Understand the race for green hydrogen and why Brazil can be a power

Understand the race for green hydrogen and why Brazil can be a power

The most abundant element in the universe is experiencing something of a gold rush. With the potential to reduce the environmental footprint of carbon-intensive sectors and leverage the energy transition process, hydrogen is seen by many as the fuel of the future, with the air of a superstar.

But it is not all types of hydrogen that excite the market. Enthusiasm is for the sustainable version — called green hydrogen — and whose production Brazil is able to lead globally.

It is that although it exists in large quantities in nature, it is rarely found in its elemental form. The extraction needs to be done from some raw material, which today is mainly of fossil origin, such as natural gas, oil or coal.

Green hydrogen (H2V), in turn, is derived from water, in an extraction process that uses renewable electrical energy to break down the molecule and separate hydrogen gas from oxygen.

According to the International Energy Agency, just replacing “grey” hydrogen with green would help save about 830 million tons of carbon per year, equivalent to the emissions of the United Kingdom and Indonesia combined.

If you consider the potential to replace other polluting fuels —in steel and aviation, for example—, the positive impact on the environment can be even greater.

The problem is that large-scale production technologies are not 100% consolidated. In addition, transporting hydrogen is challenging, as it requires storage at low temperatures and high pressure, making logistics difficult.

However, as the market is promising, companies are betting on the development of the H2V industry. At a time when the climate crisis is intertwined with the energy crisis in Europe, the race has gained a sense of urgency.

For Brazil, the sector can be an opportunity. The country is in a position to become one of the main producers and exporters of green hydrogen, due to favorable climatic conditions for the generation of solar and wind energy.

Currently, Brazil is the third country that most produces renewable energy in the world, behind only the USA and China. The high offer also places the country among the most competitive in terms of price.

A study by BloombergNEF projects Brazil as one of the only countries capable of offering green hydrogen at a cost of less than US$ 1 per kilogram by 2030. Considering the long term (2050), the figure could drop to US$ 0.55/kg.

But, to make this scenario viable, the country will need to invest heavily in the industry, something around US$ 200 billion (R$ 1.04 trillion) by 2040, according to estimates by McKinsey consultancy.

Franceli Jodas, global energy leader at the KPMG consultancy, says that Brazil has already started to move in that direction. The projects, she points out, are still pilots, but this is something that is happening globally.

“Green hydrogen is a new and very expensive technology. It is still not so competitive”, he says.

According to Jodas, it is necessary to go through a period of maturity not only in terms of the technology itself, but in terms of international market issues as well. “Everyone wants to be the big exporter of green hydrogen, everyone wants to meet Europe’s energy demands, but the fact is that we still need technological development.”

She recalls that the US launched in 2022 the so-called “Inflation Reduction Act”, a package of more than US$ 400 billion (R$ 2.08 trillion) to stimulate environmental solutions, including hydrogen. “We are talking about a geopolitical race to meet a demand from Europe, which has a strong limitation in energy production.”

Brazil’s position in the green hydrogen market

Currently, the Northeast concentrates the greatest movement around H2V in Brazil. The region wants to position itself as a production hub, due to the high potential for solar and wind energy generation, in addition to the strategic location of the ports in relation to the European market.

Ceará is the state with the largest number of projects already announced, but Bahia, Pernambuco, Piauí and Rio Grande do Norte are close behind.

According to Joaquim Rolim, energy coordinator at Fiec (Federation of Industries of the State of Ceará), the state has more than 24 memorandums of understanding made with national and foreign companies, which represents an investment signal of more than US$ 29.7 billion (BRL 154.9 billion).

“We have conditions to produce in Brazil, in the Northeast and, particularly, in Ceará, the cheapest green hydrogen in the world”, says Rolim, adding that the complementarity of wind and solar energy production is a differential factor in the region.

But it is in Bahia that the first H2V factory is being built. In July 2022, Unigel announced the project, with an initial investment of US$ 120 million (R$ 626 million). The plant will be located in the Camaçari Industrial Complex and should start operating by the end of 2023.

Luiz Felipe Fustaino, executive director of Unigel, explains that the company’s interest in the industry is in green ammonia, which is one of the by-products of H2V.

The company operates in the chemical and petrochemical sector, and is a major consumer of the compound, which today is produced mainly through the synthesis of natural gas.

After taking over Petrobras’ fertilizer factories, in 2020, Unigel became an ammonia producer and saw that it made sense to enter the green hydrogen market.

According to Fustaino, the plant in Bahia will convert all the H2V into ammonia, which can be used as a source of energy, marine fuel and for the manufacture of fertilizers and acrylics with a lower carbon footprint. However, the product can also help solve a relevant technical difficulty: transport and storage.

“Hydrogen is an extremely volatile gas. To store it, the temperature must be around -300ºC or under a lot of pressure. Ammonia is an easier product”, he says. “Then the ammonia is transported and the customer reverses the process.”

The expectation is that by the end of 2023, Unigel will already have the plant ready to manufacture the first tons of green hydrogen. The initial forecast is to produce 10 thousand tons per year, which will be converted into 60 thousand tons of green ammonia. The second phase plans to expand production tenfold.

In addition to Unigel, other companies have already taken their first steps in the H2V market. White Martins, for example, signed memorandums of understanding in Ceará, Rio de Janeiro and Rio Grande do Sul. The objective is to study the viability of projects focused on exports, as well as on application in Brazilian industry.

Shell is another with an interest in green hydrogen. In September 2022, the oil company injected BRL 50 million into a project in partnership with Raízen, USP and other organizations to develop a technology capable of transforming ethanol into green hydrogen.

Before that, in May, the company had closed an agreement for the construction of an H2V factory in Porto do Açu (RJ), with an investment of between US$ 60 million and US$ 120 million.

Regulation is the main challenge for the H2V industry

Franceli Jodas, from KPMG, points out that, although Brazil is well positioned in the green hydrogen race, it is necessary to plan for the long term, both in the regulatory scope and in promoting the industry.

She recalls that, in Latin America, other countries have already stood out, as is the case of Chile, whose government is strongly committed to this industry.

During COP 27, the UN conference on climate change in 2022, the then president-elect Luiz Inácio Lula da Silva (PT) highlighted the Brazilian potential in the face of the opportunities created by the energy transition, and mentioned green hydrogen.

For Jodas, the arrival of a government that is more sympathetic to environmental causes to power could help speed up this process. “Hydrogen is a potential new economic capacity for the country. Being able to export energy would be extremely positive”, he says.

Paulo Henrique Dantas, partner at Castro Barros Advogados, also sees a loophole in the regulatory part. “We are talking about the creation of an industry, which involves a public policy, a law that is in line with the Brazilian energy policy”, he says. “It’s not the simplest of tasks.”

One of the disputed issues, for example, is which entity will be responsible for regulating the sector. According to him, the ANP (National Agency of Petroleum, Natural Gas and Biofuels) already regulates gray hydrogen and understands that, naturally, it would be responsible for H2V.

However, Aneel (National Electric Energy Agency) controls renewable energy and plays an important role in the regulatory framework. At the same time, the use of water to produce green hydrogen brings the ANA (National Water Agency) into the discussion.

At the government level, Brazil has the National Hydrogen Program (PNH2), established in June 2022, with the aim of strengthening the hydrogen market and industry as an energy vector.

In Congress, bill 725/2022 intends to include hydrogen as an energy source in the Brazilian matrix and encourage the use of H2V. The proposal is from Senator Jean Paul Prates (PT-RN), nominated by the Lula government for the presidency of Petrobras.

According to Dantas, the urgency of creating a national policy and the market’s operating parameters is important to make the Brazilian market attractive and make more companies interested in investing in this segment. “Brazil is a natural player. We have to see what role the country will play at this moment.”

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