Brazil & Southern Cone - September 2023

From oil to minerals and trees, Brazil has been blessed with plenty of natural resources that have fuelled numerous economic boom and bust cycles throughout its history. Now, Latin America’s largest economy may embark on another resource-based boom, only this time a much cleaner and sustainable one.

Thanks mostly to large hydropower plants such as Itaipu, renewable sources have long made up the bulk of the country’s energy matrix. But with cheap wind and solar farms having mushroomed in recent years, renewables now make up nearly 90% of the country’s electricity. That means that Brazil will soon have excess capacities of renewable energies that it can use to produce green hydrogen, which is made by splitting water with the use of electrolysers powered by solar or wind energy.

In order to help develop the nascent industry, the government on 24 August launched a 2023-25 hydrogen roadmap laying out its policies, incentives, and targets. The outlined objectives include access to financing from development banks, a certification process that ensures the hydrogen really is green, as well as increased investment in research and development.

The plan to make Brazil the largest and most competitive producer of green hydrogen in Latin America by 2035 may sound far-fetched, but it is actually entirely feasible, based on comparative advantages and the existing pipeline of investments. According to the mines and energy ministry, green hydrogen projects worth US$30bn are already underway.

Industry media Hydrogen Insight counted 42 such projects. The biggest are situated around three maritime ports: Porto de Suape in Pernambuco state, Complexo Industrial Portuário de Pecém (CIPP) in Ceará state, and Porto do Açu in Rio de Janeiro state. Australia’s Fortescue is looking to invest US$6bn into a hydrogen plant at CIPP that would produce 837 tonnes of green hydrogen per day. France’s Qair is to invest US$6.9bn in a hydrogen plant at Suape and an offshore wind farm at CIPP.

There are reasons the three ports are emerging as hydrogen hubs, beyond the obvious transportation infrastructure they offer. The southeast, specifically Rio de Janeiro state, harbours the bulk of the country’s heavy industry, which is to be decarbonized by hydrogen. Meanwhile, large parts of the semi-arid northeast have steady winds, lots of sunshine and are relatively close to Europe, which is shaping up to be one of the biggest clients for green hydrogen from South America.

EU investments

The European Union (EU) has promised investments of €2bn (US$2.16bn) in green hydrogen in Brazil, following a landmark meeting between European Commission president Ursula von der Leyen and Brazil’s President Luiz Inácio Lula da Silva in Brasília in June. The Lula administration is currently working on a framework law for the hydrogen industry.

According to Bloomberg New Energy Finance (BNEF), Brazil last year had the lowest levelized cost of hydrogen among 28 leading producers, using onshore wind and western alkaline electrolysers. By 2030 that cost is projected to fall to US$1.47 per kilogram from US$4.50 currently. BNEF estimates that shipping costs to Rotterdam would also be cheaper from Brazil than from major producers such as Australia, Chile, or the United Arab Emirates, with the exception of Canada and Colombia.

Rotterdam

The Port of Rotterdam, which hopes to become the gateway to Europe for the global hydrogen market, is heavily invested in Brazil with a stake in CIPP and the hydrogen projects in and around its port.