Opening the inaugural African Green Hydrogen Summit in Cape Town in mid-June, South African President Cyril Ramaphosa again lauded the “transformative” potential of the fuel for his country’s economy.

Landmark agreements inked on the conference sidelines to part-fund two flagship projects injected a note of optimism into the proceedings, and several aspirant developers professed confidence in delayed FIDs being taken within 18 months.

Nonetheless, progress on Pretoria’s wider strategy remains painfully slow, beset by the bearishness afflicting the sector worldwide, compounded by domestic political and bureaucratic inefficiency.

South Africa offers a potentially huge domestic market and control of over half of the world’s reserves of the platinum group metals used in PEM electrolysers

The government unveiled its Hydrogen Society Roadmap in February 2022, adopting a target to produce 500,000t/yr of green hydrogen by 2030, and later that year designated nine strategic integrated projects (SIPs) provisionally outlined by developers, representing a combined $45b of investment.

However, some three years on, only one of the projects, which is related to the manufacture of electrolysers, has reached FID, putting the end-decade output goal out of reach.

South Africa has a combination of ample solar and land resources and a location on major global trade routes, benefits shared with numerous other countries with ambitions to secure a slice of the nascent green hydrogen market.

However, unlike many competitors, it can also offer a potentially huge domestic market, by dint of economic dependence on heavy industries requiring decarbonisation, and unique control of well over half of the world’s reserves of the platinum group metals used in proton-exchange-membrane electrolysers.

Yet its ambitions have been dashed in the near-term by the worldwide loss of confidence in the speed at which renewables-based hydrogen can become an economically viable tool of decarbonisation, given prices still well above those of fossil fuel-based alternatives—a self-fulfilling prophecy, precluding the economies of scale and investment in technological advances required to lower costs.

None of the projects outlined have secured the binding offtake agreements required to access commercial finance. In February, Luxemburg-based steel multinational ArcelorMittal scrapped plans to collaborate with local energy and chemicals titan Sasol to use green hydrogen to decarbonise steel production at its plant in Saldanha, in the Western Cape. Political instability—and enforced deprioritisation of the hydrogen drive in order to concentrate on economic and fiscal firefighting—has also slowed progress.

However, the effort retains strong internal and external support, the latter in particular from countries in northern Europe eyeing potential imports and from climate-focused multilateral institutions.

Headline project

The headline deal to emerge from the Cape Town conference was the first funding for local green hydrogen-related schemes by the H2-SA fund—a$1b blending finance facility established two years ago by the Dutch Climate Fund Managers and Invest International, the Development Bank of South Africa, Industrial Development Corporation of South Africa, and Cape Town-based insurer Sanlam.

The choice for the vehicle’s first $20m investment was the 1mt/yr green ammonia plant planned at Coega, on the coast of the Eastern Cape, by a team led by UK-based Hive Energy alongside the local Built Africa, to help fund FEED work, construction tendering and residual permitting processes.

500,000t/yr – 2030 production target

Critically for the estimated $5.9b project’s ultimate bankability, an offtaker is tentatively on board in the form of Japan’s Itochu, although talks have yet to reach resolution more than 18 months since of the original memorandum of co-operation to that effect was signed in December 2023. The developers are targeting FID in 2026 and first commercial production in 2029.

The other financing milestone marked during the summit entailed German development bank KfW releasing the first tranche from a €200m concessional loan facility established four years ago to back the local industry’s development.

The money has gone to an all-South African partnership of Mahlako A Phahla Investments and Central Energy Corporation to assist in funding the FEED and ‘bankable feasibility study’ for the planned Prieska Power Reserve project at an inland site in the Northern Cape. The scheme calls for initial production of 80,000t/yr of green ammonia by 2029, rising to 500,000t/yr in the early 2030s—assuming a new target for FID of 2026 is met. Again, a provisional offtake commitment is said to be in place, with the team claiming to have signed memorandums of understanding with unnamed local buyers to purchase the entirety of output.

Green hub

Meanwhile, renewed hope for the one-time flagship project—the Sasol-led plan to develop a green hydrogen hub at Boegoebaai, in the Northern Cape close to the Namibian border—arose from the recent designation of state-owned Transnet’s Boegoebaai Port and Rail project, on which the project’s implementation is contingent,  as one of seven SIPs the implementation of which will be prioritised in 2025/26 (from 1 July) by government body Infrastructure South Africa. First unveiled in late 2021, the vast scheme ultimately envisages deploying 40GW of electrolyser capacity by mid-century, with a more modest medium-term goal (originally set for 2035) of 5GW, to produce 400,000t/yr of green hydrogen. A pre-feasibility study was completed in 2023.

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Author: Clare Dunkley