InsightsChile’s economy has a new BFF

Chile’s economy has a new BFF

Opportunities for local production (and consumption) of Green Hydrogen. 

In recent years, green hydrogen in Chile has emerged as one of the two upcoming products with the highest potential to change the country’s economy. The rise of sustainable generation in the country, in addition to the world decarbonisation requirements, has positioned this sustainable fuel alongside lithium as Chile’s two promised golden geese.

Fuel of the future or just hot air? 

Different studies show the future capabilities of Chilean sustainable energy and, consequently, of green hydrogen. Firstly, the country has an estimated capacity of producing around 2.153 GW, 76 times the electrical power installed by 2021.[1]

Additionally, through its Climatescope report, Bloomberg has consistently ranked Chile as one of the most attractive markets for renewable energy investment, leading in first place in 2020, 2021 and 2022 and maintaining third place in 2023.[2][3] Consequently, it has been estimated that by 2030, the Atacama Desert and the Magallanes region will have the lowest level of cost of hydrogen production on the planet.[4]

This green fuel has the potential to replace fossil energy sources in sectors where electrification is difficult or impossible to achieve. Industrial, transportation, mining and even aviation could achieve net-zero emissions, which is very convenient and promising considering the ongoing global climate crisis. 

Despite all the anticipation and publicity surrounding this opportunity, there has been little progress in actual projects. Only one initiative produces green fuel today, corresponding to the Haru Oni project, with 1.2 MW of electrolysis capacity in its pilot phase.[5] There are no other alternatives under construction as of yet. In recent years, barriers such as water supply restrictions, regulatory complexity, community distrust, lack of infrastructure and political uncertainties have provided sufficient reasons for investors to be cautious.[6]

The Chilean way or the highway 

A three-phase plan was presented through the Chilean National Green Hydrogen Strategy published in 2020. The first phase aims to accelerate the development, construction and use of green hydrogen in local markets. This phase was planned to gain experience and create enough knowledge about this fuel. The second phase involves scaling up production and creating sufficient infrastructure for the initial steps in exportation. Finally, a third phase was presented with the ultimate goal of transforming Chile into the world’s main supplier of green hydrogen. Additionally, there was significant emphasis on exporting this fuel using alternative carriers, considering the challenges in hydrogen storage.[7]

Based on this, different companies have made initial attempts to develop projects to fulfil this plan. In addition to the main topics addressed by the press and the final goal of the Chilean Green Hydrogen Strategy, some relevant initiatives have presented the fuel exportation plan as the main strategy. 

However, despite all the estimations and studies that have shown the potential of this international market, there are significant challenges. The most important of all is the transportation of fuel. In general terms, this issue involves some technical and economic difficulties.[8]

The complexity of moving hydrogen from one place to another presents alternatives, such as using heavy containers for the gas or transforming it into another possible carrier, like ammonia. Both possibilities are being contemplated in projects under development. This concern has significant implications for the levelised cost of hydrogen, at least in the short to mid-terms, when this sustainable fuel will not be completely competitive. 

On the other hand, projects focusing on internal consumption have been slower to emerge in the developing market. However, this alternative might be a more secure and low-risk approach. 

The local use of green hydrogen is the mining industry’s main market. This sector is the predominant driver of the country’s economy, contributing 13.6% to GDP.[9] Furthermore, copper mining accounts for almost half of total exports.[10] From an energy perspective, this industry consumes 34% of the total electricity produced and 20.8% of total diesel use.[11]

All these characteristics make this sector a promising market for green fuel. There are different areas where green hydrogen could make an impact in the mining sector, replacing fossil fuels. In the short term, adopting this sustainable alternative in the smelting process as a reducing agent might be the easiest alternative [12], with minimal or no changes needed in the current equipment used by the smelters. Other applications include the SX-EW process, replacing diesel used for heat and incorporating green hydrogen heavy-duty trucks and buses.[13] In the long term, using this fuel in CAEX trucks appears to be an important possible consumer. 

Digging through dilemmas and striking gold

Overall, a potential consumption of hydrogen in the mining sector of a total of 457 kilotonnes each year by 2030 is expected.[14] This translates into a potential market of at least 685 MM USD. To provide some reference, a 200MW hydrogen plant would only be able to produce a total of 70 tonnes of hydrogen each day, considering an efficiency of 68.5 kWh/kg H2. 

One of the main factors challenging the adoption of this alternative fuel in the mining sector is its cost. Studies show that today’s LCOH ranges from 4.5 to 6.5 USD per kg.[15] These values are at the limit of becoming competitive enough to displace diesel, which currently costs 1.1 USD per litre. The equivalence could be calculated by considering the specific energy of these fuels and their cost, with diesel at 10.72 Wh for each USD and hydrogen at 6.72 Wh for each USD.

It’s important to note that the application of this fuel will be key in determining its competitiveness due to the efficiencies of each process. A diesel motor will have an efficiency of 40% for vehicles or machinery, while a hydrogen fuel cell will operate at around 60% efficiency. Through this analysis, it can be seen that at current values, additional costs will make this fuel far from being competitive, costs that could be associated with transportation. However, despite these challenges, some positive signs brighten the future of hydrogen in the mining market. 

In 2020, the Chilean Mining Council established some emission reduction goals. The majority of the companies committed to a 30% decrease in their emissions by 2030, with Codelco, the main mining organisation, committing to a 70% reduction by the same time range.[16][17]

These goals create a favourable scenario for sustainable fuel because they require this industry to change in multiple areas of emissions, with the use of fuels being one of its major components. CAEX trucks alone represent almost 70% of the GHG emissions of the mining sector.[18]

Additionally, considering the current scenario that the mining sector is facing and the growing possibilities of sustainable fuels, it could be possible that the market follows a similar path to what occurred with desalinated water in this industry. 

In the early 2020s, the Chilean mining sector experienced a significant change by adopting the use of desalinated water for their processes despite its higher cost. Traditionally, this sector predominantly used continental water, but desertification, uncertainty of the resource and significant social pressure transformed the paradigm.[19]

In the mid-2010s, the cost of continental water for the industry was around 1.6 US$ per m3, in contrast to the cost of desalinated water, which was over 2.3 USD per m3 in the same era.[20] Today, desalinated water costs range from 1 to 3 USD, significantly increasing due to transportation.[21] This precedent sheds some positive light on the future of green hydrogen in the country. 

Currently, only five projects are processing environmental permits, which are crucial steps in developing and implementing these initiatives.[22] This is a very low number considering the 59 registered projects by H2 Chile.[23] This fact only reinforces the theory of investors with a very cautious approach to the sector.

All five projects in the environmental paperwork phase are fully or partially designed for internal market consumption. These projects include: “HyEx – Producción de Hidrógeno Verde”, “HyEx – Sintesis de Amoniaco Verde”, “Proyecto Volta – Planta de Hidrógeno y Amoníaco Verde”, “Hidrógeno Verde Bahía de Quintero” and “Planta de Producción de Hidrógeno Verde para el Distrito Minero de Calama”. This strategy ensures minimal transportation costs for hydrogen and a learning phase for market development. 

However, many uncertainties surround the emerging hydrogen market. Future policies and technical definitions developed by the state could provide security and stability and accelerate the development and implementation of these projects. In any case, only initiatives with internal consumption in mind have garnered more certainty. The mining sector appears to be an imminent off-taker of the fuel, and only continuous pressure for decarbonisation and a first leap of faith from some investors will determine the future development of this market. The only certainty remains that if green hydrogen fuel is to fulfil its promise, it will start with the Chilean mining sector.

________________________________________________________________________

Bibliography

 
[1] Vásquez Páez, C., Valdivia Armijo, D., Sepúlveda Contreras, H., & García Herrera, M. (2021). Identificación y Cuantificación de Potenciales de Energías Renovables 2021. Unidad Gestión de Información División Energías Sostenibles, Ministerio de Energía. https://exploradores.minenergia.cl/portalernc/websites/ICPER_2021_v2.pdf

[2] Estratégica, E. (2022, November 25). Chile vuelve a ser calificado como el país más atractivo para invertir en energías renovables. Energía Estratégica.https://www.energiaestrategica.com/chile-vuelve-a-ser-calificado-como-el-pais-mas-atractivo-para-invertir-en-energias-renovables/#:~:text=Bloomberg%20New%20Energy%20Finance%20public%C3%B3,India%2C%20China%2C%20Colombia%20y%20Croacia

[3] Climatescope 2023 | Results. (n.d.).https://www.global-climatescope.org/results/

[4] NATIONAL GREEN HYDROGEN STRATEGY. (2020). Ministry of Energy, Government of Chile.https://energia.gob.cl/sites/default/files/estrategia_h2_-_ingles2022.pdf

[5] Haru oni. (n.d.). https://es.hifglobal.com/haru-oni

[6] Infante, C. C. (2024, February 5). Chile’s green hydrogen odyssey: promises, pitfalls and politics. Deheza. https://www.deheza.co.uk/chiles-green-hydrogen-odyssey-promises-pitfalls-and-politics/

[7] Barriers to the implementation of a clean hydrogen economy from Green Hydrogen: the Holy Grail of Decarbonisation? An Analysis of the Technical and Geopolitical Implications of the Future Hydrogen Economy on JSTOR. (n.d.). www.jstor.org. https://www.jstor.org/stable/resrep26335.5?seq=3

[8] Minero, C. (n.d.). Cifras actualizadas de la minería. Consejo Minero. https://consejominero.cl/mineria-en-chile/cifras-actualizadas-de-la-mineria/

[9] La industria minera en 2022. Consejo Minero.https://consejominero.cl/wp-content/uploads/2023/05/La-industria-minera-en-2022-1.pdf

[10] HIDRÓGENO VERDE y SU POTENCIAL EN MINERÍA.https://imetchile.cl/hidrogeno-verde-y-su-potencial-en-mineria/

[11] Roadmap para la implementación del hidrógeno verde en la minería de Chile y Perú 2023. (2021). Corporación Alta Ley SAMMI Clúster Minero Andino.https://h2news.cl/wp-content/uploads/2023/04/ROADMAP-para-la-implementacion-del-Hidrogeno-Verde-en-la-Mineria-de-Chile-y-Peru-mar2023.pdf

[12] Keller, G. (2023, December 15). Último Reporte del Hydrogen Council Diciembre   2023 – H2news. H2news.https://h2news.cl/2023/12/15/ultimo-reporte-del-hydrogen-council-diciembre-2023/

[13] Metas de reducción de emisiones de gases de efecto invernadero de las empresas de la gran minería del cobre asociadas al Consejo Minero. (2020). Consejo Minero.https://consejominero.cl/wp-content/uploads/2020/12/Tabla-metas-CC-web-CM.pdf

[14] Compromisos para la minería verde en Chile. (2022, April 9). Cnnchile. https://www.cnnchile.com/m360/compromiso-mineria-verde-chile_20220409/

[15] CARBONO NEUTRALIDAD y MINERÍA: Carbono neutralidad al 2050, una visión y meta país con el propósito de disminuir las emisiones de gases efecto invernadero, Requiere de un esfuerzo colaborativo de los diversos sectores económicos para poder materializarla. (2020). Fundación Tecnológica.https://www.sonami.cl/v2/wp-content/uploads/2021/01/Articulo-FT-Boletin-Minero-1346_2020_12.pdf

[16] Minero, P. R. (2021, May 25). Agua de mar: un actor relevante en la minería chilena – Reporte Minero | El portal de minería en Chile. Reporte Minero | El Portal De Minería En Chile. https://www.reporteminero.cl/noticia/columnistas/2021/05/agua-mar-desalacion-mineria-chile

[17] COSTO ECONÓMICO DEL USO DE AGUA DESALADA EN LA MINERÍA CHILENA. (2017). Biblioteca del Congreso Nacional. https://www.camara.cl/verDoc.aspx?prmTIPO=DOCUMENTOCOMUNICACIONCUENTA&prmID=57905

[18] Tratamiento de Agua. (n.d.). Fraunhofer Chile Research. https://www.fraunhofer.cl/es/areas_negocio/sistemas-solares-termicos/sistemas-energeticos-termicos-inteligentes/tratamiento-de-agua.html

[19] SEA Chile. https://seia.sea.gob.cl/

[20] Keller, G. (2024, January 8). Chile cuenta con 59 proyectos catastrados por H2 Chile – H2news. https://h2news.cl/2024/01/09/chile-cuenta-con-59-proyectos-catastrados-por-h2-chile/

About the Author

Gonzalo Blumel and Lorenzo Iglesias
Gonzalo Blumel and Lorenzo Iglesias
Gonzalo Blumel is a civil environmental engineer and former Chilean minister who served as Minister Secretary General of the Presidency and Minister of the Interior and Public Security during the second government of President Sebastián Piñera. Currently, he is the general manager and founder of Susterra, a project development company focused on creating sustainable solutions in electrical generation, water desalination, green hydrogen and energy storage. Lorenzo Iglesias is an electrical civil engineer from Pontificia Universidad Católica de Chile. He is currently working for Susterra and his studies focus on green hydrogen and electrical storage initiatives.
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