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H2 go or H2 no? Embracing Green Hydrogen: Our Key to a Sustainable Future | Nedbank CIB
By Mike Peo, Head of Infrastructure, Energy and Telecommunications at Nedbank CIB
Posted 12/12/2023 2 mins
As the global community confronts the impacts of climate change, the spotlight has shifted towards green hydrogen, a renewable and clean energy source, as a potential solution. However, its expansion and accessibility will be heavily influenced by the development of supportive policies and enabling regulatory frameworks. This leads us to the pressing question that sets the stage for our discussion: Could green hydrogen unlock the path to an emission-free world with the right policies in place?
Imagine a world powered by an energy source that emits only water vapor when consumed, is infinitely abundant and doesn't contribute to climate change. Once relegated to the dreams of futurists, this is no longer science fiction but a reality that is within our grasp, thanks to the possibilities of a green hydrogen re-industrialisation of economies.
Today in South Africa, coal remains the backbone of our energy supply, yet it's no secret that its environmental impacts are devastating. Natural gas, while an improvement, is still not ideal. Its extraction, liquefaction, and transportation pose their own set of challenges and environmental concerns.
The narrative is changing, though. South Africa is poised to transition from coal to natural gas, with the ultimate goal of integrating greener alternatives like hydrogen. While this shift is not without its complexities, particularly in the economical production of hydrogen from natural gas, it is a necessary step towards a sustainable future.
Is hydrogen overrated?
Some experts contend that hydrogen is being “oversold” or excessively hyped. Despite the greater enthusiasm surrounding hydrogen fuel compared to solar or wind power, the projected 7% contribution of hydrogen to the overall clean energy mix in 2050 is relatively modest. Furthermore, the anticipated high costs associated with establishing hydrogen infrastructure make it tempting to acknowledge that hydrogen is being exaggerated as the ultimate solution for clean fuel. Added to this, the fact that the International Energy Agency (IEA) predicts that worldwide production will have to increase from the current 90 million to 180 million tons annually by 2030 in order to attain net-zero by 2050.
Despite these forecasts, there are, in fact, hopeful signs. Take solar energy for instance - not too long back, a prohibitively expensive proposition, now extremely affordable and massively embedded as a mainstream generation technology. It's reasonable to believe that hydrogen production could follow a similar development and deployment path, with the right technological breakthroughs and economies of scale.
Financing green projects such as hydrogen production, however, calls for a shift in traditional approaches. Successful financing models are sparse in this nascent field. Meanwhile, green ammonia, serving as an intermediate carrier of hydrogen, could offer an interim alternative pathway but would still need to rely on renewable energy sources.
This transition also emphasises the importance of green infrastructure. South Africa's infrastructure spending falls short of the required 30% of GDP, in part due to systemic inefficiencies. Redirecting investments towards green projects like hydrogen could serve as a double boom, stimulating economic growth and creating jobs.
Learning from countries like Singapore, Namibia, Japan and others, South Africa and other nations need to adopt a future-oriented mindset and a robust infrastructure investment strategy. We have a well-articulated Green Hydrogen Commercialisation Strategy but need to move to a rapid action plan to ensure that we do not fall behind in a highly competitive future landscape. A failure to transition to green practices risks economic drawbacks as global markets are increasingly favouring environmentally friendly products.
A possible catalyst in this journey could be the implementation of a carbon tax, incentivising the shift from coal and gas to green hydrogen. Although complex, this could potentially level the playing field and attract investments towards green energy. African countries, while minor contributors to global warming, are expected to bear significant impacts - particularly socioeconomic effects due to climate change. Thus, the proactive development of green hydrogen economies could serve as a rallying point for international support.
Carbon trading will also offer a viable mechanism to offset emissions, potentially replacing or enhancing a carbon tax. Furthermore, securing long-term offtake agreements with countries like Japan, Germany, and the EU could play a pivotal role in driving investments in green hydrogen projects.
South Africa, as Africa's largest carbon emitter, urgently needs to transition its energy sources to stay competitive and while we have Just Energy Transmission Plan, we need to ensure implementation of the plan Namibia, a smaller participant, has recently entered into an agreement with Hyphen Energy to develop a massive green hydrogen complex in Lüderitz.
With technological advancements and economies of scale, the cost of green hydrogen production is expected to decrease over time. A host of pilot projects in South Africa and investments from global companies and climate fund managers are bright signs on the horizon.
Yet, the challenge lies in creating the right financial instruments and project financing mechanisms. We need to tread carefully to avoid overregulation and ensure the private sector is an active participant in driving the development of green hydrogen infrastructure. The future of green hydrogen can't be penned by governments alone; it is a story that must be co-written by industries, researchers, financiers, and society at large. Green hydrogen offers us a vision of a prosperous, energy-rich, and emissions-free future.
As we stand on the cusp of this exciting transition, we must be brave enough to redefine our relationship with energy. This means embracing the promise of green hydrogen with both hands, fostering innovation, and championing a sustainable future. As we inch closer to this reality, it's clear that the green hydrogen revolution is not just about energy; it's about our commitment to the planet and future generations.