The World Bank has agreed to lend Chile $150mn to promote investment in green hydrogen projects as international efforts to unlock the country’s potential as a low-cost producer gather pace.

The loan comes after the Inter-American Development Bank in early June approved a $400mn loan to support Chile’s green hydrogen industry, while European Commission president Ursula von der Leyen visited the country for the first time to launch two joint initiatives aimed at growing the industry.

“Chile has exceptional attributes for developing a competitive green hydrogen industry given its renewable resources and ability to attract investment in large-scale clean energy projects,” says Carlos Felipe Jaramillo, World Bank vice-president for Latin America and the Caribbean.

“The country has the potential to become a major global player in this industry” Jaramillo, World Bank

“The country has the potential to become a major global player in this industry, and this project can serve as a model for other Latin American and Caribbean countries,” he adds.

Chile expects to produce the lowest-cost hydrogen in the world by 2030 and to be among the world’s top three hydrogen exporters by 2040, according to the World Bank.

Chile's National Green Hydrogen Strategy estimates the industry could generate up to $330bn in private investment opportunities and $30bn in exports by 2050.

Chile’s potential as a low-cost producer is based on its wind, solar and hydropower resources. A hydrogen strategy set by the previous government in 2020 included a target of $1.5/kg production costs and 25GW of capacity by 2030, and an interim capacity target of 5GW by 2025. But these targets look out of reach given the slow progress through planning by many projects. The geographical location of wind and solar power generation also poses challenges in blending the two power sources to optimise the use of electrolysers, some developers say.

Project pipeline

The list of proposed projects has grown rapidly over the last two years. Last year, the country awarded a combined $50mn of funding to the first six projects with a combined electrolysis capacity of 386MW, which are obliged to come online by 2025. FIDs have yet to be taken.

Gulf Energy Information’s Global Energy Infrastructure (GEI) hydrogen database is tracking 22 projects, three of which are operational, with the rest at various stages of planning or at the proposal stage. Enel’s Faro del Sur project in Patagonia is by far the largest successful project, consisting of a 300MW windfarm and a 240MW electrolyser, making hydrogen to be used by a third party to produce carbon-neutral e-fuels

In addition to Enel, international developers active in Chile include Italy’s Enel Green Power, which is involved in several projects, Germany’s RWE, France’s Engie, Danish investor Copenhagen Infrastructure Partners and Japan’s Sumitomo, GEI data shows.

The World Bank’s latest loan follows a frenetic period of international relationship-building by Chile as it looks to unlock its green hydrogen potential, with international buyers keen to lock in future supplies.

The European Commission’s latest joint initiatives, launched in early June, are worth €225mn ($244mn). The projects cover technical assistance and creation of a fund that will directly finance green hydrogen production.

“This is one of the most important projects that we can undertake together,” von der Leyen says. “This Renewable Hydrogen Fund, here in Chile, will support the development of this strategic industry. It will create good jobs in the country and boost its renewable hydrogen exports to the world and, of course, also to its partners, such as the EU".

Germany has been particularly active in building ties with Chile to try to secure future hydrogen supply at competitive costs. The two countries formed an energy partnership in 2019 that has included green hydrogen since 2021. At the state level, the northern German port city of Hamburg last year signed a memorandum of understanding with the Chilean government to promote green hydrogen trade flows.

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Author: Stuart Penson