Like its Saharan neighbours to the north, South Africa is banking on the growth of the green hydrogen economy. The government has set out ambitions to produce 1mt/yr of green hydrogen by the end of the decade and says exports could add ZAR$74b ($3.9b) to the domestic economy by mid-century.

The country is well positioned thanks to its vast renewable resource potential. By some estimates, developing just 1% of the South Africa’s landmass would be sufficient to produce 10mt of green hydrogen. That volume alone the government expects would constitute a 7% share of the global market.

For production of synthetic e-fuels, such as ammonia and methanol, South Africa already has significant competitor advantage. Chemicals company Sasol is one of few firms with the capacity to produce industrial scale power-to-x product. This gives the country first-mover advantage and should make it far easier to capture a larger chunk of the export market than many competitors.  

Lofty ambitions

Despite South Africa being a highly water-stressed country, feedwater for electrolysis will also likely come from desalinated seawater produced at relatively low cost. Export hydrogen particularly could be produced at or close to the port of shipment.

By 2050, the government says production costs could tumble to as low as $1/kg. By that point, the ambition is to scale up domestic output to 7mt/yr, increasing production from 3.8mt/yr a decade earlier.

“Green hydrogen is a critical component of South Africa’s energy transition and its economic development plans” Kapdi, Dentons

The immediate challenge will be finding the investment required. The government’s Green Hydrogen Commercialisation Strategy (approved in October 2023) forecasts that between $250m and $3.25b in grant funding will be needed to advance projects of 200MW and help transform South Africa into a best-in-class hydrogen exporter.  

“Green hydrogen is a critical component of South Africa’s energy transition and its economic development plans,” said Noor Kapdi, Africa region chair at global law firm Dentons. “The government has repeatedly articulated its commitment to support and develop a thriving green economy.”

Making the numbers work

Investment has already begun to trickle in, but the scale required versus the reality on the ground is poles apart. In September, the EU announced a high-profile $32m package to financially support South Africa’s emerging green hydrogen value chain.

The package comes nowhere near the amount needed to kickstart the country’s green hydrogen ambitions. A report published in December by research firm Corporate Europe Observatory found that total investment from the EU in South Africa’s energy transition (not just green hydrogen) had so far reached $6.4b. 

Again, a good start but not enough yet to realistically achieve the government’s targets. In September, the University of the Witwatersrand, Johannesburg, estimated that the real cost of building out one million tonnes of green hydrogen by 2030 will likely spiral to around $20bn. The university added that the EU grants so far cover just 0.2% of the total investment needed.

Achieving the production target will depend on fostering greater ties with overseas export markets. The government is keenly aware of this, and in December South Africa’s minister of electricity and energy, Kgosientsho Ramokgopa, went to Japan to drum up investment interest as well as greater collaboration between the two countries.

Japan is eyeing the long-term growth of green hydrogen to support its own decarbonisation efforts. In 2023, the Asian country set itself the target of producing 12mt of low-carbon hydrogen by 2040. More recently, Japan has been looking to forge ties with nearby clean hydrogen producers, including Indonesia.

“The visit by the South African electricity minister to Japan was an initiative of the Just Energy Transition-Investment Plan to solicit foreign direct investment, and in particular to better understand the requirements of investors, banks and commodities traders eyeing green hydrogen and green ammonia investment and trade,” said Kapdi.

South Africa’s green hydrogen strategy plan highlighted that Japan could be importing as much as 5–10mt/yr of green hydrogen by mid-century. By then, the EU would still be the largest market, with 20mt/yr imported via Rotterdam.  

The government’s strategy plan also pointed out that, without proper state backing, South Africa will likely struggle to compete with the Middle East and Australia when exporting to both Japan and South Korea. This is primarily due to geographical proximity accounting for lower transportation costs as well as existing relationships across the energy value chain.

First-mover advantage

Investment will need to dramatically ramp up, but several high-profile green hydrogen projects are either underway or in the planning stages. Sasol hopes to build South Africa’s largest green hydrogen cluster at the port of Boegoebaai, near the border with Namibia. Although there have been no investment decisions made as yet, the petrochemicals firm aims to produce 400,000t/yr of green hydrogen at the site should it gain the green light.

To the southeast of the country, in 2021 UK renewables firm Hive Energy announced a $4.6b investment to build a green hydrogen and ammonia project. Set to be built alongside the port of Ngqura, five plants will be powered by 15GW of renewable energy and capable of producing 900,000t/yr of green ammonia. Green ammonia will ultimately be shipped to foreign markets including Asia, Europe and the US.

In 2023, South African renewables developer Phelan Green Energy also announced plans to build a $2.5b green ammonia power-to-x plant in the country’s West Cape province. The project will use a mix of solar and wind power to generate 2.5GW and convert hydrogen into a variety of industrial fuels. Once operational, the project is aiming to begin exports in 2026.

Overcoming the hurdles

The government is no doubt focusing on the long-term economic benefits of green hydrogen, but there are still plenty of challenges as well as potential environmental and social concerns. A December report from Corporate Europe Observatory pointed out that the indigenous Nama people are already fearful they could lose 70,000 hectares of land to the Boegoebaai project. According to findings from the Johannesburg-based Public Affairs Research Institute, “indigenous land territories are the main targets of renewable energy infrastructure development” in South Africa.

1mt/yr – 2030 target

The core concern is that the rush for green hydrogen and precious metals will exacerbate many of the country’s existing inequalities, although Kapdi is ultimately optimistic. “The historic lack of beneficiation in the mining industry and the negative economic and environmental consequences of extraction practices has left a scar on South African society and its economy that will not likely be allowed to proliferate, and regulation aimed at addressing these practices are and will increasingly be introduced to address this challenge.”

Even if social and environmental fears are appropriately weighed, the reality is that the sector is still very much in the early stages. A robust regulatory and market framework has yet to be put in place to sustain long-term growth and foster confidence from both the private sector and foreign investors.  

“The challenges include the ability of the private sector and the government to work together seamlessly to develop and implement policy and strategy, and to develop the requisite technologies to ensure lower production cost of green energy,” stressed Kapdi. “Identifying and securing the appropriate funding models to support industrial development plans remains the largest challenge considering changing geopolitics and a move away from green funding in certain meaningful economies.”

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Author: Marat Aslan