The future of green hydrogen in South Africa — opportunities, challenges, and a path forward

19 Jan 2025

Despite global excitement, only 7% of announced green hydrogen projects have been realised, according to a new study. What does this mean for South Africa’s ambitious plans?

South Africa has high hopes for the nascent green hydrogen (GH2) with the sector listed as one of the country’s Just Energy Transition Investment Plan’s three “priority areas”, but three years later it faces an uphill battle.

The difficulties are reflected internationally, too, with a new study published in the journal Nature Energy that tracked 190 projects over three years and found that by 2023, only 7% of the announced green hydrogen production globally had been realised.

There is a simple reason for the delay — green hydrogen is expensive.

Potsdam Institute for Climate Impact Research researcher and lead author Adrian Odenweller, as well as co-author Falko Ueckerdt, said that: “Green hydrogen will continue to have difficulties meeting the high expectations in the future due to a lack of competitiveness.” They further noted that electricity prices and electrolyser investment costs were the main drivers of green hydrogen costs.

Without a system like carbon pricing to make green hydrogen more competitive, they estimate that $1.3-trillion in global subsidies would be needed to realise the number of green hydrogen projects in the pipeline. Projects have nearly tripled in just three years and will bring the global announced project capacity to 422 gigawatts (GW).

The findings do not bode well for South Africa’s nascent foray into the much-hyped zero-emission fuel and energy carrier.

Read more: South Africa’s ‘green hydrogen’ dream — hype or hope?

The benefits of green hydrogen

Green hydrogen is produced by using renewable energy sources such as wind or solar power, to split water into hydrogen and oxygen through a process called electrolysis.

This hydrogen can then be used as an emission-free energy source for various applications such as fuel cells or industrial processes, and is seen in some quarters as being key to decarbonising “hard-to-abate” or “hard-to-electrify” sectors such as long-haul transport, chemicals, and iron and steel.

Green hydrogen is of particular interest in South Africa because of the country’s strategic advantages.

“South Africa’s rich endowment of ideal weather conditions for solar and wind power generation, technological capabilities around the Fischer-Tropsch process, and access to platinum resources place the country at an advantage for developing the hydrogen value chain and being a key supplier into the global hydrogen market,” says independent non-profit economic research institution Trade & Industrial Policy Strategies.

Read more: Cape provinces sign green hydrogen cooperation deal

The Just Energy Transition Investment Plan, published at the end of 2022, says of green hydrogen: “Promoting a GH2 export industry, including the platinum group metals, electrolyser and fuel cells components, green iron ore and steel, and derivatives such as green ammonia and sustainable aviation fuels, can increase GDP by 3.7% by 2050, translating to an increase in absolute GDP of almost R400-billion… In scenarios with GH2 exports and associated industries, up to 1.8 million more jobs could be created economy-wide by 2050 than in scenarios without GH2 exports and use. Thus, GH2 and its derivatives have a key role in South Africa’s just transition,” it reads.

“In building the infrastructure necessary to capture this opportunity, the investment required is estimated to be in the region of US$133-billion to fund more than 100 gigawatts of dedicated renewable electricity capacity (both wind and solar) and more than 60 gigawatts of electrolyser capacity.

“The foundation to scale the GH2 economy must, therefore, be established in South Africa by 2030.”

Progress to date

The Just Energy Transition Project Management Unit in the Presidency and the Department of Trade Industry and Competition shared an update with Daily Maverick.

“Announcements of projects are usually done prior to or during the pre-feasibility phase. Typically, projects take at least two years to develop i.e. completion of pre-feasibility and feasibility phase and another two years for construction and commissioning. Given that the green hydrogen industry is a new industry that is being developed, it is not expected that production will commence earlier than four years from announcement. The projects that are being developed have estimated production to only commence from mid-2027 / 2028 onwards.”

The team shared the following milestones achieved since the publication of the Just Energy Transition Investment Plan:

Industrial Development Corporation of SA has secured €23-million in grant funding from the German government via the KfW development bank. This will be deployed to de-risk and expedite key catalytic GH2 projects.

Industrial Development Corporation of SA is finalising negotiations with the Dutch government and National Treasury for €50-million of grant funds to be disbursed into the SAH2 Green Hydrogen Fund, which is in the process of being established.

Industrial Development Corporation of SA and the Development Bank of South Africa have also made direct investments in GH2 projects.

Completion of pre-feasibility studies of some of the hydrogen strategic integrated projects.

Skills needs assessments have been completed and a viable approach to address Just Energy Transition skill needs has been integrated into the Skills Masterplan.

Two Memoranda of Understanding signed between project developers and offtakers (Hive Green Ammonia and Itochu; Prieska Power Reserve green ammonia project and potential offtaker).

The Draft South Africa National Standard for green hydrogen is under development.

Environmental approvals obtained for projects.

Fuel cell components manufacturing plant built by Isondo Precious Metals at the OR Tambo economic zone.

Asked about the main obstacles, they said the main challenge was production price.

“Currently, grey hydrogen (from steam reformation of methane gas) costs $1.50/kg to produce. Green hydrogen produced via electrolysis of water using renewables-generated electricity costs $5 to $6/kg. Approximately 60% of this cost is for electricity, 30% for electrolysers and 10% for transport, storage and other externalities. So, a reduction in price depends very much on renewable electricity generating costs falling still further. Additionally, the appropriate pricing of carbon taxes is another factor that will contribute to project viability.”

Potential solutions

A team from the Just Energy Transition Project Management Unit and the Industrial Development Corporation told Daily Maverick that “costs of green electricity and of electrolysers will reduce, but not overnight. Furthermore, penalties in key global markets on goods produced using non-green technologies are ramping up over the next decade. We can anticipate that the right price point will be reached within the next few years. Based on the downward price trajectory of renewable energy and electrolyser costs, it has been projected that South Africa will reach $1.50/kg by 2037.”

“Additionally, addressing the challenge requires:

Government incentives and enabling legislative frameworks that play a critical role in mobilising private capital and advancing mature projects within this decade.

Ensuring greater regulatory clarity, both locally and in import markets like the EU, and certainty and support for demand drivers will be critical for tackling project delays observed today.

The development of the enabling midstream infrastructure.”

According to Odenweller and Ueckerdt, disregarding “uncertainties and risks” and instead “focusing on supply side subsidies with the expectation of abundant low-cost green hydrogen in the future, risks crowding out readily available and more economical options, thereby delaying climate change mitigation”.

To avoid this, they suggest a balanced approach beyond subsidies: policymakers should create demand for green hydrogen by setting rules, such as requiring its use in specific industries, and gradually shifting from subsidies to tools such as carbon taxes and quotas that make polluting alternatives less attractive. DM

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South Africa

The benefits of green hydrogen

Progress to date

Potential solutions