Argentina is to require green hydrogen project developers to source as much as 50% of their equipment from the country as a condition of receiving generous subsidies, despite having no electrolyser factories.
The country’s draft hydrogen bill, presented to Argentina’s lower house this week, calls for at least 35% of green hydrogen project equipment to be sourced from Argentina, rising to 45% within five years of the bill’s passing and 50% in ten years, according to reports.
Bizarrely, the requirement is somewhat lower for the production of blue hydrogen (made from fossil gas with carbon capture and storage. Under the proposed rules, blue hydrogen schemes will have to source just 20% of equipment from Argentina, rising to 30% in five years and 40% in ten.
The news was met with dismay from some hoping to build a hydrogen supply chain in Argentina, warning that the requirement is “problematic”, especially as the Latin American country is heavily dependent on equipment imports.
“The requirement of national content can be a danger,” one executive told local energy publication Más Energía. “Today, Argentina has to import the electrolysers and many components of the renewable parks, so it will be difficult for them to be produced in the country and to reach a level of 50% local components.”
The executive added: “It really is a very high percentage”.
This sentiment was echoed by at least one individual in local government, who said the severity of the measure had been ratcheted up during the process of drafting the bill.
“In some previous draft that percentage was much lower,” complained one regional official to the publication. “You can tell that someone corrected it. There, what you have to do is consult with the industry. From a desk it is very easy to set percentages at random. Otherwise we will all be trapped in something that is impracticable [ie, impossible in practice].”
It is not yet clear whether the local content rules would apply just to electrolysers, or the whole supply chain, including the renewable-energy equipment used to power the electrolysers.
Argentina has virtually no electrolyser manufacturing capacity, and limited wind turbine component manufacturing capability — despite existing tax breaks for projects using local content — a situation the government hopes to change.
In January, it set up a “cluster” of businesses to co-ordinate on wind turbine manufacturing, one of whom, Impsa, has struck a deal with Australian green hydrogen developer Fortescue Future Industries (FFI) to supply turbine towers and wind measuring instruments for its giant, gigawatt-scale Pampas project in Patagonia.
Argentina does, however, have some solar PV manufacturing capability.
The bill, now passing through Argentina’s legislature and expected to be publicly debated in the coming weeks, envisages significant tax breaks for hydrogen developers — as long as they meet local content requirements.
It reportedly includes a provision for revenues from green and pink (nuclear) hydrogen projects to be collected tax-free for ten years, as well as an initial 3% tax rate on projects for blue H2 .
And projects could be exempt from import taxes on equipment for ten years; as well as no export duties on green hydrogen and its derivatives for ten years, after which they will rise to 1.5%, rising again to 3% after 20 years.
For blue hydrogen the export tax relief will be limited to 1.5%, rising to 3% after ten years and 4.5% after 20.
But one significant bone of contention remains in the bill — access to foreign currency.
Energy minister Flavia Royón told a conference last month that the bill would allow free access to foreign currency, which remains subject to strict controls in inflation-riven Argentina.
But under the proposed rules, developers would reportedly only be able to keep 50% of their export revenues in foreign currency, without having to swap for Argentinian pesos at the government-mandated exchange rate.
FFI has already threatened to pull its Pampas project in Argentina over access to currency, and is apparently lobbying the government to allow green hydrogen developers a special rate of foreign currency exchange, similar to that enjoyed by soy bean producers.
