The International Energy Agency's (IEA) "net zero emissions scenario" for the world requires a massive 17,000 TWh of green hydrogen energy to be available by 2050, more than the USA and China's current electricity production and more than what is currently produced worldwide from renewable energy sources. A recent estimate puts the size of the global green hydrogen market at US $89 billion by 2030. It implies demand growth of around 54% p.a.
The properties of (green) hydrogen and the opportunities the world's investments in effecting an energy transition away from dependence on fossil fuels towards renewable energies have not gone unnoticed in South Africa - one of the top twenty CO2 emitting countries in the world. In 2021, it launched a "Hydrogen Society Roadmap, taking inspiration from Japan’s 2017 Hydrogen Society strategy.
A hydrogen heavyweight
South Africa is already a heavyweight in hydrogen - its Sasol Group is one of the world’s largest producers of hydrogen. This is, however, of hydrogen using fossil fuels, mainly coal and gas, as a source of energy. As a result, Sasol is South Africa’s second-largest single emitter of CO2. The country's Hydrogen Society Roadmap, therefore, identified the development of the "Green” Hydrogen Economy - based on the production of hydrogen from electricity from renewables, such as solar and wind power, as a priority to help the country achieve its target of net zero emissions by 2050.
The country also sees green hydrogen as a vast business opportunity for economic growth and job creation. Its Just Energy Transition (JET) plan estimates that South Africa could meet 10% of global demand for green hydrogen and derivates (such as green ammonia and sustainable aviation fuel) by 2050, which could add 3.7% to GDP and create 1,8 million new jobs.
Billion $ investments in green hydrogen planned
However, South Africa has no green hydrogen economy. Sasol produced its first green hydrogen only in June 2023. Around ZAR 391 billion (around US $22 billion) will need to be invested between 2023 and 2027 to build green hydrogen capacity. Recently, a “Green Hydrogen Commercialization Strategy” was proposed, nine key investment initiatives declared Strategic Integrated Projects (SIPs) and a green hydrogen fund - the “SA-H2 Fund” was established. The latter aims to raise US$ 1 billion in funding for green hydrogen projects. Various partnership and collaboration agreements have been concluded - mainly European countries - as the EU expects to import around 10 million tons of green hydrogen by 2030.
South Africa’s green hydrogen economy plans are ambitious - and understandable. The potential demand for green hydrogen is a lucrative opportunity. South Africa may reasonably assume that it can be a competitive producer of green hydrogen, given its experience and capability to produce (dirty) hydrogen, which includes Sasol’s patented Fischer-Tropsch process (used to create synthetic methane, diesel and aviation fuel) and access to the minerals - such as the very scarce iridium - required to make the electrolyzers used to split water into hydrogen and oxygen. About 87% of the world's iridium is mined in South Africa. South Africa also has plenty of sunshine and wind for generating renewable electricity - it is estimated that 49% of the country’s electricity could come from renewables by 2030.
Thus, with potentially plenty of renewable electricity, access to electrolyzers, and existing expertise and proprietary technologies to produce synthetic fuels from green hydrogen, it seems that investing in building a green hydrogen economy is too good a chance to miss.
Or is it?
Two reasons South Africa is taking a gamble
There are two reasons South Africa's green hydrogen ambition is a gamble. First, it is not at all given that the world's demand for green hydrogen would grow as fast as is assumed. The simple reasons are that a) green hydrogen is expensive and energy-intensive to produce, and b) South African green hydrogen may be even more expensive than competitors. Hence, there may be no significant effective demand for green hydrogen, and the country may find it challenging to capture a market share. Consider, for instance, that it costs around US$3 to 6,60 per kg for green hydrogen, compared to US$1 and US$2 per kg for fossil fuel alternatives. By 2030, the average cost for South Africa to produce green hydrogen in its "Hydrogen Valley" is estimated to be US$4 per kg. At the same time, the USA is investing in a "hydrogen shot" to reduce its costs to US$1 per kg by around 2030.
Second, even if the demand for green hydrogen would be there it is not clear that supplying enough green hydrogen is possible over the timeframes mentioned. There are three significant supply constraints for South Africa. One is the production and availability of electrolyzers. While South Africa has access to iridium, the competitive advantage for making electrolyzers is in Europe, which holds by far the most patents. Moreover, the rest of the world is funding innovations aiming to make electrolyzer manufacturing less dependent on iridium - recently, researchers in the Netherlands claimed to have developed a method that needs 200 times less iridium. Most importantly, however, the availability of enough electrolyzers to enable sufficient green hydrogen production is a severe bottleneck. A recent study noted that global capacity to manufacture electrolyzers “needs to grow 6,000-8,000-fold from 2021 to 2050 to meet climate neutrality scenarios compatible with the Paris Agreement [but that] 80% of additional capacity announced to come online by 2023 is not yet backed by a final investment decision.”
A further supply constraint facing South Africa is its geographical position - it is far from the major world markets for green hydrogen, most notably Europe. Its Saldanha Bay Harbor is around 6100 nautical miles from Rotterdam. This poses logistical challenges for shipping green hydrogen and its products. Shipping hydrogen as highly compressed (at 250-500 bar) hydrogen gas (CGH2) currently is limited to 4000 nautical miles. Shipping it as liquefied gas (LH2) is not yet commercially possible or viable - the first LH2 tanker was only launched in 2019- and by liquefying hydrogen, between 30 to 40 percent of its energy is lost. This leaves only synthetic fuels such as ammonia and aviation fuels to be exportable from South Africa for the time being.
A final supply constraint facing South Africa is water - the most essential ingredient to produce green hydrogen. Making 1 kg of hydrogen requires roughly 10 litres of pure water. South Africa is a water-stressed country facing water crises. This is one reason critical green hydrogen projects are located on the coast, as it allows for the use of seawater. Seawater is unsuitable for electrolysis - it needs to be de-salinated, which is possible but increases the costs of producing green hydrogen. Direct seawater electrolysis is a technology being explored and is still in its infancy.
Success hinges on factors outside South Africa’s control
South Africa's green hydrogen ambition is understandable but a gamble. Its success hinges on the imminent availability of three sets of new technologies: to make production of green hydrogen cheaper, to enable long-term transportation, and to utilize direct seawater electrolysis. It also depends on the coordinated policies and investments in Europe to scale up the use of green hydrogen and on the strategic investment plans of producers in competing countries.
It also assumes that green hydrogen will maintain its favourable renewable energy image as a contributor to net zero. Which may not be the case. For instance, hydrogen has been called “the dumbest, most ridiculous energy alternative”, which is “insanely far from being renewable because it has no energy; energy has to be forced into it like a battery, and you lose even more energy when converting it back to electricity [only to] … deliver hydrogen to non-existent hydrogen vehicles.”
And failure could spell disaster for its 2050 Net Zero commitment
In conclusion, South Africa’s expensive plans for a “Hydrogen Society,” drawing inspiration from Japan’s 2017 Hydrogen Society vision, should keep in mind that to date, Japan's Hydrogen Society has been falling “flat”: the demand for expensive green hydrogen has just not been there. Japan has resorted to importing cheaper carbon-polluting liquid (black) hydrogen, made from lignite coal, from Australia. The danger is that if South Africa in coming years to expands its capacity to produce green hydrogen, but faces insufficient global demand, it will use this capacity for non-green (grey, black, or blue) hydrogen production, which could compromise the country’s ability to achieve its net zero commitment.
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