This is an extract from a recent report “ Brazil Green Hydrogen and Offshore Wind: A Green Saudi Arabia? “ prepared by the New Zealand Embassy in Brasilia.
Brazil is a clean energy powerhouse with an abundance of renewable sources, including hydro, biomass, wind and solar. As such, the country – the third biggest producer of renewable electricity in the world – is well positioned to play a leading role in the global energy transition and to meet increasing demand for green hydrogen (GH2). The vast majority of Brazil’s electricity is generated from renewable sources and 45% of the country’s overall energy is from renewables, making it one of the cleanest grids in the world. While hydro-electric generation is the primary renewable source, wind and solar capacity has been increasing in recent years; of 7GW installed capacity expansion between January and August 2023, 6.2 came from wind and solar.
As an international leader in ethanol production with the potential to become a “green Saudi Arabia” (according to one Brazilian energy commentator), Brazil is also exploring opportunities for generation of green hydrogen from this energy source.
Green hydrogen launches with a strong start
The first molecular hydrogen production facility in Brazil was launched in the northeastern state of Ceará in January 2023, drawing on electricity from Brazil’s integrated grid. An investment of USD $8.4 million, the project is the initiative of EDP, one of the country’s largest power companies, with support from both the federal and state governments. A mapping exercise conducted by H2 Brasil, a project funded by Germany that aims to establish a H2 economy in Brazil, in 2022 identified 42 green hydrogen production projects of different sizes and stages of development. Most initiatives are in early phases, such as the signing of memoranda of understanding (Ceará alone has signed more than 30 MOUs) and feasibility assessments, however, some are in the implementation stage with pilot and commercial plants under operation.
One of Brazil’s most advanced green hydrogen endeavours is located in Bahia, also in the north-east of the country. The commercial plant, a venture between Unigel (a Brazilian petrochemical company) and Petrobras (Brazil’s state-owned oil and gas enterprise), will enter in operation this year (also using electricity from the grid, which is 80-90% renewable in the state of Bahia) and will have the capacity to produce 10 thousand tonnes of green hydrogen per year initially, with plans to eventually quadruple production. The hydrogen will be stored as green ammonia, with 10 tonnes of green hydrogen converting to 60 thousand tonnes of green ammonia – currently considered the most cost-effective way to store and transport green hydrogen. Other green hydrogen initiatives are in train, including one to supply green hydrogen as fuel for electric vehicles.
International companies are also establishing large-scale green hydrogen investments in Brazil. The Australian mining company Fortescue has pledged to invest USD 5 billion in a major green hydrogen production facility in the Port of Pecém in Ceará, and recently received approval for its environmental impact assessment (the first of its kind). Production is due to commence in 2027 and the plant will produce 300,000 tonnes per year, to be converted to green ammonia for export to international markets.
Stakeholders in Brazil are also assessing the feasibility – including costs and carbon footprint of producing green hydrogen from ethanol. This clean fuel, produced from sugarcane biomass, has been used widely across Brazil for more than 40 years and has a high hydrogen content (six atoms compared to two in water), thus making it a strong candidate for GH2 production. Shell plans to invest USD 10 million in GH2 production from ethanol in the next two years, with a pilot fuelling station for electric vehicles at the University of Sao Paulo planned to enter in operation in 2024.
Brazil’s strong comparative advantage and strong international support
A study conducted by McKinsey placed Brazil as the second most competitive place in the world to produce green hydrogen (after Chile and ahead of the US and Australia). Brazil’s high capacity for renewable energy generation at a comparatively low cost (Brazil has a low levelized cost of energy [LCOE] for solar and wind) is a big factor in Brazil’s favour, given 70% of hydrogen production costs are energy inputs. Brazil’s interconnected electricity system provides an additional advantage as hydrogen plants can make use of the existing grid, reducing the need for capital investment. According to H2 Brasil’s mapping project, Brazil’s green hydrogen value chain is also well developed, comprising more than 800 companies and institutions in diverse sectors across the country.
In addition to strong supply, Brazil is in a good position in terms of demand, which could generate USD 15-20 billion in revenue by 2040 according to McKinsey and $30 billion USD by 2050 according to Roland Berger. There is high interest in the production of green hydrogen in Brazil for export, particularly from the EU, which aims to import 10 million tonnes of GH2 by 2030. In addition, Brazil is highly import-dependent for fertiliser supply (80% is imported), so green ammonia could provide a potential way out of this dependency.
As well as strong interest from the international private sector, Brazil has support from international partners to develop its green hydrogen sector. Germany and Brazil have had an Energy Partnership since 2008, with an active working group on GH2. Brasilia and Berlin also work together on the German-funded project H2Brasil, a EUR 34 million investment that aims to support the legal, institutional, and technological development of the green hydrogen sector, and the GH2 taskforce, which links companies and institutions to share knowledge and experience. Both collaborations have supported a number of initiatives including fact-finding missions and a mapping of the Brazilian green hydrogen sector.
Challenges
The development of green hydrogen in Brazil has the potential to generate jobs, introduce leading-edge technologies, and attract substantial investment, as well as integrate Brazil into global value chains. Brazilian Finance Minister Fernando Haddad has noted that the low-carbon agenda has the capacity to boost Brazil’s economy through “reindustrialisation”– the central economic goal of the current administration.
However, there are various barriers to green hydrogen succeeding in Brazil. The key challenge is the production cost. Despite Brazil’s cost-effective LCOE for solar and wind, currently grey hydrogen is cheaper to produce than green hydrogen. For GH2 to be competitive, the price of electricity generated from renewable sources needs to be cheaper than that of electricity produced from fossil fuels. Green hydrogen’s low volumetric energy density compared to other energy carriers also poses a challenge for the transportation of the material. Due to its volume, storing and transporting GH2 requires large, specialised tanks to hold the gas under pressure. This will require substantial investment. The Brazilian Solar Energy Association estimates that investment in the development of green hydrogen in Brazil could reach USD 200 billion over the next 15 years – most of it directed towards infrastructure.
The certification of hydrogen as “green” may also create future challenges for Brazil. There is currently no specific international criteria for H2 to be considered green; however, potential criteria include production from renewable energy sources, guarantees of origin and actual reduction in emissions levels. Depending on the criteria agreed upon, Brazil may not be able to use its integrated grid to produce green hydrogen, losing one of its competitive advantages. Hydrogen produced from ethanol may also not be considered green, given the environmental impacts of the production of this biofuel. In addition, Brazil still lacks a comprehensive government strategy and legal framework for green hydrogen, in contrast to Chile, Germany and the United States.
Offshore wind: the next frontier
Despite its more than 900 onshore wind farms with an installed capacity of 26 GW, Brazil still has vast spaces available for the development of additional wind farms with an estimated inland potential of 500 GW. In addition to onshore wind potential, since 2021, the number of prospective offshore wind projects has been increasing by the day. As of September 2023, 88 requests for offshore wind licences had been submitted with a total generation capacity of more than 212 GW. Many of these projects relate to the generation of green hydrogen (including for export), as the total power generated would exceed Brazil’s energy demand.
Brazil’s shallow continental shelf (between 6 and 20 metres), calm sea and constant wind create a favourable environment for offshore wind generation. The capacity factor of land-based wind in Brazil is above 40%, significantly higher than the global average of 25%; equivalent statistics for offshore wind are not yet available but initial indications show strong potential for Brazil’s offshore wind conditions as well.
Eight Brazilian coastal states across the length of Brazil have attracted multi-gigawatt projects, with two – Rio Grande do Sul and Ceará – standing out in particular. Ambitious projects in those two states foresee 482 and 400 turbines respectively with a projected generation capacity of 6.507 and 6.000 MW each. Initially, international energy companies were the dominant stakeholders in offshore wind projects, however, Brazil’s state oil giant Petrobras has become a bigger player in recent times and is now the company with the most applications pending.
Notwithstanding the optimism regarding offshore wind potential in Brazil, the implementation of these projects is dependent on the establishment of a legal framework. Despite the many pending licence applications, none have yet received approval as the regulatory system is still being propped up. The Lower House of Congress approved a law establishing the rules for offshore wind projects in November 2023, which is awaiting Senate approval. Despite these developments, further regulations, including on bidding and leasing procedures for offshore areas, are necessary to provide greater certainty.
Brazil’s offshore wind potential has attracted significant international attention, with the Netherlands, Denmark, Norway and the United Kingdom active in this area. The Norwegian company Equinor is a long-standing partner of Petrobras. In March the two countries updated their 2018 cooperation agreement to include potential offshore wind generation projects. In November 2023, Norway and Brazil announced a USD 4.2 million joint call for proposals for projects focusing on energy transition and decarbonisation of offshore operations. The UK invested approximately GBP 20 million from their Prosperity Fund in the Brazil Energy Programme, a three-year project that, among other areas, supported Brazil to develop “frameworks for offshore wind producers to make confident investments”.
International financial institutions are also supporting the sector. Since 2019, the World Bank has assisted Brazil in evaluating its offshore wind power potential through events and studies. At COP28, the World Bank and the Brazilian Development Bank announced an investment partnership in green hydrogen, with the former establishing a credit line of up to USD 1 billion to support GH2 projects in Brazil.
The lack of a legal framework and regulations for both green hydrogen and offshore wind power generation is preventing faster progress. However, bills covering both sectors are currently being considered by Congress and are expected to be passed in 2024. High production costs (despite relatively cheap electricity in Brazil), infrastructure for transportation and storage, and certification of “green” credentials are potential barriers to the success of the green hydrogen sector. However, these are not insurmountable. The strong potential for offshore wind generation in Brazil has also captured attention and investment opportunities.
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