The world has been discussing green hydrogen and its potential for global decarbonization. In fact, the context for the development of new power and carbon-neutral technologies, such as hydrogen, is intrinsically related to global warming and the pressure for countries to commit to reducing their greenhouse gas emissions, vis-à-vis the Paris Agreement.
Hydrogen has become a strategic priority for the energy and climate policies around the world, not only as an energy carrier, but also for enabling energy storage. Due to these properties, hydrogen can not only be used directly as a low or zero carbon energy source, it also allows for the energy sector to play an important role in other hard-to-abate sectors, such as transportation or heavy industries. In connection with energy storage, it enables greater entry of variable renewables, such as wind and solar, into the grid.
Several countries have put hydrogen feasibility initiatives in place, aiming at the post-pandemic economy recovery and supporting energy transition.
When it comes to hydrogen, although there are a couple of alternatives for its production, one of the “cleanest” processes is the electrolysis of water with electricity generated by low-carbon power sources, i.e., the use of renewable electricity to break water molecules into hydrogen and oxygen.
Brazil is particularly well-positioned to be a major hub for green hydrogen development, given its abundance of natural resources (mostly hydro, solar and wind). For example, after hydrogen was named in the German Hydrogen Strategy in 2020, the Brazilian Ministry of Mines and Energy (“MME”) and Germany have begun to implement activities for the identification of possibilities for hydrogen cooperation, especially regarding the supply of green hydrogen to meet Germany’s future demand.
Although the production processes and industrial uses of hydrogen are somewhat consolidated, the broader use of hydrogen-based energy projects will require more investments in research, development, and innovation, creating business opportunities for players willing to make this move.
The implementation of new technologies and the development of the infrastructure of production, storage, transportation, and distribution of hydrogen have been under study not only by the Brazilian Government, but also by scholars of Brazilian universities in partnership with international development agencies.
Moreover, several companies in the Brazilian automotive sector, both in the gas and energy industry, have also started developing solutions and products related to hydrogen.
In February 2021, the Brazilian National Energy Policy Council (CNPE) declared hydrogen as one of the priority topics for research and development in Brazil, and in August the Brazilian Government launched its National Hydrogen Program, aimed at putting together a legal and regulatory framework for the energy use of hydrogen and to provide regulatory stability.
Such momentum has generated a favorable business environment, engaging several agents for the development of the hydrogen market. Even though a specific regulatory framework has not yet been established, given the significant competitiveness of variable renewables in Brazil (especially wind and solar), foreign investors and partners have shown a special interest in developing green hydrogen in the country, while local governments have been fostering the creation of hydrogen hubs.
These hubs focus on the development of projects for hydrogen export, directly or indirectly, in the form of ammonia and methanol. For example, the Government of the State of Ceará, a natural resource state in Northeastern Brazil, has put together a working group to develop public renewable energy policies for sustainable development and for the establishment of the green hydrogen hub at the Pecém Complex (CIPP S/A), a local port industrial complex and logistics hub.
This has led several companies, such as Enegix, White Martins, and Fortescue, to enter into memoranda of understanding with the Government of the State of Ceará to explore the on-site hydrogen hub, with investments expected at USD 6 billion, while EDP has already invested BRL 42 million in a pilot project for the construction of a hydrogen plant at the Pecém Complex.
The State of Pernambuco has done something similar in Port of Suape, a major public port in the Northeast, denoting that those port and industrial complexes may be key to the development of a successful hydrogen market, as competitive logistics costs and export processing infrastructure will play an important role for hydrogen export. Moreover, Port of Suape has started granting tariff discounts for green hydrogen fueled vessels.
The French Qair Brasil has been negotiating with Suape the installation of a hydrogen plant amounting to USD 3.8 billion in investments, potentially in addition to a hydrogen plant in Ceará.
Brazilian developer Casa dos Ventos, which operates a renewable portfolio of projects amounting to 30 GW of installed capacity, has also announced investments in hydrogen: at the beginning of November 2021, it entered into an agreement with Nexway Eficiencia (controlled by the Brazilian group Comerc Energia) to invest up to USD 4 billion over the next 10 years in green hydrogen projects, including the construction of hydrogen distribution generation facilities.
These moves evidence that, when it comes to investing in hydrogen-focused energy transition, taking advantage of Brazil’s abundant and diverse energy resources (such as wind, solar, hydroelectricity, nuclear, ethanol, natural gas, biogas and other biomass) may be decisive to a successful business strategy.