Over the last two years, three green hydrogen megaprojects worth US$37 billion have undergone environmental assessment, which would generate around 19,000 jobs across their different phases.
The initiatives by HNH Energy, Total Energies H2, and AES Andes, located in the Magallanes and Antofagasta regions, bring two central issues to the national table, one immediate and the other long-term: how effective and rapid can the environmental approval of a project be without harming the territories, and what is Chile’s long-term vision for strategic projects?
Specifically, the Ministry of Finance submitted a bill to the Chamber of Deputies that goes straight to the heart of the emerging green hydrogen industry. The initiative proposes a US$2.8 billion tax incentive for companies that purchase green hydrogen or derivatives from local producers, providing a credit against first category tax.
The proposal includes a special tax framework for producers of this fuel who establish themselves in the Magallanes Region. This is due to the coexistence of at least three different tax regimes in the area, which is one of the most sought-after territories for hydrogen projects given its natural characteristics.
“It’s a very good sign,” says Marcos Kulka, executive director of the Chilean Hydrogen Association (H2 Chile), about the passage of the law. In September, the association will hold the Hyvolution 2025 conference, where the key issues facing this sector will be discussed.
How does the Association view the introduction of the bill to promote the green hydrogen industry?
An interesting point is that US$2.8 billion of this total fund could be allocated to promoting local demand. Today, it is very necessary to give a boost in the early stages. Chile has renewable resources and plant factors, both wind and solar, which is what will enable us to produce hydrogen and its derivatives in the most competitive way possible in the future.
However, at this stage, when we need to test the technology and enable regulation and these new markets, it is essential to have a tax incentive, as other countries do. It is an interesting instrument because, although it is the producer who will carry out green or renewable production, it is transferable to the consumer and is therefore directly linked to demand.
The project states that the award will be based on a “competitive auction.” How does this work?
There are several auctions taking place around the world, for example in Europe, Korea, and Japan. Very recently, auctions have been held in India for ammonia, which have been at very competitive prices compared to gray ammonia. This gives projects a boost in terms of more competitive prices and securing off-takers. Once you have these, you can achieve the long-awaited FID (Final Investment Decision).
In our view, it is interesting because it fills an important gap: local demand. It also accelerates the regulation needed for domestic use, and in doing so, allows you to make a purchase commitment. For example, these 10-year auctions generate the entire chain up to the FID, which is what investors need today.
Over the last two years, large green hydrogen projects involving high levels of investment have been submitted to the Environmental Assessment Service (SEA). Considering the timeframes for environmental assessment and the scale of the initiatives, how feasible is it that they will see white smoke in the long term?
We are aware of all the complexities involved in these projects, from observation and from what is beginning to emerge. But we do need to be more agile in terms of permit processing.
We have the reform of sectoral permits, which promises to reduce processing times by between 30% and 70%, and we obviously need Law 19,300, which would also include certain modifications to make this more agile, starting with an early commitment.
If we agree between civil society and the territory, the public and private sectors in the early stages of participation, and we want the projects to be developed, we need to have some form of initial commitment that may undergo some modifications, but that ultimately ensures that the projects will indeed be developed.
Are you interested in Argentina’s RIGI, a program that encourages these large investments? Or do you need regulatory changes?
They are not mutually exclusive. One might tend to think that there are projects that are strategic. Chile has developed an action plan in this regard. First, a government strategy was developed, followed by a public-private action plan, which was an effort I had never seen before. Ultimately, it is about identifying which of these challenges are shared by the public-private sector and civil society.
Therefore, if they are strategic, I would think that it is not that they have to be less demanding, but rather that we all agree that we want these projects to succeed.
Brazil too, as we can see with the Arauco project, which ultimately went ahead and generated an investment of US$4.6 billion, because the federal government and the municipality where it will be located are helping the project to get off the ground. Not by giving it more freedom and neglecting the environment, but because they know that it is strategic and generates employment, well-being, and improvements in infrastructure and services.
The country can have that strategic vision and decide which projects it wants to implement to achieve its strategic goals. For Chile, it is clear that we have no fossil fuels, no oil, no gas, no coal, and we have to move towards developing renewable energy and everything that renewable energy can bring us.
Considering the signals from the government and the various green hydrogen projects underway, do you think Chile is on track to achieve its goal of carbon neutrality by 2050?
There is one thing we need to continue advancing: land use planning. In other words, we need to have well-defined baselines in the territories, clarity on where the projects are located, and what each of them can do.
Chile lacks this strategic environmental assessment. Progress must be made in land use planning in the various critical areas where these projects are to be implemented.
That is progressing, but it needs to be much faster. While projects are being developed and those baselines are not in place, well… we will have to do it with the best information available, which is largely provided by the private sector through its projects. The task ahead is to streamline that portfolio of projects, which also generates growth and employment in areas that need that revival.
Broadly speaking, we are very interested in the government leaving this industry as enabled as possible, so that it can then be deployed to its full capacity by the next government.
Source: La Tercera.