Chile tops up green hydrogen fund to $1bn and pledges to protect producers against certain 'financial risks'
Development agency adds $250m to the $750m in loans it has already bagged from European and American banks
Chile will open a $1bn fund aimed at de-risking green hydrogen projects in the second half of 2024, after its national development agency added $250m to the funding it has secured from international banks, the Chilean government announced yesterday (Monday).
The extra cash from state development agency Corfo, which will also run the so-called PFCH2V facility, tops up $750m in previously-agreed loans from the European Investment Bank (EIB), German state-owned bank KfW and US-based lenders the World Bank and International Development Bank (IDB).
Chile is expected to be one of the top ten green H2 producers in the world by 2030 owing to a combination of strong wind and solar resources in the country’s north and south. And in last week’s announcement of EU finance toward the fund, European Commission president Ursula von der Leyen hinted that the bloc would be a ready customer for exports from the region.
The country has built up a pipeline of around 40 projects, but progress has been slow owing to lenders’ reluctance to back green hydrogen projects due to the fledgling sector’s high risk, particularly in the absence of offtake agreements.
PFCH2V will provide long-term financing on favourable terms, as well as “coverage against financial risks”, according to finance minister Mario Marcel.
The fund will be open to both local and international companies developing green hydrogen projects within Chile’s borders.
While the exact mechanism of support for projects is yet to be published by Corfo, a World Bank document seen by Hydrogen Insight suggests that the agency will use its loan to provide sub-loans to green hydrogen projects and related facilities (such as upstream renewable energy and water processing) at preferential rates for up to 40% of the total capital cost of an electrolyser system.
It will also finance reserves to cover potential non-payments throughout the supply chain or technical deviations in the plant’s expected performance.
Local reports previously indicated that the government was planning to open this fund with a budget of around $728m, with an extra $50m of secured funding meant to subsidise six projects that won government backing at the end of 2021.
The government confirmed the following finance behind the fund:
- $150m loaned from the World Bank
- $400m from IDB
- $100m from KfW
- $109.67m from EIB
- $16.45m from the EU’s Latin America and Caribbean Investment Facility
- $830,000 for “technical assistance” from the EU — although it is unclear whether this is the first part of a promised $8m announced last week
- $250m from government development agency Corfo
This adds up to just under $1.03bn, although it is unclear whether the difference from the $1bn budget will cover previous subsidy commitments or just administration costs.
Corfo’s executive vice-president José Miguel Benavente added that the fund will also support the use of H2 in the domestic mining and agricultural industries.
Chile’s mining sector currently uses grey ammonia produced from fossil gas — both of which the country primarily imports — to produce ammonium nitrate explosives.
In addition, green H2 could be used to make low-carbon fertilisers.
Corfo has already opened a program to co-finance up to 60% of the cost of projects demonstrating the use of hydrogen in local industries, with a budget of 3.5bn Chilean pesos ($4.4m), due to close to applicants this August.
The PFCH2V fund is also expected back local manufacturing of components and equipment such as electrolysers. However, details on whether companies seeking to access the fund for any of these three purposes will be subject to rules such as local content requirements have not been released.