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Green hydrogen presenting South Africa with good target point – Nedbank

Industrial Development Corporation COO Joanne Bate.

Nedbank CIB Energy Head Mike Peo interviewed by Mining Weekly's Martin Creamer. Video: Darlene Creamer.

Industrial Development Corporation COO Joanne Bate.

22nd June 2023

By: Martin Creamer

Creamer Media Editor

     

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JOHANNESBURG (miningweekly.com) – Green hydrogen is presenting South Africa with a good target point at a time when the African continent is on the cusp of a massive revolution in the energy space.

“For South Africa in particular, the ability to transition through less carbon intensive fuel sources ultimately to green hydrogen is incredibly important and possibly the only way that we can truly create an energy transition,” Nedbank Corporate and Investment Banking (CIB) infrastructure, energy and telecommunications head Mike Peo told Engineering News & Mining Weekly in a Zoom interview. (Also watch attached Creamer Media video.)

Moreover, the country has abundant land for more wind and photovoltaic projects, particularly the Karoo and Northern Cape, and is positioned comfortably at the tip of Africa to have export markets to the east and west.

“We also have an incredible resources in platinum group metals, which still form an essential part of electrolysers,” said Peo, who was speaking from an energy event in Nairobi, Kenya, where he was part of a panel discussion on the potential of hydrogen as an opportunity for Africa, with the session taking in project preparation, bankability, the requirements of the hydrogen off-taker market, contract structuring, securing bankable off-taker contracts, the readiness of financiers, and aligning regulations.

South Africa’s ability to produce and procure large-scale renewable energy projects had been proven over the last 14 years, with the renewable energy programme attracting R300-billion-plus worth of investment in globally competitive solar and wind power.

At the same time, Saudi Arabia’s large green hydrogen project was attracting attention in being 100% banked as a result of an offtake by Air Products to the US.

“One catalytic project sets the market alight and we start to see people saying it can be done.

“There are projects being developed in South Africa right now where there are challenges with things like project preparation money, but the Japanese, German and British governments all have strategies around their green hydrogen developments. As a consequence, they’ll either subsidise it or provide that type of grant money for big projects that are going to be the forerunners of a green hydrogen re-industrialisation,” Peo forecast.

How would you describe the readiness of financiers to become involved in green hydrogen opportunities?

There's a combination of two things. Number one, we’re seeing virtually every important country with the ability to become either an offtaker in hydrogen, or ultimately a developer of green hydrogen, green ammonia projects, rewriting the policy frameworks. We’re seeing massive government commitment to a policy framework which will take us down that avenue. That starts to get everything moving, but on top of that, because of the complexities and the stress around, for example, financing coal projects, I don't think there's a banking team in the world that is not sitting and looking at the evolution of green hydrogen as a future fuel source. Right now, every team is looking at how we position ourselves. There are a number of peripheral concepts as well as things like carbon trading and carbon credits, which, again, are going to indirectly subsidise production of things like green hydrogen. At this conference, for example, there's a stream that has been unbelievably well attended by every development financing institution, every multilateral institution. Most of the South African banks for example, many of Africa's banks, are at the conference, and they are talking about what next and how are we going to get there.

Is there any one government that is standing out as an example that others can follow?

At the moment the Namibian government appears to be at the forefront of the development. They have already set up the equivalent of the South African Independent Power Producer Office, which was the office set up to procure renewable energy, specifically focused on the development of a green hydrogen strategy for Namibia. A number of concessions have been awarded. There is a massive delegation from the Norwegian and Scandinavian countries in the country at the moment, talking about how to take the opportunity further. The support is there. In my personal opinion, what the governments really should be focusing on, apart from having an overall policy framework, is on creating the enabling infrastructure, making sure that there are berths in the ports, that the railroad and pipeline infrastructure exists, and then letting the private sector get on and develop these projects. Most of the projects will not have the ability, for example, as in the United States, under the Inflation Reduction Act, to, on a large scale, subsidise the production of, for example, green hydrogen, but the private sector is managing to find the offtake agreements. If we can get the cost points down to acceptable levels, through things like affordable green energy, then the private sector just gets on and can develop these products. Less interference is good but there does certainly need to be a policy framework. South Africa has a pretty good policy framework. It just needs more action around mobilising the interconnectivity between institutions like Transnet, getting the rail, port, that type of infrastructure, sorted out, and then letting the private sector go. A number of projects are being announced simultaneously, but there are institutions like the German government, the Norwegians, the Scandinavians, that are putting their chequebooks down right now and are busy either funding bankable feasibilities or putting funds down to subsidise the offtake for a particular period of time of a product.

What are the requirements of securing bankable off-taker contracts for green hydrogen developments?

As we have done in financing any other big-scale projects around the globe over the last 20 years, project finance becomes a very good vehicle, but the project finance model does require proper bankable offtake agreements. That said, there are a number of massive trading houses that have been involved in, for example, the sale of ammonia, massive, massive trading groups, that will now be converting those ammonia supplies into green ammonia supplies, at the outset. The ultimate end game, I guess, will be that green ammonia is then converted into green hydrogen itself. But the minute there is a party who is prepared to take off the product at a predetermined price in a predetermined volume, that becomes the anchor for a large volume of classical old-fashioned project financing and we are seeing a lot of that happening. At the same time, we’re also seeing a lot of blended financing where multilaterals or big development finance institutions (DFIs) work alongside commercial banks to produce blended financing, where, again, commercial banks require a particular hurdle rate to fund, the DFIs are either concessional money or at least providing some sort of risk mitigation at various stages in the project lifecycle, for example, in terms of getting the project built, getting through the construction phase, and so on.

Is Nedbank CIB working with any companies that intend getting involved in the green hydrogen opportunity?

Yes, we are. As usual, we are under normal nondisclosure agreements with the particular clients so we can't mention the names, but there are some major projects. We have been financing green energy for the last 14, 15 years on the continent and in particular in South Africa. We do have a leading position in terms of the number of projects that we have banked and the quantum of lending that we have put into that market. At least 60% of the cost of the green energy component in say a 450 MW type of project is going to be the energy supply. We've done that, we know how to structure the contracts and the financing. We understand the risks of the construction of green energy supplies and we've understood the operations we've been funding for a long period of time now. So, we are very well positioned in South Africa to be the leader on the continent. Within the bank, our mandate has been that we need to understand every aspect of the technology so that we can be positioned. There are going to be hydrogen fuel cells involved in the mix. There’s going to be green aviation fuel being produced. The journey that we're going to go down is not going to be one single project. It's going to be a number of pieces, which ultimately are going to help to decarbonise and transition us into this new fuel source. There are green hydrogen valleys being developed by some of the big players, some of the big mining houses. Massive institutions, like Sasol, have fairly well articulated the plans and we’re seeing momentum. There are major Australian groups that are investing heavily in the continent. Their stated intent is to help to position South Africa alongside places like Saudi, Chile as a global green hydrogen player.

What should be the main takeaway from this interview?

We desperately need to do something about climate, and we have very few options left. A massive commitment to growing a greener economy, which will ultimately be transitioned into green hydrogen, is going to become a reality. The movement is amazing. I can still recall when people were cynical about mobile telephony, and about LNG becoming a fuel source of the future. Those transitions happened in five, ten, 15 years. We're at the same place in the green hydrogen space right now.

R18-BILLION GREEN HYDROGEN FUND

South Africa’s newly announced green hydrogen fund, the R18-billion SA-H2 fund, is dedicated to financing this country’s green hydrogen development, South Africa’s State-owned Industrial Development Corporation (IDC) said in a release to Engineering News & Mining Weekly.

The rapid global adoption and development of the green hydrogen market offers a significant opportunity for South Africa to position itself as a competitor in future green energy markets, with the SA-H2 fund supported by climate-focused blended finance investment firm Climate Fund Managers, the Dutch government's Invest International, South African life insurer and investment group Sanlam, and the Development Bank of Southern Africa, the IDC, and others.

Green hydrogen is an energy carrier that is produced using renewable electricity and water in an electrolyser.

The development of a green hydrogen economy will not only create jobs but help boost South Africa’s energy security in the long term.

To this effect, there has been a significant ramp-up of green hydrogen projects in the country over the past 24 months and these have caught the attention of international cooperating partners that are keen to accelerate development of South Africa’s green hydrogen economy.

“Prospects for the development of a vibrant local Green Hydrogen economy are supported by factors including South Africa’s strong renewable energy potential, existing hydrogen industry, abundance of platinum group metals and the proprietary Fischer Tropsch technology,” IDC COO Joanne Bate stated in the release.

“We have made considerable progress in moving green hydrogen commercialisation forward, and this has now caught the attention of both local and international cooperating partners,” Bate said.

In November last year, nine South African green hydrogen projects were given Strategic Integrated Project (SIP) status, allowing the development of these projects to be expedited. Among these are Saldanha, Coega and a green hydrogen production and export hub in Boegoebaai, in the Northern Cape, a partnership between Sasol and the Northern Cape government. The development of a green hydrogen production and SIP-supported export hub in Boegoebaai bodes well for the Northern Cape, a region battling a high unemployment rate.

“Market applications for green hydrogen include the production of green chemicals such as green ammonia; in mobility, such as sustainable aviation fuel and marine bunker fuel, and decarbonisation of hard-to-abate sectors such as green steel production, cement manufacturing and petrochemical production. Funding from SA-H2 will be critical to developing projects that have been given SIP status and others that are still under consideration,” added Bate, who is chairperson of South Africa’s Green Hydrogen Commercialisation Panel and also serves on the Presidential Climate Commission.

Bate clarified that SA-H2 is not part of the Just Energy Transition Partnership – which is made up of South Africa, the UK, the US, Germany, France and the EU – but is supportive of South Africa’s just transition objectives, which include the development of a local green hydrogen industry.

Edited by Creamer Media Reporter

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