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30 Sep 2022

Now is the time for Southern Africa to step up to the Green Hydrogen plate

Prashaen Reddy
Green Hydrogen

The world’s steadily growing demand for hydrogen is expected to exceed supply by 2030, making now an ideal time to invest.  

Green hydrogen’s ability to store renewable energy holds one especially intriguing possibility: it can be transported. This is achieved by transforming it into a portable product such as ammonia, methanol, or an e-fuel, and work is underway to develop a way to transport liquified green hydrogen over long distances without having to transform or reprocess it.  

A recent study by global management consultancy Kearney has noted that Southern Africa, which features geographies with favourable conditions for renewable energy production, will be able to store renewable energy and export it to areas where renewable energy production is technically or economically limited.  

Prashaen Reddy, an associate partner at Kearney, commented: “Although Southern Africa has a major opportunity to produce green hydrogen, the region’s demand is projected to be lower than the demand centres in Europe and Asia. For example, South Africa, the region’s most industrialised country, is projected to reach a demand of only 238kt by 2030.”  

This means with the region’s relatively low demand, the favourable production climate, and the limited impact of transport costs, Southern Africa is poised to become a green hydrogen export hub.  

Winning in Southern Africa’s green hydrogen market  

Looking beyond the theoretical merits of green hydrogen to the tangible strategies to meet global demand, Reddy believes five moves can put market entrants on the path to success as they seek to establish green hydrogen production facilities in Southern Africa:     

1. Gain government support in establishing a conducive regulatory environment   

The government has a central role to play in the energy transition, with market entrants’ success impacted by the level of government buy-in and a clearly defined green hydrogen strategy. Governments set policies that impact both the speed and the direction of the energy transition, and they create the regulatory environment that supports the development of production facilities and the attractiveness of the location for investors.   

2. Establish public and private partnerships to de-risk projects 

Because of the market’s nascency, any new development will have a variety of project and operational risks, making it more difficult to secure funding for the project itself and any off-takers. To be successful, market entrants will need to establish three partnerships to attract funders and off-takers: public partners (state enterprises, state agencies and governments), off-takers and technology partners.  

3. Overcome infrastructure barriers and capitalise on the opportunities  

As with any major project, significant amenities are required. Sizable green hydrogen projects, such as some announced giga-scale projects, also require vast areas of land to produce renewable power.  

4. Secure funding   

As with any mega project, and more so for nascent technologies with inherent risk, securing adequate funding is complex. Funding from multiple sources is often required. Kearney’s market sensing study of the Southern African renewables ecosystem identified the main archetypes for investors interested in financing renewable energy projects, each with a unique value proposition, risk appetite and expectations for a return on investment.  

5. Drive the just energy transition 

Southern Africa’s energy mix is predominantly carbon-based. For example, South Africa gets about 90% of its electricity from coal. The coal value chain directly employs about 150,000 people—jobs that are at risk amid the transition to a low-carbon economy. Green hydrogen will be a fundamental part of the region’s just energy transition, which the International Labour Organisation defines as occurring “in a way that is as fair and inclusive as possible to everyone concerned, creating decent work opportunities and leaving no one behind.” 

Success as an early entrant   

However, as a nascent industry in an underdeveloped region, several obstacles will need to be overcome to capture the full benefits. The five success factors mentioned must be carefully considered along with the strategies for enabling success.  

There are many benefits and opportunities as it comes as a complete package, promising profitable enterprise, new jobs and more environmental sustainability in the region.  

“With all this at play Southern Africa offers an attractive opportunity for new entrants in the green hydrogen sector. With limited local demand expected, the region is poised to be a key exporter to demand centres in Europe and Asia,” ends Reddy.

This article is authored by Prashaen Reddy,  an Associate Partner at Kearney a global management consulting firm. It is originally published on ESI Africa.

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