Latin America’s Potential Green Hydrogen Economy

Clean hydrogen markets can be a key part of the economic recovery from the COVID-19 pandemic, accelerate the decarbonization of Latin America’s electricity and transportation sectors, attract investment and create jobs

The Providencia Solar company, El Salvador. Latin America counts
some of the globe’s most abundant and cost competitive renewable
energy resources including hydroelectricity, solar, and wind.
Credit: Edgardo Ayala / IPS

By Cecilia Aguillon
LA JOLLA, California, Jun 22 2020 (IPS)

The COVID-19 pandemic and crisis has led to increasing attention
and clamor to redouble efforts toward an energy transition that
would help the world reduce C02 emissions. In many countries of the
region, how to manage hydrocarbons, but with an eye on the energy
transition has only been accentuated. We believe clean hydrogen is
part of that broader policy and reconstruction debate.

Clean hydrogen markets can be a key part of the economic
recovery from the COVID-19 pandemic, accelerate the decarbonization
of Latin America’s electricity and transportation sectors,
attract investment and create jobs. Indeed, the possibilities for
oil and gas companies to produce and deliver hydrogen should
facilitate and accelerate its adoption in Latin America
particularly when combined with the region’s considerable
renewable energy upside.

As the US Energy Information Administration notes, hydrogen is
the most abundant element on the planet and the simplest.
Furthermore, the EIA underscores that “hydrogen, like
electricity, is an energy carrier that must be produced from
another substance.”

Clean energy policies with clear objectives and successful
implementation have resulted in renewable auctions that were
over-subscribed throughout the region. The policies also engendered
competition and electricity prices among the lowest in the world
all the while injecting billions of dollars of direct investment
into their economies

According to the US Department of Energy, most hydrogen today is
produced from fossil fuels, specifically natural gas, but there is
also increasing production from electricity including renewable
sources such as biomass, geothermal, solar, and wind.

With regards to technology, most hydrogen is produced through
steam methane reforming, a high-temperature process in which steam
reacts with a hydrocarbon fuel to produce hydrogen.
Electrolysis is also commonly used to produce hydrogen by
separating H2O into oxygen and hydrogen
. Hydrogen can be
compressed, liquefied, transported and used at gasoline stations to
fuel vehicles.

Latin America counts some of the globe’s most abundant and
cost competitive renewable energy resources including
hydroelectricity, solar, and wind. The elements that make the
region a world-leader in renewables can facilitate a similar
ascension for clean hydrogen production this decade. But it is
important to note that in order to spur investment, economies of
scale must be supported and enhanced through policy and market
incentive programs.

Take the photovoltaic (PV) industry. PV has demonstrated that
policies with a well-conceived implementation strategy greatly
incentivizes the market and leverages steep cost reductions.

Average PV prices in the United States dropped 89% from $359 USD
per MWH in 2009 to $40 USD per MWH in 2019
.

Over the last ten years, most countries in Latin America enacted
clean energy targets and laws that include fiscal incentives and
goals to achieve a determined percentage of their electricity mix
from clean energy sources by specific timeframes. Using a reverse
auction mechanism, solicitations were announced attracting bids
from mostly wind and solar developers.
A major energy auction in Mexico in 2017 delivered prices in the
$20´s USD per MWH.

Clean energy policies with clear objectives and successful
implementation have resulted in renewable auctions that were
over-subscribed throughout the region. The policies also engendered
competition and electricity prices among the lowest in the world
all the while injecting billions of dollars of direct investment
into their economies.

Latin America’s power sector is well-positioned to be the main
driver for a clean hydrogen boom as the pace of solar and wind
energy projects continues to accelerate. In some cases, their
intermittent nature, however, creates mismatches in the supply and
demand of electricity in the system which prompts grid operators to
temporarily shut down generation when it exceeds demand.

This reduces return on investments. Reliable and cost-effective
batteries are needed to address the problem. Hydrogen-based storage
is emerging as a technically viable and effective solution, but
more has to be done to foster a competitive industry.

According to IRENA´s
latest report on hydrogen and renewables
, the lowest average
cost of producing hydrogen from wind is $23 USD per MWH. There is
consensus that reducing the cost of storage will help maximize the
use of renewable energy generation, reduce energy imports, and
contribute to economic prosperity.

There are natural allies in this effort. Policymakers and
regulators together with power companies and renewable energy
investors are increasingly aligned with similar objectives and
goals. Latin America does not have to start from scratch; there are
important lessons from around the globe.

Clean hydrogen projects being developed in Asia, Europe, and the
United States could lead to policies, programs, and robust
industries. Lessons learned and best practices from early adopters
can be harvested and adapted to develop successful hydrogen
markets.

In Latin America, Chile could emerge as the clean hydrogen
market leader since the country has surplus production of solar and
wind electricity that could be leveraged for producing hydrogen.
The government is already developing its post-pandemic stimulus
package with a heavy focus on energy decarbonization by 2040 backed
by aggressive policies targeting growth and further deployment of
renewable energy and electric mobility.


The Energy Ministry is even working on a specific plan to develop a
hydrogen market
. In addition, the Chilean government is
enlisting the participation of its power and energy sectors to join
the effort. Chile´s success with solar and wind deployment along
with its new decarbonization strategy can be a template for
developing sustainable and robust hydrogen markets throughout the
region.

For many countries in Latin America, one of the thorniest
challenges to reduce emissions is in their transportation sector.
Even highly-touted renewable energy markets such as Costa Rica have
struggled to reduce fossil fuel consumption for transport. Hydrogen
offers an important possible solution. Indeed, hydrogen can help
decarbonize the fuel sector, most likely as a source for heavy duty
transportation such as long-haul buses and trucks, trains, ships,
and airplanes.

The current environment of low oil prices is providing many
countries relief from onerous fuel subsidies. Indeed, in some
markets such as Ecuador have begun to remove them entirely. It
could be wise to consider applying some of these savings to promote
the modernization of their public transportation infrastructure to
accommodate the use of clean fuels and by extension, support
economic development and reduction of CO2 emissions.

Moreover, national oil companies have had to shut down
refineries due to the recent drop in fuel demand caused by the
lockdowns in the fight to manage the COVID-19 pandemic. This forced
shutdown could provide an opportunity to use the time to retrofit
equipment and train workers on hydrogen fuel production.

Taking such measures in the near-term would allow for an
important step towards diversification while transitioning to clean
fuels. In some cases, oil and gas companies are able to obtain
low-cost financing in addition to having the infrastructure,
distribution channels, and know-how to produce fuels. As countries
emerge from the pandemic and review policies and stimulus packages
to reactivate their economies, governments should further consider
designing road maps that include the promotion of clean hydrogen to
decarbonize their power and transportation sectors.

Uruguay provides an example that public-private partnerships can
work towards developing a local hydrogen market and one that can
inform neighboring countries. The national oil company, ANCAP,
together with the government, the national electricity company UTE,
the Inter-American Development Bank (IDB) and private investors are
developing a
pilot project to produce hydrogen using renewable energy to power
trucks and buses, and to support green electricity through
storage
.
This is to comply with the government´s goal of achieving 100%
renewables by 2030.

In Uruguay, a comprehensive roadmap was enacted in 2010 with
clear objectives and specific milestones that includes active
collaboration of the various public agencies with specific roles to
play to achieve the target. The policy also calls for regulations
and standards that promotes the use of renewables throughout every
sector of the economy making Uruguay a renewable energy leader in
the southern cone. The inclusion of traditional energy sectors in
the hydrogen pilot project could help the country achieve its
decarbonization goal ahead of schedule.

As the example from Uruguay underscores, well-crafted policies
and successful implementation of regulations are essential to
attract foreign and domestic investments. The technology and
resources to produce clean hydrogen are available. Scaling
manufacturing to achieve cost-effectiveness is already taking place
thanks to programs to promote hydrogen throughout the world.

The current investment profile and soaring amounts for renewable
energy has shown the myriad actors and players – from Wall Street
and private equity to multilateral agencies to local and
international banks – willing to invest in renewable technologies
particularly shown by the scale of deployment levels of wind and
solar. Furthermore, the potential ability of oil and gas companies
to produce and deliver hydrogen should facilitate and accelerate
its adoption in Latin America.

Governments throughout the region should also consider direct
participation in the clean hydrogen market. By serving as
customers, governments can further support and develop critical
mass for fast adoption through investment and modernization of
state-own transportation infrastructure. Moreover, governments
should consider fiscal incentives for heavy industry and
traditional fuel suppliers to adopt the technology. Lessons learned
from developing successful renewable energy programs should inspire
political will to make clean hydrogen the next link in the chain to
achieve zero carbon economies for this generation across Latin
America.

Navigating the path forward from the COVID-19 pandemic coupled
with the persistent threat of climate change makes clean hydrogen a
possible solution for the day after and the region’s energy and
economic recovery.

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Excerpt:

Cecilia Aguillon is Director of the Energy Transition Initiative
at the Institute of the Americas in La Jolla, California

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Source: FS – All – Ecology – News
Latin America’s Potential Green Hydrogen Economy