Contributed by Infrastructure Finance Advisory Services at Mazars in South Africa
European organisations have spearheaded the establishment of two key renewable energy funds in Southern Africa: the SA-H2 Fund in South Africa and the SDG Namibia One fund in Namibia.
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This signifies European leadership in actively pursuing partnerships and investments in the region’s green hydrogen sector to support the transition towards a more sustainable and climate-friendly energy system, by targeting southern Africa’s potential as a strategic location for green hydrogen production due to its abundant renewable energy resources, such as solar and wind. Egypt, Morocco and Mauritania are also making significant strides and are positioned to cater to Europe.
Making such partnerships gel efficiently may ultimately come down to professional services organisations such as Mazars with a foot in both continents, as well as the relevant expertise in green hydrogen. For instance, the identification of projects requires a deep understanding of the industry basics; knowledge of the trends and developments; a broad contextual insight; market analysis on a global level and an appreciation of the challenges and opportunities.
In a recent Mazars report titled Green Hydrogen – reviewing all the major initiatives under way in the region, it concluded that, “South Africa, often associated with fossil fuel usage, possesses a distinctive set of factors that make it exceptionally suitable for green hydrogen production.”
Furthermore, “Overall, South Africa is making strides toward becoming a significant player in the global green hydrogen market, with ambitious goals and plans to unlock the vast potential of this clean energy source.” Recent efforts by both the public and private sectors have resulted in a significant ramp-up of green hydrogen projects in South Africa being developed. In November 2022, 20 green hydrogen projects were included in the Government Gazette, some to be expedited.
Green hydrogen, produced by using renewable energy sources to split water molecules, has gained recognition as a promising solution to tackle climate change and advance the energy transition. It is the key that unlocks renewable energy objectives. Renewable energy is replacing conventional fossil-fuels worldwide, but their major problem is the inability to react to load fluctuations. Green hydrogen proves to be a sustainable option to store the excess energy generated by sources such as solar and wind, to be utilised when needed.
The global green hydrogen market was valued at USD676-million in 2022 and is projected to reach a value of USD7.3-billion by 2027, with a compound annual growth rate (CAGR) of 61% since 2022. This exponential growth can be attributed to several factors, including the declining costs of producing renewable energy from all sources, advancements in electrolysis technologies and the high demand for fuel cell electric vehicles (EVs) and power industry.
Underpinning growth is that over the past decade, the cost of renewable energy from sources like solar and wind has decreased substantially. Solar energy, in particular, has shown a significant decline, with costs now just 25% of what they were previously. This reduction is due to advancements in technology, lower raw material costs, improved production methods and higher product efficiency. Similarly, the cost of producing green hydrogen is forecast to decrease in parallel.
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An important start has been made in the availability of funding for projects in southern Africa. Support has recently become available through the establishment of two funds: the SA-H2 Fund in South Africa and the SDG Namibia One fund in Namibia. With ambitious funding targets of USD1-billion each, these funds aim to propel the development of green hydrogen technologies, infrastructure and job opportunities in their respective countries. In the case of the SDG Namibia One fund, the country anticipates significant advancements in green hydrogen production and utilisation by harnessing Namibia’s abundant solar and wind energy potential.
Nonetheless, to fulfil green hydrogen’s undoubted potential a number of hurdles must be overcome: the high initial production costs and an underdeveloped market for product. The initial costs of setting up green hydrogen production facilities can be substantial, and the market is still in the early stages of development. However, as the market matures and economies of scale are achieved, these challenges are expected to diminish.
One of the biggest challenges in the green hydrogen market is ensuring sustainability and reducing initial costs. It is crucial to ensure that the energy used in the production of green hydrogen comes itself from renewable sources, rather than fossil fuels.
Hydrogen as a fuel source has not yet gained scale or acceptance, and the technologies required for its efficient use are still in the development phase and not yet available commercially.
In terms of market sectors, the mobility industry currently accounts for the majority share (58%) of the green hydrogen market in terms of value. This sector is projected to reach USD4.5-billion by 2027, growing at a CAGR of 63.4%. The power sector is also expected to witness substantial growth, with a CAGR of 63%, reaching USD1-billion by 2027.
As the urgency to combat climate change grows, the search for sustainable, reliable energy sources becomes paramount. Green hydrogen, produced from renewable energy via electrolysis, has emerged as a promising candidate for a carbon-neutral future. Although its current costs present a barrier, ongoing advancements and increasing investments in tech are poised to drive down production costs and establish green hydrogen as the energy source of the future.