Argentina is set to impose a requirement that green hydrogen project developers source a significant portion of their equipment from the country in order to receive subsidies.
The draft hydrogen bill presented to Argentina’s lower house proposes that at least 35% of project equipment should be sourced domestically, with the percentage increasing over time. However, the lack of local manufacturing capacity for electrolyzers and renewable energy equipment poses challenges to meeting these requirements.
The news of the local content requirement has raised concerns among stakeholders in Argentina’s hydrogen industry. With the country heavily dependent on equipment imports, achieving the proposed percentages of domestic sourcing could be problematic. Importing electrolyzers and other renewable energy components, which are not yet produced locally, makes reaching the 50% target challenging. Critics argue that the high percentage poses practical difficulties and may hinder the development of a viable hydrogen supply chain in Argentina.
The draft bill does not explicitly specify whether the local content rules apply solely to electrolyzers or the entire supply chain, including the renewable energy equipment used to power the electrolyzers. This lack of clarity further complicates the implementation of the requirements. While Argentina has some solar PV manufacturing capacity, it currently lacks significant electrolyzer manufacturing capability and wind turbine component manufacturing capability, despite existing tax breaks for projects using local content.
To incentivize hydrogen developers, the bill proposes significant tax breaks for projects that meet local content requirements. It includes tax-free collection of revenues from green and pink hydrogen projects for ten years and a low initial tax rate for blue hydrogen projects. Additionally, projects could be exempt from import taxes on equipment for ten years. However, after the tax-free period, export duties on green hydrogen and its derivatives will gradually increase.
Access to foreign currency remains a significant bone of contention in the bill. While the energy minister has indicated that the bill would allow free access to foreign currency, the proposed rules suggest that developers would only be able to retain 50% of their export revenues in foreign currency. This limitation, along with strict currency controls in Argentina, has raised concerns. Developers, such as Fortescue Future Industries (FFI), have expressed concerns over currency access and have called for a special rate of foreign currency exchange for green hydrogen developers.
Argentina’s draft hydrogen bill introduces ambitious local content requirements for green hydrogen projects. While the aim is to foster domestic manufacturing and support the development of a robust hydrogen industry, the lack of existing electrolyzer and renewable energy equipment manufacturing poses challenges. Concerns are being raised regarding the feasibility of meeting the proposed percentages and the potential impact on project viability. The bill’s provisions for tax breaks and access to foreign currency also remain points of contention. As the bill progresses through the legislative process, further discussions and consultations with industry stakeholders will be crucial to strike a balance between supporting local industry and promoting investment in Argentina’s hydrogen sector.
