An extract from PwC’s report titled, “Unlocking South Africa’s hydrogen potential“
South Africa has one of the highest renewable energy generation potentials in the world. There have already been billions of rand committed to solar, wind and pumped storage projects across the country. The Government’s Integrated Resource Plan (IRP) 2019 makes clear guidance for renewables to account for a bigger proportion of the country’s generation capacity. With so much effort being committed to these renewable initiatives, a clear opportunity exists for South Africa to couple renewable generation with hydrogen production through electrolysis. The added benefit of this is that an investment in electrolysis technology would also support the platinum sector and downstream beneficiation, as platinum is the primary component in the electrode assembly.
Given its immense renewable energy potential, South Africa could become an exporter of cost-effective green hydrogen to the world. The infrastructure needed to export hydrogen is similar to existing natural gas networks and is already being piloted in Australia and Japan. South Africa could leverage its existing port infrastructure to support this initiative and, in doing so, protect the jobs and infrastructure that are declining as a result of the drop in global demand for coal exports.
There would also be significant secondary benefits to increasing South Africa’s commitment to renewable energy. The need to construct so much renewable capacity would make it increasingly viable to manufacture a number of the components domestically. Especially within the wind turbine sector, this could help support the iron ore, manganese, chrome, ferrochrome, ferromanganese and steel industries.
Blue hydrogen may well be the bridge into the hydrogen economy. Providing a supply of low-carbon hydrogen into the market by utilising existing carbon-intensive production facilities. This would allow the uptake of downstream hydrogen technologies to grow while green hydrogen production is being developed. By utilising its coal and natural gas reserves South Africa has numerous opportunities to develop blue hydrogen production. Existing coal gasification facilities run by Sasol already produce the hydrogen-rich syngas needed to produce pure hydrogen, but these facilities would need carbon-capture technology implemented in order to produce blue hydrogen.
With the newly discovered natural gas claims in the Brulpadda Block and the existing gas-to-liquids (GTL) facility operated by PetroSA, much of the infrastructure already exists to supply pure hydrogen into the domestic and international markets. The natural gas market may also provide another solution in the form of carbon storage. Many of the gas fields off the coast of South Africa are depleted, yet the infrastructure linking these fields to the coast still exists. Similar to the solution being piloted in the UK, hydrogen could be produced on land through either coal gasification or reforming of natural gas and the carbon by-product could be pumped into the depleted gas fields for storage. The transition of the ailing South African coal and natural gas sectors to the production of blue hydrogen could help protect industry jobs and, if exported, generate critical foreign income for the country.
“With the newly discovered natural gas claims in the Brulpadda Block and the existing gas-to-liquids (GTL) facility operated by PetroSA, much of the infrastructure already exists to supply pure hydrogen into the domestic and international markets.”
In recent years the concept of nuclear power generation in South Africa has received much press, most of it marred by allegations of corruption and unaffordable costs.
But provision has been made in the IRP 2019 for two small modular reactors to be constructed before 2030. The thinking behind this is that due to uncertainty of supply from the Eskom coal fleet, the country needs additional instantaneous power generation. Nuclear works well in this regard, as it can supply power into the grid almost at the flick of a switch and, unlike renewables, is not weather or timing dependent. However, nuclear reactors (even modular ones) are most efficient and provide maximum returns on investment when they are utilised to the maximum. If these reactors are only being utilised to supplement the grid in times of peak loading or in emergencies, then they will not be being utilised efficiently. The solution may be to combine these reactors with a hydrogen electrolysis plant. This would enable the reactor to run continuously and at maximum efficiency, providing power directly to the grid when needed and producing hydrogen when not. This hydrogen could then be utilised to generate additional peak power, provide buffer generation, long-term energy storage or be utilised in the off-grid or transport fuel-cell industry.
Fuel cell manufacturing
One of the costliest components within a fuel cell is the catalyst. With current levels of technology, the catalyst accounts for a third of the entire cost of a fuel cell. This is because platinum is the most efficient catalytic material. Platinum and the wider group of platinum group metals (PGMs) have historically been used within the automotive sector in the cleaning of exhaust emissions by auto-catalytic converters. On a vehicle- to-vehicle comparison, an FCEV requires between three and ten times the amount of platinum as an ICEV catalytic converter.
Many leading fuel-cell manufacturers are attempting to lower the volumes of platinum utilised in FCEV catalysts in an effort to make the technology more affordable, but even the most optimistic technology targets put the volume of platinum used in an FCEV on par with that of an existing ICEV. This obviously represents a significant opportunity for the South African platinum sector and explains why the sector has been one of the leading investors in fuel- cell technology on the continent. With the PGM resources located in South Africa and Zimbabwe accounting for 90% of known reserves, these countries stand to benefit from the widespread adoption of fuel cells. With so much of the world’s platinum being produced in Southern Africa, it makes sense for South Africa to move along the value chain and begin manufacturing fuel-cell catalysts, creating additional value, before exporting the product.
“With so much of the world’s platinum being produced in Southern Africa, it makes sense for South Africa to move along the value chain and begin manufacturing fuel-cell catalysts, creating additional value, before exporting the product.”
The technology for producing a fuel-cell catalyst is not dissimilar to that used in auto-catalytic converters, which are already produced in South Africa. If there were large enough economies of scale, manufacture of fuel-cell catalysis in South Africa would reap significant economic benefits. The first fuel- cell factory is already under construction at the Dube TradePort special economic zone outside Durban. However, at this stage the facility is being utilised for fuel-cell fabrication and not the direct manufacture of platinum catalysts.
Manufacturing FCEVs
South Africa already has significant vehicle manufacturing facilities, with major automotive players such as BMW, Mercedes-Benz, Toyota, Volkswagen and Nissan producing vehicles in the Eastern Cape, KwaZulu-Natal and Gauteng. All these companies are working on their own or in collaboration with others in the development of FCEVs. If the demand for FCEVs grows as expected in the coming years, and if South Africa could support the manufacture of fuel cells domestically, then it would be an obvious next step to move along the value chain and utilise these fuel cells in the local manufacture of FCEVs. This would create jobs and boost export earnings. The secondary upside of increased vehicle manufacturing, both with ICEVs and FCEVs, would be the support of other South African sectors, especially the chrome, manganese, ferrochrome, ferromanganese, aluminium and steel industries. Although the use of steel has declined in the automotive sector in favour of lighter materials such as aluminium and carbon fibre, use of stainless steel is still high. If stainless steel used in the domestic production of both ICEVs and FCEVs were to be sourced domestically, it could help support other key industry areas.
FCEVs also utilise a significant amount of rare earth elements (REE), lithium, cobalt, nickel and copper. With Africa tipped to be one of the key areas for REE exploration in coming years, the opportunities to beneficiate these minerals domestically and utilise them in the construction of FCEVs may become highly profitable. The US is also very keen to support the development of REE mining and beneficiation outside of China and will provide funding to such projects that can help de-risk their own supply of REEs.
Materials such as copper and nickel are also found in South Africa and they too could be utilised in support of FCEV manufacturing — supporting the domestic mining sector, creating employment opportunities and reducing reliance on imports.
Adoption of FCEVs in commercial fleets
In the coming years the adoption of FCEVs in almost all sectors will make economic sense, especially with their superior performance over ICEVs and BEVs in certain applications. Early adoption of FCEVs in South Africa has the benefit of supporting the wider economy, especially if the FCEVs and the hydrogen powering them are produced domestically. Because of this, government should consider subsidising early adopters of FCEVs, as the benefits for the country as the whole would likely outweigh the cost of the subsidy. Subsidies could either be provided by subsidising the capital cost of the vehicle, or alternatively, the hydrogen fuel could be subsidised.
Certain sectors in South Africa that are already pioneering FCEVs, especially within mining. Impala Platinum has deployed a fleet of FCEV forklift trucks at its refinery in Gauteng, and Anglo-American Platinum is pioneering the first FCEV mining truck at its Mogalakwena Mine in Limpopo. In the early-adoption stages of FCEVs there will be limited access to refuelling facilities, making those sectors that utilise centralised refuelling the best candidates for the technology. These would include the bus, taxi and trucking sectors as well as ride- sharing fleets and the mining, military and logistics sectors.
Although the initial capital cost of FCEVs may need subsidising by government or the automotive manufacturer, the key to the early adoption of FCEVs will be in the correct pricing of hydrogen. Even if the cost of hydrogen remains on par with fossil-fuels, companies that adopt FCEV fleet solutions should benefit from high utilisation, reliability, cheap maintenance due to less moving parts and the ability to avoid expensive emissions taxes.
Adoption of FCEVs for private use
The adoptions of FCEVs for private use will likely only occur after widespread utilisation in the commercial sector, as it will take time to roll out hydrogen refuelling stations. By this stage, the cost of an FCEV is expected to be lower than or at least on a par with that of an ICEV.
The uptake of FCEVs may also depend on whether or not the FCEVs and catalysts are being produced domestically. If a significant portion of the value chain lies within the domestic economy, then it will make more sense for government to subsidise these vehicles earlier. Should South Africa rely on the importation of FCEVs then adoption by the private sector may take longer.
With the private sector not needing to rely on utilisation, reliability and maintenance in the same way as the commercial sector, the key variables in FCEV uptake will be the vehicle cost and the cost of hydrogen at the pump. If these are priced correctly and the manufacture of FCEVs and catalysts is carried out locally, then the economic multiplier from the private sector’s adoption of FCEVs could have a highly positive effect on South Africa’s economy.
Fuel cell locomotive manufacture
In Europe there have been great strides in rolling out hydrogen fuelled locomotives on non-electrified rail networks. Fuel-cell trains offer a far cheaper option in the decarbonisation of the rail network compared to the massive capital cost associated with building electrified overhead lines.
South Africa is in a unique position among developing nations in that a large portion of its rail network is already electrified. Therefore, the argument for using fuel-cell locomotive is not as strong. The same cannot be said for the rest of Africa, which relies primarily on diesel-electric locomotives. In the same way that it makes sense to domestically manufacture fuel cells for the power and vehicle markets, South Africa could explore manufacturing fuel cells for locomotives and export these to the rest of Africa.
If sufficient demand could be created for these locomotives, then it may also make sense to incentivise the manufacture of the entire locomotives in South Africa. This could help support the local mining industry through additional demand for base materials. Bringing manufacture of specialised technology such as locomotives would usually require a partnership with a major international player.
If South Africa could foster a hospitable investment environment and leverage its competitive advantage in raw materials (platinum, chrome, manganese), then it could justify the establishment of a global manufacturing hub for fuel-cell locomotives.
Supporting renewable energy adoption
Both through existing commercial and government commitments and the roadmap laid out in the IRP 2019, it is clear that renewables will account for an ever-increasing percentage of South Africa’s energy generation capacity. As the usage of renewables grows, the country will face issues around renewable intermittence and providing buffering to the grid. As discussed earlier, the use of hydrogen to address both issues is compelling. The additional benefit of utilising hydrogen at this scale is that it would likely decrease the unit cost of production. Thus, an investment in renewable-energy-to-hydrogen plants will likely support the provisioning of cost- effective hydrogen to other markets.
Across most of Africa, the concept of off- grid power is receiving much attention and the generation of primary power through solar or wind is a well-accepted and proven technology. However, how best to store that power (on an efficient small scale) is still open for debate. In small-scale, short-time-period stationary applications, batteries outperform hydrogen, as very little energy is lost in the storage of renewable energy in batteries as compared to the energy losses associated with producing hydrogen.
“When viewing energy holistically, the case for off-grid hydrogen is extremely persuasive. The synergies possible through use of a single fuel to provide energy to the home and provide heat and power to vehicles are substantial.”
Where hydrogen outperforms stationary batteries is in the long-term storage of energy, in volatile climates (especially cold ones) and in the attractiveness of the material to thieves. It is for these reasons that fuel cells have been favoured over batteries and generators for back-up power in the telecommunications sector in South Africa.
When viewing energy holistically, the case for off-grid hydrogen is extremely persuasive. The synergies possible through use of a single fuel to provide energy to the home and provide heat and power to vehicles are substantial. A short-term solution to providing off-grid power, especially to remote communities, may simply be to provide them with FCEVs and cost-effective hydrogen. Not only would communities have transport, but the FCEVs could be utilised as power generators for the home. When paired with the construction of a centralised off-grid renewable-to-hydrogen plant, (i.e. a wind turbine paired with an electrolysis machine) the benefits are clear: Not only would a large centralised facility benefit from greater economies of scale, but it could store the hydrogen for a long period of time and supply it for the fuelling of community vehicles without the need for expensive electrical reticulation to the home.
Development of new industries utilising green hydrogen
By capitalising on its renewable energy wealth and investing in the production of green hydrogen, South Africa would open the door to developing whole new industries. Hydrogen is the feedstock for so many industrial processes and products, including ammonia, methanol, the hydrogenation of oil for the food industry, rocket fuel and hydrochloric acid, to name a few. Approximately 55% of hydrogen produced today goes into the production of ammonia for the fertiliser industry. With the expected rise in the global population and the concerns over food supply, the fertiliser industry is likely to be highly lucrative in the coming years.
Traditionally, the ability to produce these products cost effectively was dependent on access to a hydrocarbon fuel, usually natural gas, and the countries that had easy access to natural gas tended to dominate production. With renewable-to-hydrogen technology, that competitive advantage largely disappears. If South Africa can properly leverage its renewable energy potential, then it could become a major player in the production and export of all hydrogen-based chemicals, creating countless jobs and earning the country significant foreign currency.
Conclusion
There is little doubt that hydrogen will be a major force in achieving the 2°C scenario and that South Africa stands in an unprecedented position to partake in the global hydrogen economy — both through direct use of hydrogen technology and through supplying the raw materials that enable it.
For South Africa to seize this opportunity, it needs to develop a clear hydrogen strategy and roadmap. This roadmap should speak not only to South Africa’s own strategy, but the strategy of global players and how the country can support and integrate its investments to expedite the development of the global hydrogen economy. The roadmap needs to contain clear implementation timelines for decarbonisation targets and hydrogen investments, with genuine accountability for these targets. Without such a timeline, the private sector will not have the surety needed to invest.
The government needs to promote clear coordination across sectors, both public and private. Maximum economic impact will be achieved through the coordination of efforts and through sector-coupling hydrogen technologies.
Clarity is needed on both the taxation of carbon emissions and on the taxation of hydrogen. Carbon emissions need to be properly disincentivised and penalties need to be enforced, while uptake of hydrogen technology needs to be incentivised through tax relief. Decisions will need to be made on how to tax grey hydrogen in the short term, and if some tax relief it should be provided to support adoption of downstream technologies.
The government will need to set out clear and realistic safety guidelines for the generation, transport and storage of hydrogen and, within reason, attempt to remove barriers to entrepreneurial involvement and innovation.
Government and the banking sector will need to promote funding initiatives to support early adopters of hydrogen technology. In order to speed up the adoption of hydrogen and to lower unit prices, investments will need to be made at scale. Government needs to support de-risking strategies through long- term offtake agreements and by providing guarantees.
The subsidisation of technology and potentially hydrogen fuel, may be needed to support the timeous adoption of hydrogen. Although some subsidies are available from government within the fuel cell industry, these need to be expanded to cover the wider hydrogen economy. Initiatives similar to those proposed in Europe for creating an additional fuel levy on fossil fuels, to be utilised to subsidise and fund hydrogen, have merit in supporting the right behaviours.
There must be clear protection of innovation and companies that have invested heavily in research and development must be able to retain competitive advantage in the South African marketplace. Twinned with this, government must create clear guidelines and definitions for instances of market abuse and the repercussions of such acts.
Investment in blue hydrogen may well be the steppingstone to developing a fully decarbonised hydrogen economy. Clarity is needed from government on the classification, regulation, production methods and taxation of this method of hydrogen production, with preferential incentives being granted to green hydrogen production.
The detrimental effect of continued use of fossil fuels may only be fully realised in generations to come. Already, increasing global temperatures, worsening air quality and issues of water scarcity are directly impacting South Africa. Prioritising investment in the global hydrogen economy will help ensure the economic and environmental sustainability of the country for years to come.
