Understand the green hydrogen rush and why Brazil can be a powerhouse

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 industries and capitalize on the energy transition process, hydrogen is seen by many as the fuel of the future, with the air of a superstar.

But it’s not all types of hydrogen that excite the market. The 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 must be done from some raw materials, which today are 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 the hydrogen gas from the oxygen.

According to the International Energy Agency, simply replacing ‘grey’ hydrogen with green would help save around 830 million tonnes of carbon a year, equivalent to the emissions of the UK and Indonesia combined.

When considering the possibility of substituting other polluting fuels, for example in steel and aviation, the positive impact on the environment can be even greater.

The problem is that large-scale production technologies are not 100% established. Furthermore, the transportation of hydrogen is challenging, requiring 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 acquired a sense of urgency.

For Brazil, the sector can be an opportunity. The country is poised to become a leading producer and exporter of green hydrogen, thanks to favorable climatic conditions for solar and wind power generation.

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

A study by BloombergNEF projects Brazil as one of the few countries able to offer green hydrogen at a cost of less than US$1 per kilogram by 2030. Looking at 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 sector, something around $200 billion (R$1.04 trillion) by 2040, according to estimates by consultancy McKinsey.

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

“Green hydrogen is a new and very expensive technology. It’s not that competitive yet,” he says.

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

Remember that the United States launched in 2022 the so-called “Inflation Reduction Act”, a package of more than 400 billion dollars (R$ 2.08 trillion) to stimulate environmental solutions, including hydrogen. “We are talking about a geopolitical race to satisfy a demand from Europe, which has a severe 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 pole, due to the high potential for generating solar and wind energy, as well as the strategic position of the ports with respect to the European market.

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

According to Joaquim Rolim, energy coordinator of FIEC (Federation of Industries of the State of Ceará), the state has more than 24 memoranda of understanding signed with domestic and foreign companies, which represent an investment signal of more than 29.7 billion dollars ( BRL 154.9 billion).

“We have the conditions to produce in Brazil, in the northeast and, in particular, 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 is expected to be operational by the end of 2023.

Luiz Felipe Fustaino, executive director of Unigel, explains that the company’s interest in the sector 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 mainly produced through the synthesis of natural gas.

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

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

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

The expectation is that by the end of 2023 Unigel will already have the plant ready to produce the first tons of green hydrogen. The initial forecast is to produce 10,000 tonnes a year, which will be converted into 60,000 tonnes of green ammonia. The second phase plans to increase production tenfold.

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

Shell is another interested in green hydrogen. In September 2022, the oil company injected BRL 50 million into a project in collaboration with Raízen, USP and other organizations to develop technology that can transform ethanol into green hydrogen.

Earlier in May, the company closed a deal for the construction of an H2V factory in Porto do Açu (RJ), with an investment of between 60 and 120 million US dollars.

Regulation is the main challenge for the H2V industry

Franceli Jodas, from KPMG, points out that while Brazil is well positioned in the green hydrogen race, long-term planning is needed, both in the regulatory environment and in the promotion of the sector.

Remember that, in Latin America, other countries have already distinguished themselves, as in the case of Chile, whose government is strongly committed to this sector.

During COP 27, the 2022 United Nations climate change conference, 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 coming to power of a government that is more attentive to environmental causes could help speed up this process. “Hydrogen is a potential new economic capability for the country. Being able to export energy would be extremely positive,” he says.

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

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

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

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

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 comes from Senator Jean Paul Prates (PT-RN), nominated by the Lula government to preside over Petrobras.

According to Dantas, the urgency of creating a national policy and market functioning 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 the moment.”

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