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Chile’s economy decarbonization process is underway. The country has no hydrocarbon reserves and has limited hydro resources. It has historically relied on imported oil, natural gas and coal to meet its energy needs. However, its Atacama Desert has the best solar radiation in the world while the extreme south has the strongest wind onshore. As a result, Chile already generates more than 20% of its electricity using solar and wind power. In this context pursuing the production of green hydrogen using renewable electricity resources has been embraced by the government and in 2020 issued “The National Green Hydrogen Strategy of Chile” which has both a medium- and a long-term vision.
This strategy relies on the abundance of renewable resources and ample private sector participation: Concentrated solar power, solar photovoltaic, on-shore wind and run-of-river, may allow Chile to produce the cheapest green hydrogen on the planet once the technology, infrastructure and regulatory challenges are taken care of — including financing and acceptance by the community at large.
The technology is currently being tested with multiple pilot projects with public and private funding to provide incentives for the production, delivery, and use of green hydrogen. They are expected to be fully tested by 2025 for local consumption, with the first phase providing:
- Green hydrogen to replace the gray hydrogen — from hydrocarbon processes that emit CO2 — currently used by refineries and the chemical, cement and steel industries.
- Derivatives of green hydrogen such as methanol to replace diesel in heavy-duty transportation in mining activities, and in long-distance transportation via buses, trains, and heavy-duty trucks.
- Green ammonia to produce explosives and fertilizers.
A large part of the challenge in scaling up the production of this new fuel for the local and international market is the development of a regulatory framework that provides certainty and transparency for its whole value chain. Green hydrogen production, storage, transportation and distribution, and end users need reliable rules for the investors, operators, consumers, and communities surrounding these facilities. To incentivize reducing emissions and local demand of renewables including green hydrogen, Chile already has a carbon tax of $5.00/ton of carbon dioxide which the government is planning to increase to $35.00/ton of carbon emissions.
A new law on energy efficiency (Law 21.305) has now defined “green hydrogen” as a fuel, rather than the previous definition — “a dangerous extremely flammable element” — that was used when green hydrogen was regulated by the Health Ministry. In addition, Law 21.505, approved November 2022, included hydrogen storage to be used as a backup for the electric system, to manage the intermittency of renewable power generation. As a result, the Ministry of Energy is the entity responsible for this new fuel and its strategy implementation. It has designed a calendar with three phases with the purpose to adapt existing regulations and design new ones to facilitate the development of this new energy vector:
First Phase 2020-2023 to elaborate the rules to make green hydrogen, its specifications and delivery.
Second Phase 2024-2027 to prepare the rules for hydrogen transport by pipeline networks, technical and safety requirements in coordination with the Ministries of Transportation and Mining.
Third Phase 2028 forward to prepare regulations for handling hydrogen in port facilities in conjunction with the Ministries of Transportation and Defense.
One critical objective is to have an efficient and simplified regulatory framework where the operators can benefit from submitting their project environmental requirements to one agency; the “one window concept,” through which all required permits would be handled with the pertinent agencies in an expeditious manner.
Financing is available from multilateral and international organizations as well as the government which has provided grants to industry participants with pilot projects. Memorandums of Understanding (MOUs) for technical, financial, and commercial support have been signed with international agencies and organizations around the world. At the same time Chile has developed the mechanisms for consultation with local communities about the impacts they may experience due to the location of these plants and the use of renewable energy sources.
Chile’s northern region has already developed competitive solar generation, and desalinization plants, and has a vibrant mining sector with the national copper company Codelco and multiple private operators. This environment is promising for the development of a green hydrogen ecosystem. As highlighted in this report this region already has multiple pilot projects in various phases. Hydrogen exports could start with ammonia, for which ships are available, and later include liquid green hydrogen once technical, safety, and cost issues are resolved.
Given the progress it has made on incorporating renewables into its energy matrix, Chile is on the way to meeting its climate goals — but the urgency to develop green hydrogen to further reduce carbon emissions in mining operations, heavy-duty and long-distance transportation, and agriculture, remains.
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