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Latin America’s hydrogen opportunity: from national strategies to regional cooperation

The use of hydrogen as a low-carbon fuel is taking an increasingly prominent role in global energy discussions. At the Osaka Summit in 2019, G20 leaders emphasised that hydrogen technologies are critical to enable clean energy transitions as highlighted in the IEA report The Future of Hydrogen. Since Japan published its Basic Hydrogen Strategy in 2017, several other governments – including most recently Spain, Germany and the Netherlands, as well as the European Commission – have put forward hydrogen strategies and roadmaps, and more are expected in coming months. Industry has responded with significant announcements. Water electrolysis projects accounting for around 3 GW of capacity are expected to be deployed by 2023, dwarfing current installed capacity of less than 200 MW.

Latin America could become a key contributor to the global push towards low‑carbon hydrogen. In line with global developments, governments in the region are taking decisive steps to foster hydrogen’s potential as a key component of their clean energy transitions and a source of export revenues. At the recent IEA-OLADE Latin America Ministerial Roundtable, many ministers pointed to hydrogen as a promising energy carrier for the region’s longer-term energy transitions.

A collaborative regional approach to hydrogen could complement national initiatives, allowing countries to capture complementarities in demand and production patterns, and unlock synergies in infrastructure use and development. Such an approach would be aligned with developments in other parts of the world, for example among countries around the North Sea. For this to happen, regional dialogue and collaboration are key to ensure that regulations are harmonised and that energy markets converge.

Currently, hydrogen production and use in Latin America is limited to a few countries, where it is used mainly as a feedstock for refineries and the chemical industry, as in other parts of the world. Many countries are moving forward with strategies and pilot projects to foster its use as an energy carrier, however. This momentum is complemented by major private sector initiatives, such as Argentina’s H2ar consortium and Chile’s H2Chile, which group relevant private and public sector players with the goal of identifying opportunities and promoting the development of relevant partnerships and value chains.

While initial efforts could focus on reducing emissions linked to existing hydrogen uses, several countries are eyeing the potential for hydrogen to decarbonise transport, especially heavy-duty and public transport fleets, as well as opportunities to export low-carbon hydrogen to markets outside the region.

Country

Policy developments

Current sources of demand

Flagship projects

Opportunities for low-carbon hydrogen

Argentina

National strategy in preparation

Chemical Industry

Refining

Hychico (operating since 2008)

  • Potential to become a low-carbon hydrogen exporter
  • Decarbonising chemical industry
  • Decarbonising transport

Brazil

Assessing the role of H2 in their energy strategy

Chemical Industry

Refining

-

  • Potential to become a low-carbon hydrogen exporter
  • Decarbonising chemical industry and refining

Chile

National strategy to be released in 4Q2020

Chemical industry

Refining

Cerro Pabellón Microgrid (operation)

ENAEX-Engie 1+GW green ammonia (announced)

Enel Magallanes green methanol/synfuel (announced)

  • Potential to become a low-carbon hydrogen and ammonia exporter
  • Decarbonising mining industry chemical industry and refining
  • Decarbonising transport

Colombia

Green hydrogen roadmap in preparation

Refining

-

  • Decarbonising mining industry
  • Decarbonising transport

Mexico

Unknown

Refining

-

  • Decarbonising refining industry and transport
  • Potential to become a low-carbon hydrogen exporter

Paraguay

Strategy in preparation

Limited use

Omega Green (announced)

  • Decarbonising heavy-duty transport

Uruguay

Strategy in preparation

Limited use

Verne project (announced)

  • Decarbonising heavy-duty transport

Thanks to the sustained development of hydropower in the 20th century, renewables make up 55% of Latin America’s power generation, much higher than the global average of 35%. Variable renewables have been gaining ground thanks to the region’s abundant low-cost solar and wind resources, as reflected in the low prices per MWh seen in recent renewable energy auctions.

Average onshore wind auction price by region and commissioning date, 2014-2023

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Average solar PV auction price by region and commissioning date, 2014-2023

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One way for the region to benefit from this competitive advantage is to foster the development of low-cost and low-carbon hydrogen. In Chile, for example, hydrogen production from renewable electricity could be among the cheapest in the world, as highlighted in the recent IEA report The Future of Hydrogen, mainly thanks to low-cost renewable resources. Chile’s hydrogen from renewable electricity could even compete with conventional fossil-based generation in the mid-term. Gas-producing countries in the region – where hydrogen production and use is currently higher – could also find opportunities to accelerate the transition towards low-carbon hydrogen.

Chile is expected to be the first country in the region to finalize its hydrogen strategy, which will be presented for public consultation at the Third Chilean Hydrogen Summit on 3 November 2020, with the participation of the Executive Director of the IEA, Dr Fatih Birol.

Levelised costs of hydrogen production by technology in Latin America, 2020 and mid-term potential

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Several Latin American countries, including Argentina, Brazil, Colombia and Mexico, share many of the characteristics that make Chile a good candidate for competitive production of hydrogen from renewable electricity. As demand for low-carbon hydrogen rises around the world, this is an opportunity for Latin America to export low-carbon hydrogen at competitive costs.

While hydrogen from renewable electricity appears an attractive opportunity for the region in the longer term, in the shorter term low-carbon hydrogen demand and infrastructure could be developed in the region by coupling hydrogen production from fossil fuels with carbon capture, utilisation and storage (CCUS). In Argentina and Brazil, existing hydrogen production facilities could be retrofitted with carbon capture units. In industrial clusters with several co-located CO2 emitting activities that will also require carbon capture, synergies in infrastructure utilisation can be unlocked. In addition, switching the production of hydrogen from current technologies based on fossil fuels (resulting in CO2 emissions) to low-carbon routes (coupling CCUS to fossil-based generation or using low-carbon electricity in electrolysers) could be promoted through carbon pricing or similar incentives to take low‑carbon routes.

On the technological front, Argentina has been a pioneer regionally and globally for producing hydrogen from renewable electricity. Since 2008, the Hychico project in Patagonia has been producing hydrogen through water electrolysis powered by one of the country’s first wind farms. 

To live up to its potential to boost clean energy transitions, low-carbon hydrogen development should be focused not only on production but also on building the necessary overall supply chain and a conducive market environment. That means supporting innovation and technology development, especially for hydrogen end-uses. Infrastructure and institutional arrangements need to be developed. Robust regulation, market structures and governance are required.

At the recent IEA-OLADE Latin America Ministerial Roundtable, Panama’s Secretary of Energy, Dr. Jorge Rivera Staff, called for a regional approach to hydrogen. Regional dialogue, involving a broad spectrum of stakeholders but especially energy regulators, is key to enable Latin America to exploit synergies in future hydrogen production and demand patterns. Such dialogue is also vital to foster regional and global hydrogen trade by harmonising international standards and codes.

This regional approach could take inspiration from current developments in northwestern Europe, where North Sea countries have established a forum to discuss the development of a regional energy market, and to identify synergies and opportunities.

In the rapidly evolving global hydrogen landscape, international partnerships, such as the Clean Energy Ministerial H2 Initiative, Mission Innovation, the International Partnership for Hydrogen and Fuel Cells in the Economy and the IEA Hydrogen and Advanced Fuel Cells Technology Collaboration Programmes, are powerful tools for countries to share emerging technological, policy and regulatory best practices. 

The IEA will continue to follow hydrogen developments around the world and in Latin America in collaboration with organisations and initiatives in the region and beyond. On 16 November 2020, the IEA, the Latin American Energy Organisation (OLADE) and the Inter-American Development Bank (IDB) will co-host a Hydrogen Roundtable at the Fifth Latin America Energy Week. This event could promises to boost progress toward a more regional approach to unlocking hydrogen’s huge potential.