Laura Souza, Gabriel Rapoport Furtado, Ana Clara Gemeinder de Mendonça and Fernanda Quiroga.
Introduction
Global concern regarding the acceleration of the foray of renewable and sustainable energy sources in the energy matrix has contributed strongly to the rise of the green hydrogen (Green H2) market. To the same extent, the number of working groups and initiatives aimed at the promotion, production, distribution, and export of green H2, such as the green h2 hubs, is growing
The goal of the hubs is to enable the use of green hydrogen as a new source of sustainable energy, concentrating private and governmental efforts (local and international) in the definition and implementation of effective policies: partnerships are formed with a view to sharing expertise, technology, and resources that allow the installation of projects supplied with clean energy in strategic locations.
Several countries have mobilized to develop preliminary and feasibility studies in order to effectively implement innovative projects aimed at the production and/or export of green H2. We highlight below some countries that deserve special attention in the development of these projects, in addition to similar initiatives in Brazil and practical aspects of the viability of hubs. A brief summary of relevant international experiences may also be accessed in our Electronic book Green Hydrogen heating up.
The international experience
An important project in Europe is the hydrogen hub in Hamburg, Germany. It arose with the signing of a letter of intent between the giants Shell, Mitsubishi Heavy Industries, Vattenfall, and Wärme Hamburg. In order to enable large-scale green hydrogen production and decarbonization of the energy system and base industries by 2025, the feasibility study for this project includes the transformation of a coal-based plant to the production of green hydrogen with an initial potential of 100 MW, fed by photovoltaic and wind plants.
Also in Europe, the Dutch government estimates that the green hydrogen sector has regulations similar to the electricity and natural gas sectors. The country is conducting research for the use of existing gas networks for the transportation of hydrogen, connected to neighboring countries. This structural advantage is expected to highlight the Netherlands as a relevant hub in north-western Europe.
In the UK, the North of Scotland Hydrogen Programme at the Port of Cromarty Firth is intended for the development of a state-of-the-art hub to produce, store, and distribute hydrogen to the region and other parts of the UK and Europe. The nearest distilleries and ports should be the first to benefit from the clean fuel.
In Saudi Arabia, a green hydrogen project with investment valued at US$5 billion is underway. The proposal is to produce around 650 tons of green hydrogen per day, in an integrated way with the project of the smart city of Neom, close to the country's borders with Egypt and Jordan.
Asia's most relevant project is developed by the state-owned firm Sinopec, China's largest hydrogen producer. The launch is scheduled for no later than 2022 in Inner Mongolia. The estimated production of the project, whose approximate investment is 2.6 billion yuan, is 20,000 tons of green H2. The initial phase of production is valued at 10,000 tons and supported by a solar power station with a capacity of 270 MW and a wind farm of 50 MW.
Sinopec also plans to develop a green hydrogen plant with the same annual capacity in northwest China in Xinjiang, supported by a 1,000 MW solar power station.
In South America, Chile has already demonstrated its intention to become an internationally recognized green hydrogen hub, having presented its National Green Hydrogen Strategy in 2020. The Chilean Ministry of Energy expects that the Region of Magellan (Magallanes), in the south of the country, can use its great wind potential and petrochemical and port experience to become a reference in the production and export of green hydrogen. It is also expected that the northern region of the country, focused on solar energy production, will be a reference in the production of green H2.
Hubs in Brazil
Also in Brazil one can perceive formation of the first productive agglomerations aimed at the production, distribution, and export of green hydrogen. Despite the still incipient regulation of the activity in Brazil, they are gaining relevance, among them the recent initiatives led by the Industrial and Port Complex of Pecém/CE and the Port of Suape/PE.
With regard to the Pecém Complex, a port industrial complex and logistics hub created in order to develop industrial production in the Northeast region of Brazil, notably in Ceará, we highlight the memoranda of understanding (MoUs) entered into with companies interested in installing in the complex, especially White Martins and Fortescue, to explore an on-site hydrogen hub, with investments expected at US$ 6 billion, and produce more than 15 million tons of green H2 by 2030.
To make the venture possible, the Pecém Complex has a vantageous location, which provides competitive logistics costs for the interconnection of the country to relevant consumer centers, such as Europe and the United States, and has a partnership with the Port of Rotterdam, perhaps the main green hydrogen hub in Europe. Other advantages are a sophisticated business ecosystem and an export processing zone capable of reducing costs for local production of green H2.
The Pecém Complex is the result of a coordinated state effort, exemplified by the publication of State Decree No. 34,003/21, which established a strategic working group of which the Federal University of Ceará, the Federation of Industries of the State of Ceará (Fiec), and the government of the State of Ceará are a part. This group was responsible for developing and presenting an action plan focused on the development of public policies for renewable energies aimed at sustainable development and the configuration and implementation of the future green H2 hub in Ceará.
Similar efforts have been conducted by the State of Pernambuco, with a view to securing its position among the global hubs of green H2. State Decree No. 50,731, issued on May 18, 2021, established a multilateral working group within the state executive branch with the purpose of discussing and defining the guidelines for the development of green H2 production projects.
The orbital axis of Pernambuco's efforts also passes through its main port asset, the Port of Suape, one of the largest and most relevant public ports in the Northeast Region, located in the Metropolitan Region of Recife and also found within a port industrial complex aimed at promoting regional economic development. Recently, the Port of Suape published Ordinance No. 62/2021, which grants discounts on its tariff table for vessels powered by green H2.
Pernambuco's efforts seem to have an effect: feasibility studies have already begun on the Green H2 Plant of Pernambuco, headed by Oair Brasil, a French company whose main activity is the production of electricity from alternative sources. It is estimated that the project will be able to mobilize investments in the order of US$ 3.8 billion, which makes it one of the most relevant projects underway throughout the state.
Practical aspects of enabling hubs
Green H2 hubs gain greater relevance in a context where production costs of green H2 are still much larger than those of production of gray or blue H2 (gray H2 is that originating from fossil sources such as natural gas, oil, and coal, and blue H2 is generated by fossil sources, but whose carbon emissions are captured to neutralize the pollution generated).
The production of 1 kg of green H2 via industrial production costs about 5 euros, compared to only 1.5 euro costs for the production of 1 kg of gray H2.[1] The competitive disadvantage of green H2 continues to be in comparison with blue H2, with the cost of local production of the latter valued at half to one third of that registered with the first.[2]
To change this reality, the public and private sectors will need to join forces and make heavy investments. Published in January of 2020, the latest Hydrogen Council report entitled Path to Hydrogen Competitiveness: A Cost Perspective, shows that with the robust increase in investment in the sector, the cost of green hydrogen production, storage, and distribution solutions is expected to fall by 50% by 2030.
With more than 80% of its renewable electric matrix, Brazil is a strong candidate for the world's leading player in the production and export of green H2.[3] For this to be feasible in the near future, it is essential to create public and private mechanisms to support and encourage production and marketing of that fuel. The creation of green H2 hubs thus represents an important pillar to make it economically competitive in relation to other energy sources.
The following are some mechanisms that can be adopted under green H2 hubs:
1. Creation of special areas with tax incentives
Regional, state, and/or municipal tax incentives are important mechanisms to promote investment, as they contribute to reducing costs and increasing the competitiveness of green H2. To this end, it is essential that public and private efforts be combined, as well as alignment of incentive interests in the sector.
In this sense, the Pecém Complex has proved to be a reference of success: in addition to regional tax incentives (because they are located in the region of the Northeast Development Board (Sudene)), state[4] and municipal, companies installed in export processing zones (MRAs) also have some other taxes and contributions suspended, such as Import Tax and Tax on Industrialized Products.
Tariff incentives for companies that use green H2 as a productive input, in the Hub itself, are also strategies to promote the sector. In this sense, Ordinance No. 62/21, highlighted earlier, confers tariff discounts for vessels powered by green H2.
2. Integration with other industries
The feasibility of green hydrogen projects in strategic areas, where other infrastructure projects (such as hydroelectric, thermoelectric, ports, water, and/or sewage treatment plants) are already located, can be an interesting mechanism to make green H2 projects even more economically attractive.
One possibility would be cogeneration of electricity, within the scope of hydroelectric and thermoelectric plants, in a dynamic similar to that of cogeneration in the production of sugar and ethanol, in which the energy produced from biomass is used in the plant itself and sold to the market.
The production of green hydrogen can also be integrated with port concessions, in which there is remunerated assignment of a certain area for the implementation of green H2 production plants or concession that provides for the implementation of pipelines, to enable the internal transport of green H2. A successful example of port concession integration with green H2 projects is the Port of Suape.
An alternative would be in the context of concessions for water and sewage treatment services, also with the provision of remunerated assignment of an area for the construction of a green H2 production plant or even the integration of sewage treatment plants with power plants by biomass or solid waste.
3. Fostering partnerships between public and private entities
Cooperation and constant dialogue between the public sector (through states, municipalities, and their respective funding agencies) and private partners are essential to make green hydrogen more competitive. It is of interest that states and municipalities establish MoUs with private partners and that promote public policies to assist in the development of regional industry.
The Pecém Complex has as its shareholders the government of Ceará (70%) and the Port of Rotterdam (30%), a partnership that brings in a competitive advantage for the project, as the Port of Rotterdam has been working with various partners to develop a large-scale hydrogen network with the intention of transforming itself into an international hub for the production, import, application, and transport of hydrogen to Europe.
At the international level, fostering public-private partnerships has also proved to be sufficiently effective: in March of 2020, the European Commission launched the European Clean Hydrogen Alliance, a public-private partnership bringing together investors and government, institutional, and industrial partners.
Next steps
The attempt to make green H2 economically attractive and competitive requires time, joint effort of the public and private sectors, and targeted mechanisms for market promotion.
In December of 2021, the National Hydrogen Plan will be announced, which is expected to regulate the development of the hydrogen production chain. The coming months will therefore be decisive in the construction of the public policy of the sector.
Considering this scenario, it is essential that the private sector make effort to study possible regulatory designs to promote green H2, dialogue with public agencies, and provide input to the Ministry of Mines and Energy (MME), the Ministry of Science, Technology, Innovations, and Communications (MCTI), the Ministry of Regional Development (MDR), and the Energy Research Company (EPE).
The series of articles on the green H2 sector, the result of studies by the Machado Meyer Advogados legal team, is a small example of what can be done to foster the sector.
[1] The Agillity Effect. Green Hydrogen will soon be competitive. Available at: https://www.theagilityeffect.com/br/article/o-hidrogenio-verde-em-breve-sera-competitivo/. Accessed: July 9, 2021.
[2] EPBR Agency. Green hydrogen could stay competitive by 2030, with renewables more economical. Available at: https://epbr.com.br/hidrogenio-verde-pode-ficar-competitivo-ate-2030-com-renovaveis-mais-em-conta/. Accessed: July 10, 2021.
[3] Brazilian Hydrogen Association. Available at: http://abh2.com.br/index.php/pt/. Accessed on July 9, 2021.
[4] Details on state incentives can be found at the Investor's Guide to Tax Incentives, Investor's Guide - Environmental Licensing and Investor's Guide - Financing Lines, developed by the Economic Development Agency of the State of Ceará (Adece), and in State Decree No. 32,438/17, information about the Industrial Development Fund of Ceará (IFRI).
