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HYDROGEN
HYDROGEN IN SA
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Green hydrogen is a key priority for the country’s economic development. The Department of Science and Innovation, Anglo American, Bambili Energy, Sanedi and Engie have completed a feasibility study for South Africa’s first hydrogen valley.
Plus: SA’s race to green hydrogen
THOUGHT [ECO]NOMY
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greeneconomy/report recycle
SOUTH AFRICA HYDROGEN
VALLEY | Final Report |
[September 2020]
Three catalytic green hydrogen hubs have been identified in SA’s hydrogen valley: Johannesburg, Durban/Richards Bay, and Mogalakwena/Limpopo. These hubs have been identified based on locations with potential for a high concentration of future hydrogen demand, the possibility to produce hydrogen (access to sun/wind, water infrastructure), and contributions to the just transition. The hydrogen valley will serve as an industrial cluster, bringing various hydrogen applications in the country together to form an integrated ecosystem. The initiative is part of the work being done to support the implementation of the National Hydrogen Society Roadmap, which was recently approved by Cabinet.
SA’s proposed hydrogen valley will start near Mokopane (Limpopo), where platinum group metals (PGMs) are mined, extending through the industrial and commercial corridor to Johannesburg and leading to Durban. The feasibility study can be accessed in the report box on the left.
Natascha Viljoen, CEO of Anglo American’s PGMs business, says: “The opportunity to create new engines of economic activity through hydrogen has been validated through this feasibility study with our partners. As a leading producer of PGMs, we have for some years been working towards establishing the right ecosystem to successfully develop, scale up and deploy hydrogen-fuelled solutions. These include investing in innovative ventures and enabling technologies, as well as forging wide-ranging collaborations across industry, to fully harness the transformative potential of green hydrogen for our economy in SA.”
“The study identifies potential projects that could constitute the South African hydrogen valley and kick-start the country’s hydrogen economy,” adds Michèle Azalbert, MD of green hydrogen, ENGIE.
Zanele Mavuso Mbatha, CEO, Bambili Energy, says: “We are pleased to be working with Anglo American Platinum, ENGIE and the government in developing the hydrogen valley programme for the country.”
THE BOEGOEBAAI GREEN HYDROGEN PROJECT
The Boegoebaai “green hydrogen” development has been designated a Strategic Integrated Project (SIP) in the South African National Development Plan and is in the Namakwa Special Economic Zone. The project’s location and classification as a SIP are key enablers to exploring Boegoebaai’s potential as a global green hydrogen hub.
Sasol has been engaging with the Infrastructure and Investment Office of the Presidency to develop a hydrogen economy in South Africa. The company has signed a Memorandum of Agreement (MOA) with the Northern Cape Development Agency to lead the feasibility study to explore the potential of Boegoebaai as an export hub for green hydrogen and ammonia. This study is expected to take approximately 24 months. The outcomes of this feasibility study will determine the next step of development.
Sasol has signed a MOA with the Gauteng Provincial Government to leverage Special Economic Zones that have been earmarked as enablers to unlocking South Africa’s green hydrogen market potential for domestic use, such as mobility and aviation. In parallel, Sasol has partnered with the Industrial Development Corporation who will provide joint funding for the feasibility study.
“We are very excited to be leading this feasibility study as part of unlocking South Africa’s potential to be a global green hydrogen and green ammonia export player with the potential for sustainable aviation fuels in the future. This will also be anchored by local demand for green hydrogen. It is a tangible step forward for Sasol, as we seek to play a leading role in establishing the Southern Africa green hydrogen economy,” says Priscillah Mabelane, executive vice president for Energy at Sasol.
Sasol continues to advance several catalytic projects to develop both local and export opportunities in the region. This Boegoebaai project is one of a number of green hydrogen, ammonia and power-to-X (P2X) opportunities, which Sasol is assessing as part of its new strategy.
“There is potential to create an ecosystem anchored on localisation to enable long-term, sustainable benefits for communities and the country. The project has the potential to provide a significant number of long-term sustainable jobs, infrastructure investment and skills development in the country, enabling a just transition,” adds Mabelane. As the lead project integrator, Sasol will bring together strategic partners along the value chain and other enabling role players that will drive industrialisation of the Northern Cape.
POLICY MILESTONES
• In May 2021, South Africa’s cabinet approved the Draft Upstream
Petroleum Resources Development Bill. The bill, which will replace part of the existing Minerals and Petroleum Resources Development
Act, aims to provide a legislative and regulatory framework that is conducive to investment in hydrocarbons on the back of significant gas discoveries since 2019. • South Africa’s government is expected to approve the Hydrogen
Society Roadmap by 2022. • Green hydrogen is featured in the South African Renewable Energy
Masterplan and the Automotive Masterplan. • In July 2021, Sasol Limited and the IDC concluded a memorandum of cooperation to jointly develop and shape the energy environment to advance South Africa’s green hydrogen economy.
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[ECO]NOMIC THOUGHT
greeneconomy/the upshot THE RACE TO GREEN HYDROGEN IN AFRICA | Excerpt taken from report: Africa beyond the pandemic* [September 2021]
*See report on page 8
As countries across the world move towards more sustainable energy sources, Fitch Solutions examines five major Africa economies (Angola, Egypt, Nigeria, Morocco and South Africa) that will participate in this transition. The green transition potential of these states will depend on three key factors: infrastructure, policy and expertise.
Despite vast natural solar and wind potential across Africa, the bankability of green projects will depend strongly on the investment and legal risk profiles of countries as well as the development of a conducive sector-specific policy environment.
CURRENT EMISSIONS AND FUTURE TRANSITION
Over the medium-to-long term, countries across the globe will increase focus on the development and adoption of sustainable energy sources, including green hydrogen. SA, Morocco and Egypt boast the most diverse and largest industrial bases in Africa and face the most significant pressure to move towards sustainable energy sources for critical value chains. According to the CarbonBrief, Nigeria is among the top 20 largest emitters in the world, the second highest in Africa after SA in absolute terms.
WHY GREEN HYDROGEN?
The proliferation of low-carbon hydrogen across multiple sectors will be key to achieving global climate goals, in line with the Paris Agreement signed in 2015 (and COP26). Green hydrogen is distinguished from other types of hydrogen, as it is produced from renewable electricity making it the cleanest hydrogen format, unlike the incumbent market leaders, grey and brown hydrogen, which are produced from fossil fuel based energy. Blue hydrogen is also fossil fuel based but utilises carbon capture and storage (CCS) systems to mitigate the emissions and is also, therefore, low carbon.
Although we expect Africa’s major economies to participate and move towards sustainable energy production and usage, most states in SSA will lag regions such as Central Eastern Europe and MENA and to a greater extent vis-à-vis developed states. Nevertheless, we believe that SA is best-positioned to drive the regional energy transition, followed by Morocco and Egypt, and that other traditional oil and gas producers such as Nigeria and Angola, though lagging, could benefit from leveraging their existing natural resources, infrastructure and human resource capabilities to participate in production and export of hydrogen.
SUSTAINABLE INDUSTRIAL DEVELOPMENT AND ENERGY TRADE
The use of green hydrogen could benefit multiple sectors, and for Africa these can be summarised into three main categories: • Mobility. Hydrogen can be used to fuel maritime transport vessels, aircraft, private vehicles and freight trucks. • Industry. Green hydrogen can be used as a fuel for energy-intensive industries such as the production of green steel. Businesses in the mining, manufacturing and construction sectors will benefit most by the transition to green steel. • Trade. Several countries in the region possess vast natural resources (natural gas, solar and wind potential) to produce blue and green hydrogen, but lack sufficient infrastructure, domestic industrial clusters and supportive regulatory environments to drive higher local use. Considering this, some states will look to develop hydrogen technologies and position themselves to become major hydrogen exporters in the short-to-medium term, while transforming local industries on a longer-term horizon.
POLICY DIRECTION AND OPERATIONAL CONSIDERATIONS
The openness to foreign investment coupled with bureaucratic and legal environments will be key to attracting private sector participation in renewables and green hydrogen production. Morocco, Egypt and SA are more welcoming to foreign investment and offer stronger incentives for technology and energy industries, relative to Nigeria and Angola. In these states, progressive pro-business investment policies have driven considerable industrialisation and development of renewable energy sources with notable success in public-private partnerships (PPPs), relative to Nigeria and Angola.
In terms of bureaucracy and the legal environment, SA boasts strong contract enforceability and performs significantly better than Egypt, Nigeria and Angola according to our Operational Risk Index metrics for “Trade and Investment Risk”. As seen in Nigeria and Angola, the risk of slow policy reform momentum and the dominance of large state-owned entities in the energy hydrocarbons sectors will negatively affect foreign direct investment into green energy solutions.
SA TO SHINE THROUGH TO 2030
SA is well-placed to utilise existing natural resources, such as wind and solar, to produce renewable power for green hydrogen production. The country will likely attract significant investor interest in green energy as it is the region’s most industrialised economy with the largest installed non-hydroelectric renewables capacity base in SSA and a strong PPP track record. Looking ahead, the presence of platinum, steel, energy and related industries in the country, which will allow for efficiency gains in the production and use of green hydrogen. For domestic use, the government plans to launch a hydrogen corridor, which will involve heavy-duty fuel cells for the country’s air, freight and rail network as well as trucks. However, we highlight several key downside risks, such as regulatory delays as well as political tensions that might deter more risk-averse investors.
MOROCCO AND EGYPT TO PROGRESS IN TANDEM
Both countries are well-positioned to export green hydrogen to proximal demand markets, such as Europe. Egypt’s and Morocco’s non-hydropower renewables sectors will continue to attract significant investment through to 2030, with vast untapped solar and wind power potentials proving attractive to investors. Egypt outperforms Morocco due to a comparatively higher green hydrogen rewards profile underpinned by a strong demand outlook, despite greater project and legal risks. Rising competitiveness and falling equipment costs have made solar and wind power Egypt’s cheapest source of electricity. This will contribute greatly towards the country becoming a regional electricity and green hydrogen export hub.
ANGOLA AND NIGERIA
In both countries, the development of non-hydropower renewables capacity has been limited due to continued project delays and regulatory hurdles. Investors are wary of burdensome legal risks and foreign currency repatriation risks, particularly given the long-term and capital-intensive requirements of green energy investments. Nigeria is mostly likely to rise in the rankings by 2030 as future demand variables are the key factors feeding into the Hydrogen Suitability Index score for Nigeria. Among these indicators are Nigeria leading the region in road freight capacity and dry natural gas consumption, while being second in the SSA region (behind only SA) in terms of crude steel production. However, the most prominent factor is Nigeria having the largest gas-fired power generation capacity in SSA, which points to the potential for blending hydrogen with the gas to reduce emissions from the power sector going forward.
BARRIERS TO PRODUCTION
There are numerous challenges preventing SSA markets from developing industrial-scale hydrogen production operations, broadly stemming from the pervasive lack of economic, political and electricity security across most markets. We highlight three key aspects limiting the region’s capacity to develop its hydrogen production sector at present namely: inadequate renewables electricity supply and constraints in access to freshwater; lack of existing related utilities and transport infrastructure and human capital; and sluggish renewables uptake preventing the build-out of green hydrogen industry. Given the high costs of storing and transporting hydrogen, Egypt and Morocco’s proximity to European markets hold strong export potential in the future.
TRANSPORT LOGISTICS
The low-volumetric energy density of hydrogen (in both compressed gas and liquid forms) makes the storage of hydrogen challenging. This limitation is felt most strongly in onboard storage, but it is also a risk in the delivery and distribution of hydrogen. Several chemical, solid state and other approaches (that could lead to higher stored energy density) can be used in countries to manage the use and, primarily, transportation of hydrogen from point of production to point of use through pipelines, roads and shipping networks.
EXPERTISE NEEDED
Growth in the hydrogen and fuel cell industries will lead to vast new demand for workers in these sectors. Many of these jobs do not currently exist and do not have occupational titles defined in official classifications. They require different skills and education than current jobs, and training requirements must be assessed so that this rapidly growing part of the economy has a sufficient supply of trained and qualified workers. The most critical skills needed to drive the production of green hydrogen are likely to be those from technical workers. Labour needs will span three core areas that are: • Research and development, engineering and manufacturing • Operations and management • Training, communications and outreach
SA, Egypt and Morocco have strong levels of skills availability by regional standards, particularly for mid-entry level roles, but will likely need to import workers for more specialised roles. In this way, businesses need to be mindful of the barriers to importing foreign workers and the added complications in obtaining the necessary travel and work permit documents considering changing restrictions related to Covid-19.
POLICY RISK AREAS
When it comes to local use of hydrogen, we believe that African countries including its largest economies will face numerous challenges in producing, storing and trading green hydrogen. From a policy perspective, according to the International Renewable Energy Agency (IRENA), countries need certain key pillars for clean hydrogen development: • A cohesive national or regional strategy (as seen in the EU, Japan and Australia). Countries also must develop robust industrial policies across the value chain, particularly for heavy industries and boost PPPs especially in renewable energy development. • Adequate research and development programmes and plans to boost expertise. In Africa’s case, this will also likely require the import of foreign workers, particularly in the initial stages. • For hydrogen trade to occur successfully, coherent regulations are necessary in both the clean hydrogen origin and destination countries, and policy areas need to be clear and consistent. Additional incentives will be needed to entice various stakeholders to commit to longerterm purchase agreements of green hydrogen. • Because the molecules of hydrogen are identical, regardless of the method of production, a certification system, or guarantee of origin, is needed for end-users to know the sustainable nature of the hydrogen production process for each delivery. Several countries have already initiated certification schemes, such as the EU’s CertifHy and Australia’s Hydrogen Certification Scheme; however, for international trade it is vital to ensure that these standards are compatible with domestic processes.
