encourage investment in to federal agencies to procure carbon-
the industry. n free energy and electric vehicles, support
the commercialisation of clean energy
Footnotes technologies, and accelerate clean energy
1 – See, eg, the DNV GL Group Technology generation. See https://www.whitehouse.gov/
& Research Position Paper 11-2020 entitled briefing-room/statements-releases/2021/01/27/
“Sector Coupling: Creating an interconnected fact-sheet-president-biden-takes-executive-
decarbonised energy system benefiting industry, actions-to-tackle-the-climate-crisis-at-home-
the power sector and society” and available and-abroad-create-jobs-and-restore-scientific-
at https://www.dnvgl.com/publications/sector- integrity-across-federal-government/.
coupling-192058. 11 – Chile officially announced the National
2 – See https://www.spglobal.com/ratings/en/ Strategy during the International Green
research/articles/201119-how-hydrogen-can-fuel- Hydrogen Summit it hosted in November
the-energy-transition-11740867. 2020. Since then, the Ministry of Energy
3 – Please see the report from the International and Mining has been actively promoting the
Renewable Energy Agency (IRENA), “Green National Strategy through a range of Chilean
Hydrogen Cost Reduction,” available at https:// investment and development agencies, ie
www.spglobal.com/platts/en/market-insights/ CORFO, InvestChile, ProChile, as well as with
latest-news/metals/121720-irena-outlines-path-to- the active support of the German development
cost-competitive-green-hydrogen-at-scale-report; agency, GIZ.
see also the report published by the 12 – See https://www.senado.cl/senado/site/
Hydrogen Council, supported by consulting mm/20210113/asocfile/20210113233046/
firm McKinsey & Co, “Path to hydrogen iniciativa_h2v.pdf.
competitiveness: A cost perspective,” 13 – See https://www.siemens-energy.com/
available at https://hydrogencouncil.com/ global/en/offerings/renewable-energy/hydrogen-
wp-content/uploads/2020/01/Path-to-Hydrogen- solutions/haru-oni.html.
Reproduced from Project Finance International February 10 2021 © RefinitivYou can also read
