The role of multilateral institutions in promoting the green hydrogen industry in Chile

By David Tinel, IFC’s Regional Manager for the Southern Cone

This article was originally published in AméricaEconomía in October 2021

In the context of the COVID-19 pandemic, Chile has chosen not to neglect one of the most urgent challenges of our time: climate change. This has been demonstrated by the country’s pledge to achieve carbon neutrality by 2050 and its ambitious National Green Hydrogen Strategy. Presented in 2020, it is the starting point for a profound transformation of the productive identity of Chile and for the projection of a more sustainable and resilient post-pandemic time. In promoting the so-called “fuel of the future”, which is based on renewable energies, the private sector is called upon to play a key role, creating critical international demand and, from the supply side, promoting supply chains and fostering economies of scale.

Efforts in this direction include the launch of the Green Hydrogen Accelerator by Chile’s Energy Sustainability Agency and the recent call for bids by the local development agency Corfo to finance green hydrogen projects. The first initiative aims to encourage the use of hydrogen in various applications through the coordination of companies and institutions. The bidding process, meanwhile, aroused this year the interest of 10 local and international consortia to develop projects which would allow to monetize the country’s renewable energy potential, currently exceeding 1,800 GW.

Even with the strong Patagonian winds and the Atacama desert’s high solar exposure, embracing green hydrogen will present various obstacles. These include the technological and financial risks inherent to any incipient activity, the cost gaps of fossil fuels, and the high cost of electrolyzers — the devices that produce this emission-free fuel using electricity generated from renewable sources. Another issue is the availability of water for electrolysis processes in times of drought. In this scenario, the participation of multilateral development institutions willing to share knowledge and help navigate market difficulties appears as one possible solution.

Organizations such as the International Finance Corporation (IFC), a member of the World Bank Group and the largest multilateral institution focused on the private sector in emerging markets, have initiated conversations with the main players of this nascent industry and are observing with interest the emergence of hydrogen hubs in different regions and developing countries. In North Africa, the Persian Gulf, or Latin America, these hubs will combine the renewable energy generation with the production, transportation, storage, and local or international use of green hydrogen. By mobilizing financing and providing technical assistance from international experts, the upstream or pre-investment support of agencies can bring these initiatives to levels of a commercial operation. In the case of Chile, close collaboration between the public sector, companies, and multilateral organizations will be essential to achieve an industrial scaling-up of green hydrogen, which will generate local value in the different regions and create at least 100,000 new and more sophisticated jobs in the decades to come.

Chile is of strategic importance for the World Bank Group. In the coming months, IFC will finalize its new Country Private Sector Diagnosis for Chile, which analyzes limitations and opportunities for private sector growth and offers recommendations on reforms and interventions to catalyze private investment in a more sustainable way. At the same time, the World Bank is advising the Chilean government in the implementation of the green hydrogen strategy to enhance energy security, promote economic development, and facilitate access to clean energy for vulnerable groups throughout the nation.

Chile is prioritizing the development of the “fuel of the future” to decarbonize the most pollution-generating production sectors (such as mining and transportation), advance towards carbon-neutrality, and become the most competitive green hydrogen producer by 2030. Just like the country, multilateral agencies also look to the future while they build relationships with customers and industry leaders. All are identifying new opportunities to expand the use of hydrogen as an energy source, in line with public policies and the interests of a private sector increasingly committed to sustainability.

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IFC

IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in emerging markets.