The region’s energy, manufacturing, and transportation industries could undergo a revolution thanks to green hydrogen, which would turn it into a global center for the so-called “energy vector of the future.” However, there are certain significant obstacles to its ongoing deployment that must be considered.
Green hydrogen is establishing itself as a strategically significant option in Latin America and the Caribbean as part of the region’s energy transformation and decarbonization of the electricity generation grids (LAC).
The key to this technology is its cross-sectoral use in the fields of manufacturing, transportation, and energy, which enables the region to establish itself as one of the world’s major production centers for the so-called “energy vector of the future.” However, there are certain significant obstacles to its ongoing deployment that must be considered.
If LAC is to make the transition to green hydrogen and take advantage of its natural conditions, there are problems that must be resolved in the areas of capability, institutions, technology, market, and financing. Let’s look at each one separately.
The first challenge is to close the capacity and knowledge gap
In order to effectively manage a well-articulated and developed project planning and execution ecosystem in alignment with each country’s energy plans and decarbonization targets, government agencies, financial institutions, and project developers should improve their technical capabilities (understanding technology solutions, their risks, and their potential for value creation).
Challenge 2: The development of green hydrogen projects necessitates a rapid deployment of the available renewable energy
Up to 50% of the installed generation capacity in each nation is made up of green hydrogen projects based on electrolysis powered by renewable energy. As an illustration, Chile aims to have a 5 GW electrolysis capacity by 2025, a 25 GW capacity by 2030, and nearly twice as much new renewable energy capacity using a 2:1 ratio. MW These infrastructure projects need to be developed and implemented, which will take much more work and fresh resources from both the public and private sectors. With 1 GW planned for 2022, Chile has been investing quickly in renewable energy production each year. By 2030, the investment level will have to climb fivefold. Chile currently has a 10.4 GW variable renewable energy (wind and solar) capacity.
The third difficulty is that projects to fill domestic demand cannot be created in isolation
The need of creating whole ecosystems (such as “hydrogen valleys”) has been highlighted by successful commercial-scale (several MW) green hydrogen project development examples. These projects have shown how to reduce technical and financial risks while creating redundant demand. As a result, projects that will be created during the stage of market maturity (2022–2030) should work to incorporate a variety of consumers of the hydrogen generated throughout the planning and structuring phases. In turn, this will assist in locating various revenue streams to lower the investment risk. The manufacturing sectors are therefore excellent candidates for creating ambitious commercial pilots.
The necessity to close the financial gap is challenge number four
Access to long-term funding becomes crucial given the size of the investments necessary for major green hydrogen projects. Both long-term financing and direct equity investment should be taken into account by these systems. The use of hedging tools, ideally through concessional financing or hedges issued by nations importing green hydrogen, as well as the monetization of the environmental and external advantages emerging from these projects, will be crucial. Successful pilot projects and technical capacity-building initiatives in financial institutions will aid in overcoming this obstacle.