South Africa's Hydrogen Strategy

This commentary is part of Energy Rewired, a project from the CSIS Energy Security and Climate Change Program studying the industrial strategies of major economies for the energy transition. The project examines countries’ big bets on emerging energy technologies and how these will rewire the world’s energy map.

Key Points

• South Africa wants to become a major producer and exporter of green hydrogen, capturing a 4 percent global market share by 2050.
• South Africa’s hydrogen strategy reflects several priorities: a desire to decarbonize its economy, an effort to create economic growth, an aim for pursuing a just transition away from coal, and a way to fully exploit its critical mineral resources.
• The country has several assets relevant for hydrogen: expertise in the Fischer-Tropsch process, abundant renewable energy resources, and major production capacity of platinum group metals (PGM), a key input for hydrogen applications.
• PGMs, in particular, offer an opportunity to develop a globally relevant industry, capturing local value added from a resource that is now exported as a raw material. A cornerstone of the government’s hydrogen strategy is a “Platinum Valley,” an industrial cluster to combine various applications into integrated hydrogen ecosystem.

Analysis

Vision

South Africa’s hydrogen ambitions are driven partly by its decarbonization goals, and partly by a desire to support economic growth and exports. Hydrogen is seen as an opportunity to revamp the country’s industrial sector and achieve its emissions reduction goals by 2050 while reducing socioeconomic inequality. The country’s vision is guided by its Hydrogen Society Roadmap (HSRM) released last February, which sets clear targets to reach by 2050. South Africa aims to deploy 10 gigawatts (GW) of electrolysis capacity in Northern Cap by 2030 and produce about 500 kilotons of hydrogen annually by 2030. This growth is forecasted to create 20,000 jobs annually by 2030 and 30,000 by 2040.

South Africa has several assets in pursuing its hydrogen ambitions: deep expertise in the Fischer-Tropsch process (which is used in the production of power fuels), major production capacity of critical minerals necessary for hydrogen, and infrastructure that could be used for the hydrogen. The country is the world's largest producer of PGMs, one of the key ingredients in the production of green hydrogen, yet platinum currently contributes very little to its GDP because most of the raw materials are exported. Hydrogen technologies could allow the government to reverse the course by creating a more integrated domestic value chain. In fact, the Platinum Valley Initiative (PVI) is one of the four catalytic projects identified in the strategy document to kick-start the country’s hydrogen economy.

South Africa’s abundant renewable resources offer another advantage. A recent report by the National Business Initiative says that South Africa could produce green hydrogen for $1.60 per kg by 2030, one of the lowest costs worldwide. This could help the country reach its goal of doubling its current share of global hydrogen production by 2050—from 2 to 4 percent.

Green hydrogen can also help South Africa decarbonize. Economy-wide decarbonization in South Africa is crucial to maintaining global temperature increases at 1.5 degrees Celsius, as the country is the world’s 14th-largest emitter of greenhouse gases. Hydrogen has the potential to help the country reach a net-zero economy by 2050.

Strategy

The government’s near-term strategy consists of creating a local demand for green hydrogen and hydrogen-related products. The HSRM has identified four catalytic projects to scale up hydrogen use across all sectors of the economy and for potential export:

• The PVI focuses on creating a “hydrogen corridor” linking mining in Limpopo, the industrial hub in Johannesburg, to the port of Durban. This strategic intervention will facilitate the conversion of trucks from diesel to fuel cell trucks, which will increase hydrogen demand in the valley to 80 percent by 2030.
• The COALCO₂ -X project is designed to use green hydrogen and captured pollutants from the coal-fired boilers to produce value-added products such as green ammonia, fertilizers, and synthetic acid, thereby increasing local demand for green hydrogen.
• The Sustainable Aviation Fuels (SAF) project will provide low-carbon alternative fuels to help decarbonize the aviation sector. The government authorized a feasibility study in April 2021 to determine the possibility of upscaling the production of SAF, with the goal of creating 55,000 jobs in the rural area while adding ZAR 2 billion to the country’s GDP every year.
• The Boegoebaai hub is a massive industrial zone that will host seven key facilities including an electrolyzer park; a green ammonia production plant; a desalination plant; a storage facility; a solar, wind, and battery park; a gigafactory to level up the production of electrolyzers; and a supplier park. The project is expected to create 6,000 direct jobs and will allow South Africa to become a mass exporter of green hydrogen.

Numerous funding programs are available to support renewable energy, including hydrogen. This includes the ZAR 800 million green fund established under the Department of Environmental Affairs to support green initiatives. The South African government also counts on public-private partnerships. In 2018, the Public Investment Corporation and Anglo American Platinum committed $200 million to launching AP Ventures, aiming to catalyze growth in the usage of PGMs.

The government also relies on global partnerships and foreign investments to kick-start its hydrogen production. It is currently developing its first Country Investment Strategy (CIS), aiming to attract more foreign and domestic direct investment into the country. In January 2022, the government announced a new collaboration with the German Ministry of Economic Cooperation and Development (BMZ) to launch a new project that will promote green hydrogen production in South Africa. BMZ will provide €12.5 million in funding to support the project, which aims to produce a strategic and regulatory framework for the green hydrogen economy in South Africa, coordinate the contribution of different stakeholders, and ensure high environmental standards. This comes after the KfW Development Bank, on behalf of the German government, launched a concessional financing initiative in July 2021 to enable the development of the hydrogen economy in the country. A total of up to €200 million was made available by KfW bank to be allocated to numerous selected projects with the preference given to pre-feasibility projects. In addition, the United Kingdom Partnering for Accelerated Climate Transition (UK-PACT) recently launched a €60 million flagship program under its international climate finance portfolio to support green hydrogen job creation from a just transition perspective—this too could benefit South Africa.

South Africa’s ambition is to become a net exporter of green hydrogen, and it has been looking into possibilities for export to the Asian market, especially Japan. Last October, President Cyril Ramaphosa announced a Green Hydrogen Export Economic Zone near the country’s deep water port of Boegoebaai, which will serve as a future export hub. The country is also aiming for the European emerging market and recently signed a Memorandum of Agreement with the Port of Rotterdam (PoR), with PoR to act as a “demand aggregator for green hydrogen in Europe.”

Geography

South Africa wants to develop industrial clusters along the country’s major transport corridors and mining regions. A recent feasibility study commissioned by the government identified three potential hydrogen hubs: Durban, Johannesburg, and Mogalakwena and Limpopo. Although these regions were chosen in part based on their proximity to possible domestic “demand off-takers,” they are also located along the coastline, making them convenient for future exports.

These three regions have two things in common: potential demand for hydrogen, and abundant renewable resources (wind, solar, and water). The report suggests hydrogen demand in these regions could reach 185 kilotons of hydrogen by 2030. More importantly, the existing gas distribution pipelines and storage facilities in these regions make them suitable for hydrogen. Johannesburg, which has the largest gas infrastructure network, has already been using parts of it for blue hydrogen transport. The report identified nine pilot projects in the transport, industry, building, and agricultural sectors to kick-start the hydrogen valley.

Nikos Tsafos is the James R. Schlesinger Chair in Energy and Geopolitics with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C. Tani Salma is the program coordinator for the Energy Security and Climate Change Program at CSIS.

This commentary is made possible by support from the Hewlett Foundation.

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