Mexico Needs a Strategic Development Plan for Green HydrogenBy Cas Biekmann | Thu, 09/09/2021 - 11:09
Q: What factors led to the creation of the Mexican Hydrogen Association in 2020?
A: The association was established after a McKinsey report financed by the EU Hydrogen Council found that Mexico would be able to produce green hydrogen at 65 percent of the cost, roughly US$1.4 per kilogram compared to US$2.3 in other countries, a rather stark difference.
This is attributed to two main factors. First, Mexico’s geographic location and assets. We have access to the Pacific and Atlantic oceans and their long coast lines, which is not only beneficial for production but for exports to Europe and Asia. In addition, our free trade agreement under the USMCA makes us the only intermediary with access to some of the biggest markets in the world. Second is the country’s growing renewable energy potential. Given these two main elements and growing global interest in hydrogen technologies, Mexican companies decided to establish an association and gain traction.
Q: How do the association’s members work together toward shared objectives?
A: The majority of our associates are foreign companies that participate throughout the hydrogen value chain. For example, Siemens Energy is involved in technology development. Between Mitsubishi, Hitachi ABB and Cummins, you have manufacturers and hydrogen technology developers. In conjunction, they all have something to contribute to the overall conversation of development projects in Mexico. These are companies that are already carrying out hydrogen development projects throughout the world. Ultimately, the aim for Mexico is to import such projects here.
Siemens and Alstom have hydrogen-fueled trains in different parts of the world, particularly in Germany where they have three in service. More recently, there are now hydrogen-fueled cars. Hydrogen producers are also among our members. Linde, Air Liquide and Infra, for example, produce grey hydrogen. We also have members like Enagás, Engie and Fermaca that have natural gas infrastructure and see green hydrogen investment and development as their next evolutionary step. All of these members contribute extensively to development technology and consumption. Our membership also includes Kins Tecpetrol and Grupo México, which can use clean hydrogen in their decarbonization efforts in conjunction with energy management in places where energy or natural gas infrastructure is lacking. All members, in effect, complement each other and are working in various, specialized committees to provide information regarding regulation, since the segment is not regulated in Mexico.
Q: Given the current landscape for hydrogen, is regulation an issue or an opportunity?
A: We see it as both. It is not regulated and this gives us an opportunity to regulate it efficiently and to the highest international standards. Nevertheless, when something is not regulated, the government tends to want to overregulate, which can become a problem. At the end of the day, regulation will help drive the green hydrogen industry forward instead of obstructing or hindering its development in Mexico. Above all, we do not want the conversation around green hydrogen to devolve similarly to the disputes related to the various visions and perspectives around electricity, energy generation and renewables. Regulation is an opportunity but we don’t want it to become a problem.
Q: Why is green hydrogen such an important piece in Mexico’s clean energy transition?
A: As a member of the Paris Climate Agreement, Mexico is committed to generating 35 percent of its electricity from clean energy sources by 2024. Fortunately, many companies, such as Cemex, are very committed to decarbonization, green projects and the energy transition. However, not all companies are on the same page; not because they are not interested but because green inputs are still inaccessible to them. Green hydrogen could contribute substantially to these companies’ decarbonization efforts, thereby helping Mexico meet, if not surpass, its pledged goals. For Mexico to produce green hydrogen in the future, it will need a robust renewable energy production capacity, a requirement Mexico has met. However, it needs to install electrolyzers at renewable plants with the continued development and application of these technologies. Consequently, sustained, private sector commitment plus renewable energy development combined with green hydrogen can help Mexico reach its goals by 2024.
Q: How much interest in green hydrogen has the public sector exhibited?
A: The Federal Electricity Commission (CFE) has included hydrogen in PRODESEN, the National Electricity Sector Development Program, as part of its strategic development plan for the next 14 years. It foresees the use of green hydrogen in substitution of natural gas in turbines and plants alike. While symbolic, we are happy that it is now on the table and on CFE and SENER’s radar. In the future, they will have to either produce their own green hydrogen using their own plants or buy it. Although PEMEX already produces hydrogen, both PEMEX and CFE would need to make the move toward green hydrogen for their own decarbonization efforts. In fact, Shell and PP already use green hydrogen in their refineries in Europe. Like Cemex, PEMEX will need to get on board, produce it or at least use it in its industrial processes to meet its decarbonization efforts.
Q: What will help make green hydrogen a more competitive option and where are the opportunities for Mexico?
A: Green hydrogen is not as competitive as other energy sources. Ninety to 95 percent of hydrogen consumed globally is grey hydrogen. One kilogram of grey hydrogen costs about US$1.5, while green hydrogen costs between US$5 and US$7, which is a great difference. The McKinsey study reported that in the next five to six years, the production cost of green hydrogen will fall to that of grey hydrogen's current rate of US$1.5 per kilogram. Initially, I believe most companies will make an effort to purchase blue hydrogen, which is an intermediate point between grey and green hydrogen. Therefore, while the price jump from grey hydrogen to green may be too much, within the next few years, blue hydrogen could serve as a stepping stone until production costs are reduced.
Q: How far along are green hydrogen projects in terms of development?
A: There are several projects in different stages of development, including brownfield, greenfield and some ready-to-build. They are located in Baja California, Chihuahua, Guanajuato and Durango. In the latter two, there are projects that are very close to getting off the ground. These are set to begin this year. For instance, foreign capital is funding the construction of a project in Durango that will produce green hydrogen and green ammonia. The project in Guanajuato is set to produce green hydrogen specifically for an industrial park or business nearby. These two projects are very close to getting started. Some are green- or brownfield projects that are working to secure permits, while others are still in their early stages. As you can see, we have various projects at different stages of development. I hope that once regulations catch up and there is more visibility on the development of hydrogen projects, more investment will start trickling in so that more projects can be developed.
Q: What are the association’s objectives for 2021?
A: We would like to increase both our membership and our operating capacity, while bolstering our fiscal strength to pay for studies and develop projects. We also want to get started on a strategic national plan for green hydrogen. France, Germany and Chile already have plans. Spain even has regional strategic plans for the use of green hydrogen. We hope that before the year ends, we can get started on our own national development plan with the participation of the government, academia and the industry. Considering that it took Chile three years to develop its newly presented national plan, it is imperative that we get started as soon as possible.
The Mexican Hydrogen Association launched officially in February 2021 with 31 members, consisting of industry leaders and strategic allies. Its main objective is to germinate the green hydrogen industry in Mexico given the country’s natural advantages.