Chile presented its National Green Hydrogen Strategy last November, with the goal of the country becoming a leading green hydrogen power. A key competitive advantage Chile has in the budding green hydrogen game is world-class solar and wind power potential. The Atacama desert in the north of the country has the highest solar radiation in the world, while wind tends to be strong and constant in the extreme south.

The three core goals of Chile’s green hydrogen strategy are: to reach 5GW of electrolysis capacity by 2025, produce the world's cheapest green hydrogen by 2030 and make the country one of the top three exporters of the fuel by 2040.

“In terms of becoming one of the world’s cheapest green hydrogen producers by 2030, the government is targeting production costs of $1.50/kg” Gabel, IHS Markit

Hydrogen Economist interviewed Etienne Gabel, senior director at IHS Markit with the Latin America gas, power, and renewables team to find out what the Chilean government is doing to achieve these goals in the current political landscape.

Chile is in the process of rewriting its constitution following widespread civil unrest in autumn 2019 and also has a presidential election coming up in November.

Are the three core goals of Chile’s green hydrogen strategy plausible?

Gabel: Chile has some important ingredients for establishing a substantial green hydrogen industry, but its three goals are still extremely ambitious. Among emerging economies, the country is at the forefront of solar and wind power development, with massive additional potential for each. In addition, Chile has a deregulated power market and good transportation and other infrastructure to support green hydrogen development.

But to achieve 5GW of electrolysis capacity by 2025 is a very tight timeline. It takes several years to finance, plan and build these projects. As a result, to meet this goal Chile would need a large pipeline of electrolysis projects in an advanced stage of planning. As of now, there are two large-scale projects at this stage, the Haru Oni wind energy project in Magallanes in southern Chile and the HyEx solar energy project in Antofagasta in the north.

In terms of becoming one of the world’s cheapest green hydrogen producers by 2030, the government is targeting production costs of $1.50/kg, which will be very challenging. The present cost of producing green hydrogen globally is about $4-5/kg.

And to become one of the top three exporters of green hydrogen by 2040 would require a massive scaling up of solar and wind power capacity in Chile. The government reference case targets 200GW of nonconventional renewables by 2040 compared with 8GW now, a 25-fold increase on an installed basis.

At the same time, transporting hydrogen long distances will be expensive, cutting into Chile’s competitive position relative to likely competitors given its isolated location. Saudi Arabia and North Africa are much closer to likely demand centres in Europe, while Australia will compete for demand from Japan.

What is the Chilean government doing to move its green hydrogen strategy forward?

Gabel: To quickly get up to speed in an area the government and industry does not have much experience in, and to provide the foundation stones for its strategy when there is no roadmap on how to develop a green hydrogen economy, the government is making a number of moves on the international front. These include forging partnerships with energy agencies in countries such as Australia, Germany and South Korea, as well as multinationals such as France’s Engie and Germany’s Siemens, to encourage them to invest in green hydrogen projects in Chile. The government is also undertaking diplomatic efforts in an attempt to establish partnership markets for the green hydrogen that projects produce in the future.

Domestically, the Chilean government is moving quickly to develop regulations for hydrogen production, storage and so on, like basically all countries with aspirations in the area, while providing up to $50mn in funding for pilot projects for production and user applications.

Do you foresee the process to rewrite the country’s constitution and the upcoming presidential election slowing progress to develop a green hydrogen industry in Chile?

5GW – Chile’s targeted electrolyser capacity by 2025

Gabel: These, on top of the economic crisis caused by the civil unrest and then the Covid pandemic, are a negative for foreign investment. Chile needs massive FDI and foreign expertise to meet its green hydrogen goals. That said, IHS Markit believes the country will continue to promote private investment and FDI following the constitutional rewrite and presidential election.

No major political parties in Chile are calling for the nationalisation of the energy sector. However, water will most likely become a common good and this could play a role in the development of the country’s green hydrogen industry given the large amounts of water needed for industrial-scale electrolysis. But there are alternatives, such as water desalination, which is used by some companies in Chile’s mining industry.

In terms of the presidential election, a more left-wing candidate is likely to win, which could lead to lower government subsidies for businesses and greater social spending. On the other hand, all parties in Chile are expected to be supportive of the green hydrogen strategy for two reasons: to help green the country’s economy and energy sector, and to reduce Chile’s very high energy dependence.

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Author: Vincent Lauerman