Green hydrogen could be the key to reindustrialization – 06/29/2023 – Folha Seminars

Green hydrogen, a fuel obtained from renewable energy sources, could be the key to reindustrializing Brazil and inserting the country into the new global economy based on the transition to low carbon.

The theme was debated at the Sustainable Energy in Brazil seminar, held on Wednesday (28), by Sheet with the support of Órigo Energia, and Banco do Nordeste.

The fuel has numerous applications, such as replacing fossil sources in transport and industry, helping to meet the climate goals set out in the Paris Agreement, which aims to prevent the average temperature from rising above 1.5ºC.

Among the Brazilian states, Ceará is the one with the highest number of planned projects. According to Governor Elmano de Freitas (PT), 30 memorandums of understanding have already been signed with national and foreign companies, with an indication of investments above US$ 30 billion (R$ 145.7 billion). Of these, there are three pre-contracts already signed, in which the forecast investment is US$ 8 billion (R$ 38.8 billion).

Freitas stated that the Northeast has the potential to produce green hydrogen in a volume greater than what Brazil can consume. This condition transforms the country into a fuel exporter, in addition to opening up a new, cleaner energy matrix for domestic industry.

“The challenges to advance in this production are in regulation, in credit and in a differentiated treatment in the tax reform, which needs to understand that the theme is strategic”, he said.

The state is also considering including micro and small generators in the supply of solar energy for green hydrogen projects. The idea is to start with a generation pilot in rural settlements, so that the energy produced meets household consumption and the surplus can be sold to companies that intend to produce the fuel.

According to the governor, this would be accompanied by a training project for around 100,000 young people. “The distributed generation can be a way out of Bolsa Família and form a new middle class in the interior of the country.”

The global demand for green hydrogen creates opportunities for Brazil to attract investments in the order of US$ 200 billion (R$ 971.5 billion) by 2040, according to a study by McKinsey consultancy.

The country is competitive due to the favorable cost of generating energy from clean sources — since energy accounts for 70% of the cost of producing green hydrogen.

Demand from the domestic market alone, which should represent 60% of the total, could generate, by 2040, revenues of US$ 15 billion to US$ 20 billion (R$ 78.8 billion to R$ 97.1 billion).

Exports to the US and Europe could add another US$4 billion to US$6 billion (R$19.4 billion to R$29.1 billion), according to McKinsey.

“This market will be boosted over a ten-year horizon”, says Senator Cid Gomes (PDT-CE), who chairs the Senate’s special commission for debating public policies on green hydrogen. There is also a commission in the Chamber of Deputies discussing the issue.

According to Gomes, the three main demand fronts will come from the foreign market, especially the European one, which is looking for substitutes for Russian natural gas. Then will come the domestic market, especially for the production of fertilizers, and the industry that seeks ways to mitigate its emissions.

The creation of a regulatory framework to regulate the production of green hydrogen should proceed quickly in both houses, in agreement with the Executive.

The expectation, said the senator, is that by the end of the first half of 2024 the regulation will come out, as well as for offshore wind farms, which should further increase energy production to supply future fuel factories.

“We are not late. Not even Europe, which will be the first major customer of Brazilian green hydrogen, has ready-made regulations. The important thing is that we are in tune,” he said.

Financial support for the creation of a production chain for green hydrogen in Brazil should come from various sources of capital, the so-called “blended finance”.

In 2022, the BNDES launched a program to encourage pilot projects for the production of low-carbon hydrogen, with a combination of three support instruments: the Climate Fund, which finances projects for the generation and distribution of renewable energy from R$ 10 millions; and BNDES Finem Meio Environment and Finem Inovação, credit lines aimed at innovation and sustainable technologies. Subsequently, the bank should expand the support lines.

One inspiration is the success of the industry linked to wind power generation in Brazil, which was boosted from the 2000s by the bank’s requirement that wind projects have a percentage of equipment manufactured in the country. This caused this production chain to develop in the Northeast.

“The idea is to expand resources, maintaining the ‘blended finance’, in order to have a competitive cost of capital and leverage the necessary investments”, said Guilherme Arantes, manager of the energy transition and climate area at the BNDES.

Brazilian projects must also count on the support of the World Bank. In 2022, at COP 27, the UN conference on climate change, in Egypt, the agency launched the H4D program, to promote the low-carbon hydrogen market in developing countries.

The initiative provides for partnerships to catalyze public and private financing, and, in Brazil, agreements have already been signed with the government of Ceará, Absolar (representative of solar energy generation) and CCEE, the electricity trading chamber.

“The initiative respects the policy that each country has in relation to the production of low-carbon hydrogen. In Brazil, we want to promote a venture capital fund for the Northeast region”, says Carlos Costa, senior energy economist at the World Bank.

Talks are also advanced with the Economic Development Secretariat of the State of São Paulo.