Good fuels

Chile leads the charge of the Southern Cone towards a renewable future

South America and in particular the Southern Cone region is endowed with vast energy resources including minerals, gas, and oil. Governments across the region eagerly signed up to the Paris Agenda and are placing increasing emphasis on moving to greener renewable fuels to reduce their reliance on crosser border imports of liquified natural gas (“LNG”). In Chile, president-elect Gabriel Boric has made the issue a top policy priority.  

At some point however, ambitious targets must meet the reality of whether the infrastructure exists to advance climate objectives and move towards net-zero emissions. Wind and solar alternatives, in particular, are being pursued with vigour in the region, but they are expensive and technically complex.  

Argentina has doubled its wind energy capacity since 2019. In neighbouring Brazil and Chile there have been significant increases in investments in solar energy. Further investments in wind and solar power will depend not just on the quality of energy infrastructure but also legislatures convinced that it is infrastructure worth investing in. Critical to its national economic output, Chile’s energy infrastructure has been heavily invested in and modernised – it is cutting edge, efficient and globally competitive. Other challenges will make attainting green targets difficult. These include financing costs, the lure of cheaper energy alternatives and overly complex regulatory frameworks. This in turn will impact on the investment in, and development of, projects and the more widespread use of biogas, biomethane and hydrogen in these economies. 

According to an energy developer in Chile, it is common knowledge that Chile has important advantages for the development of a relevant green hydrogen industry. The most important of these advantages is access to non-conventional (“clean”) renewable energy sources such as solar energy in the north of the country and wind energy in the south. The generation costs of both energies have been reduced in recent years, allowing this type of project to proliferate, and become widespread. Generation costs in Argentina and Brazil however remain high – sometimes prohibitively so.   

The developer commented that, “The Magallanes area in particular, where the new green hydrogen plant will be located, has two important advantages: the region benefits from strong winds for the operation of wind generators, and the area has an established energy industry along with a skilled workforce who have experience and technical expertise in energy matters.” 

“The Magallanes area in particular … has two important advantages: … strong winds .. and … an established energy industry.”

Executive, Energy Developer, Chile

Neighbouring Argentina and Bolivia also have access to abundant sources of renewable energy. As the cost of producing energy from these sources and the cost of green hydrogen generation technology decline over time, more countries have access to generating green hydrogen, and geographic advantages are likely to be less relevant than political and social factors.

Ultimately, political and regulatory restrictions will affect comparative advantages or disadvantages between countries more than geological factors.”

Executive, Energy Developer, Chile

The developer elaborated, “This situation is comparable to that of the mining industry, in which many more countries have mineral reserves but will not develop them on a global scale. Ultimately, political and regulatory restrictions will affect comparative advantages or disadvantages between countries more than geological factors.” 

Ultimately, Chile should serve as a model to the rest of the region – the dream of a renewable future requires investment, but it also requires political unity and an electorate of the view that their taxes are being well spent. This will be harder to achieve in Brazil and Argentina where tight fiscal conditions may lead politicians to regard green investments as a less pressing priority.  

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