Importance of building technological capabilities for Chile’s Future Green Hydrogen Production System
This essay is part of an assignment for the module Science, Technology and Innovation: Market, Firms and Policies for the MSc Innovation Strategic Management that I am currently pursuing.
Introduction
Chile’s Ministry of Energy has manifested its intention to become a green hydrogen powerhouse with the goal to lead its exports by 2030, as stated in its National Green Hydrogen Strategy published in 2020. In this document, a roadmap has been created, setting key actions to prepare the country for this new energy industry. Although important actions to turn this ambition into reality have been specified, not enough attention has been given to building technical capabilities that could be critical in Chile’s successful deployment of green hydrogen. This essay has two objectives. Firstly, to use Bell and Pavitt’s (1993) conceptual framework on technological accumulation to highlight the importance of developing technological capabilities, the lack of which could jeopardise Chile’s goal to become a leader in the production and exports of green hydrogen. And secondly, to provide recommendations on how to develop the required technological capabilities by using extensive literature on public innovation policies.
Context
Decarbonising the energy sector has become one of the priorities for many nations in their goal to tackle climate change. As emphasized by Thomas et al. (2020, p. 405), green hydrogen has become one of the alternatives to achieve this goal as it has the potential to replace the use of fossil fuels in the production of electricity, heat, and multiple materials. Hydrogen can function as an energy carrier that emits no greenhouse gases when used. When hydrogen is generated using renewable energies, it becomes what is known as ‘green hydrogen’.
The high cost of producing green hydrogen has been one of the biggest barriers preventing its large scale production; however, according to IRENA’s Green Hydrogen Cost Reduction report (2020) this panorama has been changing. High cost has been associated with two factors: the cost of green power and the technical limitations behind the electrolyser. In terms of the former, the price of green energies such as photovoltaic energy, onshore wind and offshore wind costs of production have dramatically decreased in the last decade, thus creating a clearer case for the production of green hydrogen.
The second factor affecting the production cost of green hydrogen is the electrolyser (IRENA, 2020 p. 26); the electrochemical device used to break water molecules into hydrogen and oxygen using an electrical current. Electrolysers have been known for more than two hundred years; however, major technical improvements have increased their efficiency and driven down costs — although a dominant design[1] [2] has not yet emerged. According to Teece (1986), the industry development of technologies follows a pattern, in which, after considerable experimentation, one design or a type of designs will begin to emerge as the most promising. Once this dominant design emerges, competition will be shifted to price and scale. This statement also coincides with IRENA’s (2020) projection that electrolysers will be taken from niche to mainstream in the near future.
Chile presents a particular advantage for the production of green hydrogen: it has high quality and abundant renewable resources due to its natural conditions, desert in the north and steady winds in the south, and it has already started to exploit them by building solar and power sectors with increasing investment in facilities, energy storage and transmission infrastructure. This advantage has situated Chile as the cheapest worldwide producer for domestic and export use by 2030 (Hydrogen Council, 2021). This promising scenario has prompted Chile to place green hydrogen production at the top of its energy agenda, and it has intended to pave the way by launching in 2020 a National Green Hydrogen Strategy. The strategy compiles a roadmap to set milestones on how to build a green hydrogen sector. However, many challenges lie ahead for introducing a new industry that has not even matured in developed countries. This essay argues that the only way Chile could become a leader in green hydrogen exports at any time is by heavily investing and prioritising technological accumulation; the arguments sustaining this statement are drawn from Bell and Pavitt’s (1993) paper on technological accumulation and industrial growth, and are explained below.
Importance of building technological capabilities to adopt green hydrogen production
A basic approach could assume that, once the electrolyser becomes cheaper, efficient and of higher quality, then economies like Chile will simply adopt the technology through investment in large hydrogen production facilities. However, a more refined analysis based on Bell and Pavitt paper (1993) on technological accumulation and industrial growth, suggests that capital goods such as production facilities are not enough for the adoption of new technological systems like the production of green hydrogen. Skills, knowledge, experience and institutions will be needed to reach a level of technological accumulation in which green hydrogen production could really be incorporated into the country’s productive matrix. This set of resources is what Bell and Pavitt (1993, p. 163) identify as technological capabilities, and they are essential for a country to generate and manage industrial technical change.[3]
Drawing from the same study (Bell and Pavitt, 1993, p. 161), the diffusion of green hydrogen production will involve more than acquiring the best available electrolyser and the specific know-how to operate it. It will involve continuing incremental change, in which the green hydrogen production process will need to fit Chile’s particular conditions, such as extreme temperatures, high altitudes and long distances, for example. Additionally, further improvements to the electrolysis process will be needed to attain better performance standards. Even if Chile acts as a borrower of ready-made technology from more technologically advanced economies such as Germany, the US, and China, it will still have a key role to play in the successful implementation, adaption and improvement of the green hydrogen production process, even more since a dominant design of the electrolyser is yet to emerge. Otherwise, the full extent of benefits from the new technological system will not be realised, and Chile could run the risk of depending too heavily on its technological providers, as it has occurred in other industries, such as the mining sector.
Some people may argue that when introducing a large, complex and costly new production system such as green hydrogen production, the lowest priority should be the investment in human capital and all the focus should be on attracting investment for the fixed capital that the megaproject will require. Although investing in production capacity is necessary, investing in technological capabilities is equally important, if not more. In fact, Bell and Pavitt (1993) note that expenditures on creating new knowledge and assimilating it from elsewhere are often larger than fixed capital. They argue that intangible resources required to generate and manage technical change must not be considered marginal on the side of production capacity; on the contrary, the increasing knowledge intensity and change intensity of industrial production are undeniable. Therefore, this essay emphasises that if Chile just borrows technology from other countries without local efforts to adapt, improve and develop acquired technologies, the country will not be able to develop competitive advantages that can support the emergence of new industries such as green hydrogen production.
Implications and recommendations for public policy
Cultivating leadership in specific areas of science is one of the trends in science and technology policy (Nightingale, 2021), and it is especially relevant for small countries like Chile. As stated in its National Green Hydrogen Strategy (2020), Chile strongly wants to develop leadership in green hydrogen production and exports and it has developed a roadmap to achieve this. An analysis of the strategy document shows that several initiatives are aimed at solving the network failure of coordination and therefore several work groups are proposed to accelerate the adoption of green hydrogen. However, not enough actions are aimed at solving the market failure of generating human capital (i.e building technological capabilities).
Several arguments have been made in this essay to stress the importance of building technological capabilities for the successful implementation of a highly complex technical change such as green hydrogen. It has been argued that without relevant investment in human capital Chile will not be able to truly develop a green hydrogen industry. Therefore, to provide practical guidance on how to build technological capabilities three recommendations are proposed with the ultimate goal to improve the roadmap of Chile’s Green Hydrogen Strategy.
Training programme
According to Nakaoka (1987) and Ozawa (1980) (cited in Bell and Pavitt, 1984), successful intervention in Japan has been characterised by assisting with funds for training during the learning process. Academia can play a relevant role in preparing the talented workforce to manage and generate technological change in green hydrogen production. Supported by government funds, specific courses can be provided on green hydrogen production, and experts can be brought over to design training programmes that local professors can then deliver.
Attracting the right talent
Bloom’s 2019 study (cited in Nightingale 2021) summarised the pros and cons of different policy instruments. In the long term, they found out that increasing the supply of human capital through STEM expanded university programmes and relaxing immigration rules to attract highly skilled talent are likely to be effective innovation policies. Working with local universities to expand STEM admissions and offer a wider range of relevant degrees for green hydrogen production can be an effective long term initiative to bring new ideas and new ‘absorptive capacity’[4] to prepare the workforce of the future. At the same time, encouraging highly skilled migration with relevant STEM degrees and experience can be another source needed to generate and manage technological change for the emergence of green hydrogen.
Mentorship
Nightingale (2021), in his seminar ‘Catch-up’, mentions the importance of mentoring programmes between international experts and local mentees as an effective way to retain knowledge, skills and experience locally. His argument is based on the fact that knowledge is partly tacit[5], is embodied in people and embedded in social networks, therefore it is difficult to share if it is not transferred in an ‘apprenticeship relationship’. In the case of green hydrogen production, mentorship programmes could be encouraged and funded by the government. Transnational firms that will implement green hydrogen projects in the country can be offered subsidies to bring experts to mentor the local workforce.
Conclusion
This essay has argued, drawing on Bell and Pavitt’s paper (1993), about the importance of developing technological capabilities to introduce an entirely new industry to Chile: Green Hydrogen Production. Although Chile presents some advantages to capitalise in the production of this new fuel, such as high quality and abundant renewable energy sources, these advantages are jeopardised by the gap in technological capabilities required to generate and manage the level of industrial change that the green hydrogen production will demand. The literature has been conclusive: expenditure in human capital; knowledge, skills and experience are of paramount importance to introduce new technological systems. In order to guide public policy towards developing technological capabilities, three recommendations have been established to prepare the required technological accumulation: specific training programmes, measures to attract and develop the right talent, and effective mentorship.
[1]Dominant design is a term found in Teece (1986) to describe when the development of a given branch of a science has passed the preparadigmatic stage and the design has stabilised.
[2]According to IRENA’s Green Hydrogen Cost Reduction report (2020) four types of electrolysers have emerged, but each technology still remaining technical challenges with no clear winners yet. Thus is safe to conclude that the electrolyser has not reached a dominant design yet.
[3] See Appendix 1. for a detailed diagram of Bell and Pavitt’s framework
[4] Absorptive capacity is a term used by Nightingale (2021, Lecture 9. Economics of STP) to describe the capacity to understand and acquire external knowledge and skills, which can only be developed by having a level of pre-existing knowledge on the give topic.
[5] Tacit knowledge is explained by Leonard and Sensiper (1998, p.113 ) as the knowledge that is shared through a socialisation process and becomes explicit through externalisation.
References
Bergek. A S Jacobsson, (2011) Innovation system analyses and sustainability transitions: Contributions and suggestions for research, Environmental Innovation and Societal Transitions 1 (1), 41–57.
Bloom, N., Van Reenen, J. and Williams, H., (2019). CEP Discussion Paper No 1634. A Toolkit of Policies to Promote Innovation.
CMS Legal Services EEIG, (2021). Facing the Future of Hydrogen: An International Guide. [online] Available at: <https://cms.law/en/media/expert-guides/files-for-expert-guides/the-promise-of-hydrogen-an-international-guide> [Accessed 4 January 2022].
Hydrogen Council (2021). Hydrogen Insights A perspective on hydrogen investment, market development and cost competitiveness. [online] Hydrogen Council. Available at: <https://hydrogencouncil.com/wp-content/uploads/2021/02/Hydrogen-Insights-2021-Report.pdf> [Accessed 8 January 2022].
IRENA (2020), Green Hydrogen Cost Reduction: Scaling up Electrolysers to Meet the 1.⁵⁰C Climate Goal, International Renewable Energy Agency, Abu Dhabi.
Leonard, D. and Sensiper, S., 1998. The role of tacit knowledge in group innovation. California management review, 40(3), pp.112–132.
Ministry of Energy, Government of Chile, 2020. NATIONAL GREEN HYDROGEN STRATEGY. [online] Santiago: Ministry of Energy, Government of Chile. Available at: <https://energia.gob.cl/sites/default/files/national_green_hydrogen_strategy_-_chile.pdf> [Accessed 5 January 2022].
Nightingale, P. (2021). Lecture 9: Economics of Science and Technology Policy. Science, Technology and Innovations: Markets, Firms and Policies (752N1). Available at: [accessed 7 January 2022].
Nightingale, P. (2021). Seminar 9: Catch Up. Science, Technology and Innovations: Markets, Firms and Policies (752N1). Available at: [accessed 7 January 2022].
Teece, D. (1986), “Profiting from technological innovation: implications for integration, collaboration, licensing and public policy”, Research Policy, vol. 15, no. 6. pp. 285–305
Thomas, J.M., Edwards, P.P., Dobson, P.J. and Owen, G.P., (2020). Decarbonising energy: The developing international activity in hydrogen technologies and fuel cells. Journal of Energy Chemistry, 51, pp.405–415.
Appendix
Appendix 1. Bell and Pavitt (1993) framework of analysis.
Figure 2. Bell and Pavitt (1993) framework of analysis.
