How Latin American green hydrogen projects may get financed

Clean Energy Transition Green Hydrogen Private equity and venture capital Private Investment Financing

Treating Latin American green hydrogen projects as startups may ease access to financing, BNamericas was told.

Project finance has typically been used to get energy sector infrastructure built in the region. But given the nascent nature of the green hydrogen industry and the impact this has on debt financing costs and availability – along with the complexity of establishing project finance structures – tapping investment funds could initially prove the viable option.

Under this approach, a sponsor would inject initial equity into a pilot project and, once advanced, bring in private capital.

“You need to treat the green hydrogen project as if it were a startup, it has to be treated as an alternative investment,” Alejandro Mendez, CEO of Houston-based asset manager Royal Eagle Capital Partners, told BNamericas.

“Yes, you need the sponsor equity, but you need funds, or an entity, like us, that takes on the risk to put in the equity and with our balance sheet bring in the finance that we need.”

Family offices or public companies – or a technology firm already working in the green hydrogen space that could provide both solutions and capital – could be tapped, added Mendez, who previously worked for the Latin American wealth management divisions of JP Morgan Chase and Citibank.

The region is advancing along the green hydrogen highway, with Chile in the vanguard. Work has started on Chile’s first plant, the US$51mn Haru Oni clean methanol and gasoline production facility, and state development agency Corfo is offering pilot stage financing.

Securing offtakers and creating demand locally via pilot usage projects in the likes of the transport sector is the key part of the equation, said Mendez, whose company has renewable energy assets in Colombia and Panama and is seeking to boost its footprint.

Mendez said: “I don’t think funding is the most important part of the mix; people need to work on offtake, work backwards. There are two bottlenecks I think: one is offtake and the other transportation.”

Latin America, with its abundant renewable energy resources, is well positioned to ride the green hydrogen wave. Argentina, Brazil, Paraguay, Colombia and Uruguay also have green hydrogen on their radars.

Source: BNamericas

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