SA’s green hydrogen plans get R400m boost from German development bank

The German KfW Development Bank will provide about R400m in grant funding to support the development of SA’s green hydrogen economy and bolster its transition to renewable energy.

The funds will be managed by the Industrial Development Corporation (IDC) and are in addition to the €300m (about R5bn) concessional loan agreement that KfW recently concluded with National Treasury to support SA’s efforts to reduce its reliance on coal in the energy sector via the Just Energy Transition Partnership.

The announcement was made at the start of SA Green Hydrogen Summit kicked off in Cape Town this week and coincided with a separate statement from the Public Investment Corporation (PIC) that it will provide early-stage capital for the development of SA’s hydrogen value chain. The state-owned PIC is Africa’s biggest asset manager, administering the pension funds of most government workers.  

SA has abundant supplies of platinum and sun and wind energy needed to establish a green hydrogen value chain and become an exporter of the green energy source. Infrastructure SA, a programme within the ministry of public works, has already identified a pipeline of 19 green hydrogen projects valued at more than R300bn.

However, to get the projects off the ground, SA will first have to secure offtake agreements and the necessary finance.

Green hydrogen, is produced by splitting water into its hydrogen and oxygen components via electrolysis using renewable energy such as solar or wind power.

Public works minister Patricia de Lille told the summit on Tuesday that SA was competing against countries such as Chile and Australia, and several countries in the Middle East to capture a share of the global export market for green hydrogen.

One of four 

The demand for hydrogen reached an estimated 87-million tonnes in 2020 and is expected to grow to between 500-million and 680-million tonnes by 2050. Of this, the export market will account for 100-180Mt.

President Cyril Ramaphosa, who gave the opening address at the summit, said SA had the potential to produce between  6-million and 13-million tonnes of green hydrogen and derivatives a year by 2050.

Green hydrogen, he said, has been identified as “one of the big four frontiers” in SA’s Just Energy Transition Investment Plan launched earlier this month at the COP27 climate summit in Egypt.

“According to the plan SA will need $98bn (about R1.6-trillion) over the next five years to enable a just transition and achieve our ambitious emissions reduction targets,” Ramaphosa said.

Reaching the green hydrogen production volumes mentioned by Ramaphosa would require the installation of between 140GW and 300GW of renewable energy — about four to seven times more than SA’s total installed generation capacity.

“The potential for green hydrogen to become a thriving sector for SA is huge. The government will work with the sector to create an enabling environment for investors ... to create much needed jobs,” De Lille said.

One of the first projects expected is the Prieska Power Reserve (PPR) Project in the Northern Cape. According to De Lille, PPR will start producing green hydrogen and ammonia in 2026 by combining high-yielding renewable solar and wind energy.

The first phase of the project could create more than 10,500 jobs over the course of its construction and operation.

erasmusd@businesslive.co.za