Exploring Hydrogen Markets, Episode 2 – Brazil & Morocco

Yan:
Hello, everyone, and welcome to Ashurst Legal Outlook. In this podcast, we keep you across the global trends and local issues that are shaping up the legal landscape and impacting organisations. My name is Yan Alix, and I'm a partner in the Project and Energy Transition team and head up the firm's Africa practise. I specialise in corporate and commercial transactions in emerging markets. We also focus on the energy, resources, and infra sectors. And I'm pleased to be joined today by two very distinguished guests.

First, we've got Ghalia Mokhtari. Ghalia is a qualified lawyer in Casablanca, and the founder of firm, Mokhtari Avocats, with whom we are very lucky to work in Morocco. Alongside Ghalia, we also have with us, Ana Carolina Calil. Ana is an energy partner at the Brazilian leading law firm Cescon Barrieu. Ana's expertise focuses on regulatory and transactional matters across all segments of the energy sector, from generation down to distribution, transmission, and energy trading.

We are all very keen to kick off the episode, which comes off the back of the recent updates to our interactive hydrogen guide, an interactive map to help clients and investors navigate the evolving hydrogen strategies, regulations, incentives, and major projects taking place in countries that are focused on this market. We recently added several new chapters to the guide, including Brazil, which, alongside Morocco, we will be exploring today. So, without further ado, maybe I can start with you, Ana. Could you give us a flavour on what the current hydrogen landscape is like in Brazil? I'm aware there's been a few recent developments, actually.

Ana:
Thank you for the question, Yan. I'm so excited to be here today. Well, Brazilian government is truly committed with the energy transition agenda, especially considering the large participation of renewables in the national energy mix already in place, in addition to that, the country keeps discussing measures to foster energy transition needs, such as regulation on green fuels, funding instruments, as they recently created infrastructure bonds and other initiatives, with the purpose of being a leader in what relates to greenshoring.

As to hydrogen, as your question presented, we have some exciting news regarding this type of project in Brazil. In August 2024, finally, the federal enacted a piece of legislation regulating the main guidelines on low carbon and green hydrogen public policy in the country. In addition to creating such regulatory framework, which the market was asking for in the last couple of years, this law created certain tax incentives applicable to the development of hydrogen projects similar to those already applied to segments, such as renewables and energy transmission, which was well accepted by the industry. In addition to that, in this week, the Brazilian federal government also enacted a new regulation on hydrogen, giving certain credit benefits to the market, but it is still under regulation.

Yan:
Well, thanks so much for this update, Ana. And maybe over to you, Ghalia. Hydrogen is, obviously, a key priority for Morocco, and Morocco's got obvious assets, sun, wind, sea, sounds a bit like a holiday ad. And proximity to Europe. So, would you be able to give us an overview of the current landscape and any recent hydrogen developments in Morocco, Ghalia?

Ghalia:
Sure. Thank you very much, Yan, and thanks to Ashurst for this opportunity to participate in this exciting podcast on green hydrogen developments. So, Morocco is indeed, as you mentioned, endeavouring to establish itself as a regional hub in the production of green hydrogen by capitalising on its substantial investments in renewable energy sources, mainly solar and wind projects, in order to achieve energy independence. So Morocco initiated the green hydrogen to Morocco, which we call Green H2 Morocco Initiative in 2019 to centralise and coordinate efforts in this strategic field. The development of mega projects in this sector is being facilitated by substantial investments from countries, such as France, Germany, and China, which are really supporting this initiative.

In addition to that, Morocco has instituted a transparent regulatory framework, as LINA did in recent Shellcro, what we call The Morocco Offer, to facilitate and organise the growth of the green hydrogen sector. This framework encompasses incentive measures, including land relocation, the development of appropriate infrastructure, tax benefits, and other benefits granted to investors while also addressing significant challenges, particularly in the areas of cost, infrastructure, and regulation. Despite the extent obstacles, these endeavours are establishing Morocco on the path to achieving green energy sovereignty by 2035. This is our target.

Yan:
Thank you, Ghalia. Super interesting. It does look like there's a lot of similarities indeed. So off the back of that, what do the investor opportunities look like at the moment in your respective markets, maybe starting with Ana?

Ana:
Similar to other countries, the Brazilian market has undergone the phase in which the preliminary agreements and memorandum of understandings were being executed. I think you all know this phase, and the countries are still facing it, but we have this specific situation in which the players were executing preliminary agreements with the purpose of setting guidelines for studies, preliminary development of projects, or even implementation of research and development initiatives. After the enactment of the legal framework, as I was mentioning previously, applicable to low carbon and green hydrogen projects, it is possible to observe that the market got motivated and started to discuss contractual alternatives or structures required to effectively set up large-scale projects. Still, there are certain challenges to overcome, of course, such as the regulation by the specific agency to which referred responsibility was attributed, which we call here the National Oil, Gas, and Biofuels Agency, ANP, as well as other remaining questions such as CapEx and technology struggles.

Yan:
Thank you, Ana, very clear. What about you, Ghalia, in Morocco?

Ghalia:
Yeah, in Morocco, opportunities for investors, Morocco's green hydrogen sector, are promising, very promising I would say, as there are numerous initiatives in place to track and facilitate investments, in particular foreign investments in the sector. What I just mentioned earlier, the circular recently released under the Morocco Offer offers a very comprehensive framework for potential investors, which includes the location of significant land for hydrogen projects and the development of required infrastructure, including electrical networks, desalination units, and hydrogen pipelines, so investor can capitalise on tax and customs incentives, particularly for initiatives that bolster local industrial integration.

Furthermore, the framework prioritises a collaborative approach with both public and private entities, so in the form of PVP, thereby fostering an environment that fosters competition and innovation, I'd say, to ensure such regulatory compliance and facilitate project approvals, the Moroccan government has also implemented governance structures that expedited the investment process, so they indicated clearly which authorities in charge of liaising and managing the process with the investors. So Morocco's strategic geographical location and dedication to renewable energy since 2010, in conjunction with these measures, offer substantial opportunities for investor interested in developing green hydrogen markets in Morocco.

Yan:
Thanks, Ghalia. Yeah, it's clear that there is investor appetite in both markets, and we're lucky actually, to work on some of those opportunities, so what would you say are the main drivers to investment, and maybe contrary to that, what are the key barriers facing investors? You want to start Ana?

Ana:
Sure. Well, I believe that the main driver to investment in Brazil and worldwide relates to a solid legal framework, which also guarantees the possibility of structuring stable offtake agreements. This comment applies not only to the specific industry of hydrogen but also to its supply chain and the electric energy sector itself, once energy, especially clean energy is the most important input within the development of green or low-carbon hydrogen projects. We should not forget also that Brazil has a sophisticated and attractive energy transmission market, which is extremely important for the substantial injection and flow of energy required for large-scale hydrogen projects. In this scenario, the federal government usually organises two to three transmission auctions every year as to keep up with agreed expansion needs required for intensive energy consumption in the country. As to the challenges imposed to investors, as I mentioned previously, the Brazilian government still needs to regulate the specifics provided under the hydrogen law. Actually, now we have two laws. In addition, lack of regulation on incentives, including local incentives, CapEx, and technology struggles, needs to be addressed for the proper development of large-scale hydrogen projects.

Yan:
Thank you, Ana. What about Morocco, Ghalia?

Ghalia:
Yeah, so well, as I said previously, significant government investments in renewable energy projects and the supportive framework established by the Green H2 Morocco Initiative for the primary drivers of investment in Morocco's green hydrogen sector. So, the sector's appeal is further enhanced by strategic partnership with countries such as France, Germany, and China, so as of today, we see a lot of interest and appetite from investors from those countries in the field of green hydrogen in Morocco. In contrast, the high cost of green hydrogen production comparison to blue hydrogen uncertainties relating from an evolving regulatory landscape and potential obstacles associated with infrastructure development and water management for electrolysis are among the primary obstacles. So, we are not in Morocco like Brazil. We do not have a clear regulatory framework. We're working on it, so hopefully, in the next coming months, things will be clear for the investors.

Yan:
Thank you, Ghalia. All in all, it does look like investment and interest at least are definitely on the rise, and potential projects on the horizon. That's said, it be useful where you anticipate disputes might be coming into the picture, as you both know, we did introduce a new dispute question into the guide this year, and although there's been no reported disputes in either of your jurisdictions, it'd be useful to know where your thoughts... Sorry, it'd be useful to know your thoughts on where they might arise, perhaps comparing to similar industries. Ana, do you want to start?

Ana:
Yes, but that's tough. One comparison that can be done to answer this question refers to gas super projects since they present similarities regarding complex contractual structures, different players, and dialogue between different regulatory authorities. Here in Brazil, we have the authority on oil. We have the authority on energy and also on ports when we refer to LNG projects. In this scenario, potential litigation that may arise from this type of project relates to the execution of referred complex contractual structure, especially EPC, O&M, offtake, and power purchase agreements, as well as the interaction with regulatory agency in a scenario of a new energy source and its prospective technologies and specificities being implemented into the energy mix. One aspect that should be highlighted though, is that Brazil is an arbitration-friendly jurisdiction, one of ICC's main hubs, which encourages the use of arbitration to discuss complex and sophisticated projects as it is expected to hydrogen market.

Yan:
Thanks, Ana. That's helpful. What about Morocco, Ghalia?

Ghalia:
Well, it's difficult to talk about disputes at this stage because developing green hydrogen projects, it's at very preliminary stage, so I would say these challenges would be comparable to those encountered in other significant energy and infrastructure initiative. So, while Morocco's green hydrogen sector has not yet effectively encountered any disputes, there are, I would say, numerous potential sources of conflict that could arise. Disagreements regarding contracts, such as the allocation of land, compliance with project timelines, may arise. Challenges may arise in accordance with local and evolving regulations, but again, we need to have very precise regulation, and disputes may arise as a result of concerns regarding the quality, delays, and expenses of essential infrastructure. So, finally, conflicts may arise regarding distribution of profits and returns on investments, I would say. Well, I do not expect changes or disputes different from other sectors, but as I said, it's very preliminary at this stage to say what kind of disputes could arise.

Yan:
Thank you. Thank you, Ghalia. Well, it's aligned indeed, it makes sense first and it is aligned indeed with what we are seeing in other jurisdictions in terms of potential areas of disagreement and disputes indeed.

Well, with that, I thank you for listening to Ashurst Legal Outlook. Now, as mentioned at the start, the episode comes off the back of updates to our interactive hydrogen guide. If you'd like to learn more, please do take a look at our hydrogen guide on Ashurst.com and LinkedIn, the show notes, or you will be able to gather a complete picture on hydrogen strategies, regulation incentives, and projects around the globe.

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