EU can invest in green hydrogen in Brazil; understand – 06/13/2023 – Market

The president of the European Commission, Ursula von der Leyen, announced this Monday (12) an investment of 2 billion euros (about R$ 10 billion) in green hydrogen in Brazil. The statement was made shortly after a meeting with President Luiz Inácio Lula da Silva (PT), in Brasília.

“I am delighted that we are launching another Global Gateway project on green hydrogen. With this, Europe will invest €2 billion [R$ 10,5 bilhões] to support the Brazilian production of green hydrogen, promoting energy efficiency in its industry”, he said at the Planalto Palace.

Von der Leyen also stated that the European Union has the objective of importing 10 million tons of renewable hydrogen, every year, under the so-called European Green Deal. She said it is possible to build a transatlantic clean hydrogen market.

The remarks came amid Von der Leyen’s four-country trip to Latin America on Monday to strengthen political and commercial ties that the European Union admits it has neglected. Since Russia’s invasion of Ukraine, the European Union has been looking for “like-minded” partners to provide other sources of trade and essential minerals needed for its green transition and help reduce its dependence on China.

Hydrogen is seen by many as the fuel of the future, especially in its sustainable version —called green hydrogen—, whose production Brazil is able to lead globally.

Learn more about this form of energy.

What is green hydrogen?

Although it exists in large quantities in nature, hydrogen is rarely found in its elemental form (pure hydrogen), but rather linked to other elements, such as in water (formed by two atoms of hydrogen and one of oxygen) or in petroleum ( where it is bonded to various other elements such as carbon, nitrogen, etc.)

Hydrogen extraction needs to be done from one of these raw materials. Today it is mainly made from fossil fuels, such as natural gas, oil or coal, a less sustainable technique.

Green hydrogen (H2V), in turn, is derived from water and extracted using renewable electrical energy to break down the molecule and separate gaseous hydrogen from oxygen.

What is the environmental impact of using green hydrogen?

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.

Why is fuel still not used on a large scale?

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.

Why does Brazil have advantages in this production?

Because the country has 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.

How much do you need to invest for this production?

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.”

Does Brazil already have investments in green hydrogen?

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.

With Reuters