Hydrogen Development in Latin America
Varying Scenarios for Chile and Paraguay
As climate change continues to threaten economies around the globe, it has become evident that governments must rapidly develop concrete plans for restructuring their economic systems to achieve net-zero emissions. One of the most promising conduits of clean energy in the renewable energy sphere is green hydrogen. Hydrogen is also the most plentiful element on Earth, meaning that it has a comparative advantage over every other energy source in terms of its availability. Among the world’s regions, Latin America is uniquely positioned to become a prime green hydrogen producer given its abundant renewable energy resources. Catapulting Latin America to be a world leader in green hydrogen production will require investment, national and international support, appropriate policies and regulations, human capital development, and a coordinated effort to simultaneously boost hydrogen supply and demand.
As the world’s eyes recently zeroed in on the UN Climate Change Conference (COP27) in Egypt, the impacts of climate change on human security have become undeniable. The change in climate patterns highlights the necessity for energy alternatives that limit carbon emissions. Not only is clean energy beneficial in reducing overall greenhouse gas emissions, but it also reduces exposures to social, environmental, and political vulnerabilities that are associated with fossil fuel trading.
While hydrogen alone may not serve as a replacement for energy from gas or coal, it can be a primary catalyst in the transition to low-carbon economies and the crux for heavy industries like mining and long-distance transportation to leveraging more renewable energy.1 These industries could greatly benefit from hydrogen since its combustion does not produce carbon emissions, and the lighter weight of stored hydrogen fuel offers heightened efficiency and a greater range of transport. In addition to helping specific industries reduce their greenhouse gas emissions, hydrogen also has the potential to serve as a tool for entire countries to transition toward net-zero.
At a time in which developed nations are competing for emerging technologies and renewable energy sources across the world, Asia, Europe, and the United States are well positioned to partner with Latin American hydrogen producers to expedite hydrogen development in the region. Individual countries can draft and tailor their hydrogen strategies to leverage advantages in value chains, technological capabilities, human capital, and infrastructure. In Latin America, green hydrogen—hydrogen gas produced using renewable energy sources, such as wind, solar, and hydropower—in particular offers a myriad of opportunities to accelerate both emissions reductions and the economic development of countries in the region. This brief focuses specifically on Chile and Paraguay, two countries with strong potential but significantly different contexts that can represent distinct green hydrogen development paths and strategies.
Betting on the Future
In recent years, green hydrogen has emerged as a possible mitigator to the global energy crisis. In Latin America, the release of the 2020 Chilean National Green Hydrogen Strategy led to an accelerated regional interest in the hydrogen industry. Although the novelty of the industry creates a series of challenges and uncertainties, it also offers opportunities for innovation and a chance for countries in Latin America to capitalize on the industry. Latin America has strong green hydrogen potential, but realizing that potential requires navigating a complex market in which, among many challenges, supply and demand will need to evolve simultaneously. The question of supply and demand resonates with actors in the green hydrogen market; would-be suppliers are uncertain about a market for their outputs, and prospective consumers are uncertain about the availability of hydrogen to meet their needs.
Latin America has strong green hydrogen potential, but realizing that potential requires navigating a complex market in which, among many challenges, supply and demand will need to evolve simultaneously.
The main challenge to green hydrogen production is cost. Presently, the most cost-effective hydrogen production uses fossil fuels without carbon capture, but this approach does not address underlying environmental, political, and social problems surrounding the use of nonrenewable resources. In contrast, green hydrogen is produced using electricity that is generated from renewable resources, which is considerably more desirable from a sustainability perspective. Because green hydrogen requires electrolyzer technologies, storage capacity, supply transport, and other highly specialized infrastructure, initial investment costs are very high. The three most important factors affecting the production cost of green hydrogen are the capital expenditure of electrolyzers, the initial investment in infrastructure, and the availability of human capital to carry out production.
First, it can be argued that the largest barrier to entry for hydrogen production is the price of electrolyzers. Alkaline electrolyzers and polymer electrolyte membrane (PEM) electrolyzers vary in cost, with the former being cheaper. PEM electrolyzers, however, can start faster than alkaline electrolyzers and are more efficient if used in conjunction with solar and wind. This is because, aside from the base cost of the electrolyzer itself, there are additional operational expenditures that include the cost of renewable electricity needed to run the electrolyzers that split water into hydrogen and oxygen. The price of electrolyzers, according to estimates, can amount to 60–80 percent of the operational cost; however, exact costs of electrolyzers are difficult to establish. Recent estimates from the International Energy Agency suggest the cost of an installed electrolyzer—which is the highest entry cost for hydrogen development but not the only one—currently sits between $1,400 and $1,770 per kilowatt (kW). This can be compared to the cost of other renewables, such as the installed cost for onshore wind, ranging from around $926 per kW to $1,892 per kW, or solar, at approximately $857 per kW.
Second, in addition to the capital expense of electrolyzers, there is additional investment needed to cover the cost of building the necessary infrastructure for a successful green hydrogen market. This includes storing and transport facilities, infrastructure to expand renewable energy production, pipelines, fueling stations, port terminals, cross-border infrastructure, and delivery infrastructure. For instance, countries like Chile and Paraguay are attractive for green hydrogen production because they have access to low-cost renewable electricity. However, to obtain sufficient electricity, the countries will need to significantly scale up their renewable energy production, and building the infrastructure for scaling up has a high entry cost that investors need to consider. Another example of entry cost barriers is the infrastructure needed for distributing hydrogen to a nationwide network of hydrogen fueling stations—required for the widespread use of hydrogen fuel cell electric vehicles—which is costly and still in its early stages.
Third, Latin America lacks the necessary human capital to develop the green hydrogen industry. A new hydrogen economy will require engineers, technicians, and operators with specialized training and certifications that are not commonplace today. Current green hydrogen projects in Latin America depend heavily on foreign scientists and engineers, adding another layer of cost to production. Lack of necessary human capital is prevalent across countries; however, smaller countries like Paraguay have an acute need for greater capacity development. Lack of in-country capacity, or potential capacity development, is an obstacle that most of the time translates into higher production costs and, ultimately, a pricier product.
Due to the nascency of hydrogen development in Latin America, and the issues mentioned above, investors face an asymmetry of information in the emerging hydrogen economy. For many investors, this is commensurate with high risk, something that is not as prevalent when investing in other renewables. Investment risk also increases in the absence of regulation. Currently, there are no common international standards for the safety of transporting and storing large volumes of hydrogen. A clear challenge arises for governments and industry to develop sound standards and regulations that will not overwhelm the sector with stagnating regulatory and bureaucratic barriers. The United States and Japan, for example, have made significant strides in conceptualizing regulatory frameworks to ease investors’ minds and increase capital in the sector. Comprehensive regulations for hydrogen production, storage, and transportation are needed not only to meet safety and technology standards, but also to reduce market uncertainty and protect the public.
For green hydrogen to become competitive with traditional energy resources there needs to be large-scale demand—a market big enough to lower the cost of hydrogen technology and a demand large enough to lower the costs of storage and transport infrastructure. Unfortunately, current demand varies widely by sector and country, making it difficult to predict. In Chile, demand for green hydrogen will likely come from domestic adoption in the industrial sector, long-range transportation, and exports. In Paraguay, it is still unclear whether demand will be driven by internal consumption, exports, or both. Developing and incentivizing demand will be imperative for the industry to prosper. This section examines the potential demand from key sectors.
The industrial sector holds great potential for near-term use of green hydrogen within Chile. According to Chile’s green hydrogen strategy, the country’s first phase will aim to replace imported ammonia with local production and to replace gray hydrogen with green hydrogen in industries such as oil refineries, heavy machinery, and long-range transportation.2 The shift to green hydrogen will be particularly impactful in sectors such as mining, where fleets will generate concentrated demand. In the short to medium term, Paraguay’s main use of green hydrogen will not be in its industrial domestic sector, mainly because the industry consumes only about 2 percent of petroleum derivates, and the environmental impact of this sector is not significant enough to warrant the costs associated with an energy transition.
Part of Latin America’s demand for green hydrogen is likely to come from the transportation sector, given that the region’s transportation industry is a significant source of carbon emissions. In Paraguay, about 94.5 percent of the consumption of petroleum derivatives comes from the transportation sector, with Chile’s oil consumption also concentrated in the transportation sector (along with industrial use). Developing the infrastructure and technology needed for generating a new transportation system, which will focus on heavy loads and long-range transport, is projected to take anywhere from five to ten years in Chile. In Paraguay, the domestic use for green hydrogen will also likely be in the transportation sector, including in railroads, maritime, and river transportation. There are plans to bring zero-emission hydrogen passenger vehicles for long-distance passenger and commercial travel; however, these plans are still at pilot scale and it is uncertain if small and developing countries are a viable market.
Intraregional and global demand for green hydrogen will be a key determinant for the development of the industry in Latin America. However, potential markets for green hydrogen are still developing, making it difficult for Latin American producers to have a clear indication about the future of the green hydrogen export market. As of November 2022, there are no operational green hydrogen projects focusing on exporting Chile’s or Paraguay’s green hydrogen; yet, these countries do have projects under development that would include green hydrogen to export. Out of almost 30 hydrogen development projects in Chile, only around 11 are considering exports, while in Paraguay, two of the four green hydrogen projects under development are considering exports.
For the green hydrogen industry to scale significantly in Latin America, hydrogen will need to become a globally commoditized resource. Chile’s size and economy will allow the country to kick-start green hydrogen production by generating its own demand, but it will eventually need to expand production toward exports. Paraguay, on the other hand, may rely more heavily on exports to kick-start its green hydrogen industry. Paraguay’s territory is almost three times smaller than Chile’s, has a GDP that is over eight times smaller, and does not have significant industrial or mining sectors, making it unlikely that it will be able to kick-start the hydrogen industry only with demand for internal consumption.
The difficulty of predicting future export demand is an important barrier for the growth of the green hydrogen industry, as the end uses of hydrogen—and plans for future hydrogen use—vary across countries. Looking broadly at industries and projected hydrogen demand, the greatest potential could be in the transportation sector, in power generation, and—if the right policies come into place—in the industrial sector, including refineries, steel production, and the chemical industry.
Countries in Europe and Asia are some of the more likely candidates to become importers of Latin America’s green hydrogen. Chile has already signed a green hydrogen agreement with EU ports, and companies from Belgium and France, among other countries, are investing in Chile’s green hydrogen production. In Paraguay, the United Kingdom’s ATOME Energy has two green hydrogen projects under development for the transportation sector, feedstock, and exports.
A potential catalyst for demand could be the Japanese, South Korean, and German auto industries, which are betting on hydrogen fuel cell electric vehicles. The increased use, or commitments for use, of green hydrogen and/or clean ammonia to reduce carbon emissions from fossil fuel–based power generation could also signal to producers that scaling up green hydrogen could be a viable investment. Finally, when it comes to industrial use, if there is a significant reduction in the price of green hydrogen in the medium term, current industries using hydrogen from nonrenewable sources could also be potential markets for hydrogen. If green hydrogen is to become competitive in the medium term, countries could look at national carbon pricing or emissions trading policy as possible tools that could indirectly, and over time, create demand for green hydrogen imports.
The next section discusses incentives and enablers that could ease investor’s hesitation to fund green hydrogen projects. Greater incentives for hydrogen production in Latin America will also lead to a faster reduction of green hydrogen production costs, which would be a win-win for consumers and producers.
Opportunities and Enablers
Policy Incentives from Partner Countries
Countries seeking to invest in climate and energy in low-income countries can have an immense impact on the development of the green hydrogen industry. The right policies can signal to potential investors, consumers, and local governments that green hydrogen projects are sensible and that there is a potential market. Policy actions in Europe, Asia, the United States, and other developed markets could help ease market entry barriers, such as high costs of electrolyzers, uncertainty about green hydrogen’s technical performance, and the risk of investment in a young industry.
As an example of such actions in the United States, the Inflation Reduction Act of 2022 (IRA) provides $369 billion to clean energy and climate solutions. The IRA, combined with the Infrastructure Investment and Jobs Act, will support the development of low-carbon hydrogen markets in the country, lower the cost of electrolyzers and other technologies, generate low-carbon hydrogen demand, and provide a testing ground for the emerging industry. Other initiatives, such as the Net Zero World Initiative, the Clean Energy Ministerial, and Mission Innovation, are important for supporting developing countries in a wide range of pertinent issues, from infrastructure and investment analysis to workforce development. It is important to note that the developed countries’ policies to incentivize local hydrogen production need to be carefully implemented so as to avoid unintended consequences—such as distorting the market with subsidized exports that could make Latin America’s green hydrogen less competitive.
In Asia, Japan has been a pioneer in hydrogen policy. In 2017, the country issued the world’s first national hydrogen strategy, a step that has been followed by numerous countries, including 11 countries in Latin America. The Japanese government also provides robust funding for research, development, demonstration, and deployment. Japan is positioning itself as an end user in a broad set of industries and has tested various options for sourcing hydrogen. These initiatives are highly beneficial for the development of clean hydrogen in the developing world, particularly in Latin America where there is the strong potential for cost-effective green hydrogen.
An example of policies that can bolster green hydrogen development is the European Union’s ambitious target for green hydrogen use in the RePowerEU plan. Within its strategy, the European Union is not only aiming to produce 10 million tons (Mt) of green hydrogen by 2030, but also planning on importing the same amount from producers that meet their standards. Policy actions like these ones send a clear signal to emerging markets that producing green hydrogen is a good investment. Policymakers across the world need to weigh policy decisions carefully and consider both the positive and negative impacts for partner countries.
Decarbonization as a Global and National Priority
Paraguay and Chile, along with another 194 parties, have signed the Paris Agreement. This international treaty is playing a significant role in shaping public policies in Chile and Paraguay, particularly in the development of green hydrogen, because of its potential to fill existing gaps in their decarbonization strategies. For instance, Chile’s comprehensive green hydrogen strategy was designed around meeting the Paris Agreement’s targets and is expected to trickle down regionally, incentivizing the formation of a Latin American hydrogen hub. Paraguay is also making it a public policy priority to support green hydrogen development, and its government is putting the finishing touches on a green hydrogen bill that is expected to be introduced to its congress in March of 2023.
In addition, multilateral institutions like the World Bank, the International Finance Corporation, and the Inter-American Development Bank (IDB) have deployed capital and technical assistance in several Latin American countries to support the development of the green hydrogen industry. During COP27, Chile signed an agreement with the World Bank and the IDB to promote a green hydrogen initiative in the country. The World Bank is also working on a green hydrogen facility framework to counter investment aversion in the Chilean green hydrogen economy and to support the regulatory framework. Instruments like this can promote the development of green hydrogen by designing and establishing risk-sharing mechanisms, mobilizing commercial finance, and contributing to the strengthening of the enabling environment.
Finally, there are numerous regional initiatives supported by official development agencies and multilateral institutions. In November 2021, H2LAC was launched to promote cooperation and exchanges among different stakeholders and to accelerate green hydrogen development. These regional cooperation initiatives, combined with individual country commitments to green hydrogen development, are laying the foundation for Latin America to become a key player in the global green hydrogen industry.
Developing clean hydrogen in Latin America can also assist in enhancing regional energy security. A transition to green hydrogen would help reduce the countries’ current level of dependence on fossil fuel imports if the hydrogen fuel is domestically produced. A more diversified energy supply mix makes these countries less vulnerable to the volatility in fossil fuel markets that could lead to physical supply shortages. As Russia’s ongoing invasion of Ukraine demonstrates, the high-level costs associated with green hydrogen can be offset by Latin America’s secure access to domestic renewable resources and reduced exposure to fossil fuel−related geopolitical turmoil, although the region cannot be insulated from other risks, such as disruptions to hydrogen production component supply chains and sea lane security for hydrogen transport. To illustrate, hydrogen obtained from unabated natural gas before the Russian invasion of Ukraine was around $1.0–$2.5 per kilogram of hydrogen. After the conflict erupted, hydrogen production costs from natural gas increased up to three times the 2021 rates. Additionally, hydrogen fuel cells can provide resilience to the region’s energy system by storing excess energy, helping countries that experience frequent blackouts (like Paraguay) to manage power supply and demand, and assisting countries like Chile in their efforts to leverage excess wind and solar.
Natural Resources, Projected Cost Decreases, Increased Demand, and Other Enablers
According to International Energy Agency 2022 Global Hydrogen Review, hydrogen demand could reach around 115–130 Mt by 2030, compared to about 94 Mt in 2021. However, hydrogen use is still expected to remain in traditional industries—or industries that are already using hydrogen. Yet, as the green hydrogen industry develops, Bloomberg New Energy Finance predicts that green hydrogen may outcompete gray hydrogen by 2030 and blue hydrogen by 2050, thus setting the stage for the demand of green hydrogen to rise drastically as well.3
The demand for green hydrogen is projected to increase, and entry costs are also likely to fall. The capital expenditure for hydrogen production is particularly high because electrolyzers currently sit between $1,400–$1,770 per kW. Yet, downward trends are expected to continue making electrolyzer systems cheaper and more accessible, with some estimates projecting that by 2030 the costs would fall to $440–$500 per kW. The operational expenditures of hydrogen development vary widely across industries; however, once operational, hydrogen production is also expected to be cheaper—some estimate green hydrogen production costs, including operating requirements for a more stable hydrogen supply operational expenditures could fall below $1.5 per kilogram by 2030, in regions with abundant wind, solar, and hydropower in the region.
Green hydrogen development in Chile faces many of the same challenges discussed above: market entry costs are high, a specialized workforce will need to be trained, specific policies and regulations are still developing, the technology and production methods remain untested, and there is uncertainty about internal and external demand. Yet, one of the biggest challenges the country faces is securing the necessary investment to begin production at scale. Securing private investment is always challenging for new industries, but in the case of the green hydrogen industry in Chile, securing early private investment will be one of the biggest determinates for the success of the industry. In the competition for green hydrogen development, early adopters that can produce at scale, and therefore at a lower cost, will have a comparative advantage and will be more likely to create a successful long-term industry.
Within the next 20 years, the green hydrogen industry in Chile will need to mobilize billions of dollars, and while countless studies project a decrease in the cost of electrolyzers and production during this period, early investing remains too risky for most private capital. To achieve adequate levels of investment, public investment is imperative, but even when Chile is one of the wealthiest countries in the region, it will still not be able to provide enough capital to encourage the necessary private investment. Therefore, the support of multilateral organizations and international cooperation is necessary to position Chile’s green hydrogen industry as a viable commercial operation. Organizations like the IDB and the World Bank are already mobilizing financing and providing technical assistance.
The support of multilateral organizations and international cooperation is necessary to position Chile’s green hydrogen industry as a viable commercial operation.
During COP27, the World Bank launched its new Hydrogen for Development Partnership (H4D), which, among other things, will create a green hydrogen facility to reduce private investment risks. Facilities like this one will offset entry costs by partially financing electrolyzers, providing or financing technical assistance, supporting the development of appropriate regulatory and safety frameworks, and using other risk-sharing mechanisms to mobilize commercial finance. Blended finance structures, which bring together public funds, multilateral funds, official development aid, and private investment, will be necessary to position Chile as a leader in the hydrogen industry.
Chile’s commitment to climate action is an extremely important factor for success. The country updated its Nationally Determined Contribution (NDC) in 2020, pledging to become a net-zero emission country by 2050. At the end of 2020, the Ministry of Energy also launched the National Green Hydrogen Strategy, which outlines the country’s path toward becoming a domestic user of green hydrogen within the next five years, and an exporter in the next decade. In addition, the Chilean State Development Office (Corfo) has been attracting foreign investors into public-private partnerships in the hopes of making Chile the largest global exporter of low-cost hydrogen by 2040. In May 2022, Corfo signed agreements with three companies to fund industrial green hydrogen production that aims to eventually double the current total global production. This deal alone includes a $1 billion investment and a promise of an additional 45,000 tons of hydrogen per year. The significant existing government buy-in makes green hydrogen investment less risky and brings credibility to Chile’s future as a low-carbon hydrogen exporter.
Chile’s geography and natural resources are perhaps the most important enablers for green hydrogen development. In the north, Chile has powerful solar radiation; winds in the south are powerful and, unlike most other countries, they blow at the same strength on land as they do off-shore; and the country has significant hydropower capacity. The high availability of clean energy resources positions Chile in a clear strategic advantage in terms of energy inputs to obtain clean electricity that can be distributed to feed electrolysis processes for green hydrogen production. In fact, the country’s renewable energies represent about 43 percent of the installed capacity, with 69 percent coming from hydroelectric plants. The solar and wind power sectors are also maturing quickly: in the past five years, the country has increased its generation capacity five-fold, and 70 percent of the power grid is expected to be renewable by 2030.
Other advantages in the production of green hydrogen are in the existing infrastructure and industries. Chile is already using gray hydrogen in industries such as oil refineries, meaning that it is technically and financially feasible for the country to replace this with local green hydrogen. Chilean industry also uses imported ammonia, which could also be replaced by domestic green ammonia in the short term. Chile’s ability to generate its own demand for green hydrogen is essential for scaling production. This is especially true considering the large mining sector in the country, where transportation and mobility tasks bear the bulk of the industry’s environmental costs regarding carbon dioxide emissions. The internal demand for green hydrogen looks promising, not only because the government is committed to providing incentives, but also because the mining industry is committed to supporting Chile’s carbon reduction strategy. Chile’s copper mining sector has committed to quadrupling the share of renewable sources in its electricity consumption by 2023. Industry demands for cleaner sources of energy—coupled with government incentives and public-private financing schemes—can make the domestic demand for green hydrogen a short-term reality.
From the solar power in the Atacama Desert, to the strong winds in Magallanes, Chile’s unique endowment of natural resources makes the country a very attractive prospect for investment. The country is poised to produce some of the cheapest green hydrogen in the world, and by 2030, green hydrogen’s cost per kilogram is expected to be between $1.30 and $1.80, making it competitive with fossil fuels such as natural gas. Nonetheless, the South American country is still a long way from its goal of $5 billion in capital investment by 2025. In fact, in 2022, the International Renewable Energy Agency published a report with the average annual funding potential available for hydrogen projects during 2021 and 2030. In the report, Chile lags far behind other countries, including Spain, Poland, and Portugal. It is clear, therefore, that more investment is necessary to push this market past the threshold of nascency.
Paraguay has enormous hydrogen potential, largely thanks to its significant hydropower production, which almost comprises its entire energy production matrix. Hydropower is not only a renewable source of green hydrogen, but also the cheapest and most consistent. Paraguay’s impressive hydropower electricity generation also means much of the required infrastructure for hydrogen production is already in place, as is the access to water needed for electrolysis—both ideal conditions for prospective investors and for a stable transition of the energy sector. In addition, the reliability of hydropower—where assets are controllable and predictable months in advance—makes Paraguay uniquely suited to carry out projects that demand long-term consistency for investors, without major drawbacks for the country’s electricity balance.
With all its potential, Paraguay faces immense challenges as it tries to develop the industry. The country’s landmass and GDP size are important factors for the technical feasibility of developing a scalable green hydrogen industry, which is a prerequisite to becoming competitive in the industry. The human development index of Paraguay presents an important challenge for justifying a massive investment in an industry that, despite its potential, remains untested and risky. The country has ambitions to create green hydrogen demand, particularly in the transportation sector; however, considering the enormous costs associated with generating internal demand and developing production, the country will need to secure considerable investment. Although in the future Paraguay’s long-distance transportation systems, including maritime and fluvial systems, might unlock green hydrogen demand, it seems more feasible to develop the export industry first in order to secure foreign investment for developing the industry.
Despite the challenges, Paraguay’s government is determined to use green hydrogen to reduce its emissions. For instance, the Paraguay National Development Plan 2014–2030 is committed to reducing the national consumption of fossil fuels by 20 percent before 2030—targets repeated in the 2016 NDC and in the country’s even more ambitious National Energy Policy 2040 decree. The Paraguayan Vice Ministry of Mines and Energy is similarly committed to working with international investors and partners to meet and even exceed the Paris Agreement goals. While Paraguay’s government is clearly determined to develop a green hydrogen industry, the country is missing key ingredients: investment, infrastructure, human capital, and internal demand.
The most consistent source of fossil fuel consumption in Paraguay is the transportation sector (approximately 93 percent), which also represents more than two-thirds of Paraguay’s global warming potential via greenhouse gases by 2050 if not decarbonized. In addition, imported fuels cost the country about $1.3 billion per year, which increases the country’s foreign exchange risks, making fossil fuel prices a significant destabilizing force in the Paraguayan economy. In this context, producing hydrogen fuel through hydropower and using fuel cell technology for long-distance transport in the country could have a significant benefit, both economically and environmentally.
Currently, the most profitable investment is exporting hydrogen, in part thanks to existing hydroelectric infrastructure that could be utilized for hydrogen production at very little cost, and to the existing system of hidrovias that could be utilized to transport hydrogen to Chilean or Brazilian export points and capitalize on lower shipping costs to international markets. In fact, even though Paraguay has only recently initiated its policy efforts, it can benefit from its proximity to Chile and Brazil, especially regarding electrolyzer cost reduction, lower export costs, industry knowledge, and potential for coordinating regional policies and regulations.
Despite the challenges Paraguay faces, there are green hydrogen projects in development. In November 2021, the Canadian company NeoGreen Hydrogen announced an investment of $500 million to build a green hydrogen development plant together with Paraguay’s National Electricity Administration. The project is still under development. Other projects under consideration include the Israeli company Seven Seas Energy Limited’s proposal and the United Kingdom’s ATOME Energy, which is planning two projects in Paraguay and has begun purchasing land.
Although Paraguay is not often recognized as a major hydrogen contender, some investors are willing to bet on the South American country. Paraguay’s strength, much like Chile’s, is one that leans on the reliability and availability of its renewable energy sources, which are needed to kick-start the green hydrogen market. The Paraguayan green hydrogen roadmap identifies the transportation sector as the main market for green hydrogen use. In terms of exports, however, there is no clear indication as to whether Paraguay could become a prime player in the international market. If Paraguay is able to follow its hydroelectric exports—which in 2018 totaled around 42.2 terawatt-hours—with similar hydrogen exports, the country would be in great standing. Currently, Paraguay looks at Asia as a potential destination for its hydrogen but, given the uncertainty regarding green hydrogen demand and costly production, more research is needed to assess the feasibility of this endeavor.
Although Paraguay is not often recognized as a major hydrogen contender, some investors are willing to bet on the South American country.
What Comes Next
- Regional Cooperation. Green hydrogen development is still a nascent industry with a plethora of challenges. Countries in Latin America that hold potential for green hydrogen development must recognize the importance of collaboration in mitigating uncertainty. These countries must develop multilateral partnerships that share industry best practices and business models, as well as foster capacity building and regulatory solutions that can be standardized across the region. Existing collaborations, such as H2LAC and the H4D, will need to be bolstered. These initiatives will need to encourage countries to develop better cooperation mechanisms, so that instead of being simply competitors, countries can coordinate efforts and work jointly to fill vacuums. It will also be important that these initiatives lead governments to develop similar standards and regulations across the region, making it a more attractive source of green hydrogen for potential importers.
- Global Knowledge Transfer. Potential producers in Latin America could greatly benefit from creating partnerships with countries that have a more advanced hydrogen industry. Latin American countries should seek to learn from the experiences of others and explore potential models for production that could be tailored for each country’s individual context. Australia is a prime example of a country that could serve as a knowledge proliferator. Australia faced an initially low domestic demand for hydrogen, so it focused on exports to nearby countries and relied on foreign investment for the development of its hydrogen industry. Additional examples include U.S. plans for developing hydrogen hubs to create networks of hydrogen producers and consumers, greater connectivity, and the infrastructure needed to accelerate the use of hydrogen. Countries in Latin America could benefit from creating hubs, particularly if neighboring countries cooperate and work together to create more robust hubs. In addition, countries interested in buying green hydrogen from Latin America could take a leadership role in establishing knowledge-sharing mechanisms, expert exchanges, education programs, and other forms of technical assistance. These partnerships can facilitate knowledge sharing at every level, including during initial feasibility studies, supply chain and industrial development, the creation of enabling regulatory systems, and workforce development.
- Innovative Financing. The use of development, public, or philanthropic financing to mobilize private capital, or blended finance, and perhaps even models such as green impact bonds, will be essential for the development of the green hydrogen industry in Latin America. Capital from regional governments, international financial institutions, foreign development agencies, and other nontraditional actors like foundations will be needed to de-risk investment and incentivize private capital investment. As mentioned throughout this brief, institutions such as the World Bank and the IDB are already putting these mechanisms in place; however, there is still a huge financing gap that will need to be covered by potential importers, official development assistance, regional governments, and the private sector.
- Public Policies in Latin America. Policymakers play an integral role in easing investors’ fears and fostering a stable environment for hydrogen development. Decisionmakers must begin by understanding the potential environmental, social, and economic benefits of hydrogen production for their respective constituencies and then produce hydrogen-specific legislation that reduces investment risks, addresses the uncertainties of the market through regulation, and creates avenues for manufacturing and supply chain development. Creating legislation is the first step, but another key aspect will be implementing policies appropriately. Policy implementers can look at partner countries, regional experts, and industry to design an implementation framework that provides optimal regulations, standards, and incentives. Lastly, governments must not underestimate the importance of public support for the development of the industry. A clear communication strategy will inform the public and leverage support for government efforts.
- Investment in the Future. A new hydrogen economy will require engineers, technicians, and operators with specialized training and certifications that are not commonplace today. Colleges and universities in Latin America should engage with the private sector and potential investors to create the curricula and programs necessary to develop a clean hydrogen workforce, and they should also make sure to establish internationally compatible certifications to enable future collaboration and human capital transfers. An early investment in workforce development could prevent supply bottlenecks in the future and perhaps even attract end-use industries that require a specialized workforce.
- More Research. For Paraguay and other countries relatively new to green hydrogen, there are still a lot of questions. Policymakers seem committed to developing the industry, but further studies and pilots may be needed. Several studies mentioned throughout this paper have analyzed the potential for the use of green hydrogen in Paraguay’s transportation sector. However, research on the viability of Paraguay becoming a green hydrogen exporter is scarce, and although decarbonizing the transportation sector is imperative for Paraguay’s net-zero emission goals, it is unlikely that Paraguay could develop its green hydrogen industry relying only on internal demand.
Ryan C. Berg is the director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Juliana Rubio is the program manager of the CSIS Americas Program.
The authors would like to thank Jane Nakano, senior fellow with the CSIS Energy and Security and Climate Change Program, Morgan Higman, former fellow with the CSIS Energy and Security and Climate Change Program, and Fausto Posso Rivera, director of the Science, Technology, and Innovation graduate program at the University of Santander, for sharing their expertise during this project; Rubi Bledsoe, program coordinator with the CSIS Americas Program, for her editorial work; and Martina Silva, former Americas Program intern, for her research support.
This project was made possible with support from the Japan International Cooperation Agency (JICA). The CSIS Americas Program is grateful to JICA for its support.
CSIS Briefs are produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2022 by the Center for Strategic and International Studies. All rights reserved.
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