A recent report published by investment bank Goldman Sachs says that policy, affordability and scalability seem to be converging to create unprecedented momentum for the clean hydrogen economy. SA has grand aspirations to become a major producer and exporter of green hydrogen, a fuel produced using renewable energy such as solar.
But Michele Della Vigna, MD and head of energy research for EMEA at Goldman Sachs, told Business Day’s Denene Erasmus that while the country may have plentiful access to renewable and mineral resources, building large-scale green hydrogen projects will also require access to low-cost financing.
Can you quantify the opportunity that you see emerging for green hydrogen?
There is growing awareness of how important it is to have energy sources which can stabilise global power systems that are becoming increasingly renewables based. We need about $5-trillion of investment in green hydrogen in the coming three decades — this will create a total addressable market of about $1-trillion per annum. The technology is there, but production is starting from a very small base. Thanks to tremendous regulatory support in the US and the EU, we are starting to see some very large projects, and the energy crisis, which is driving gas prices up, is making green hydrogen very attractive. In fact, at the current gas prices, green hydrogen is cheaper than grey hydrogen. My sense is that this technology is finally ready to evolve, and this is being supported by an enabling regulatory regime, the right economics, and the need for countries to decarbonise their energy sectors. We think green hydrogen can aide the decarbonisation of 15% of global greenhouse gas (GHG) emissions.
How will growth in the green hydrogen economy affect the demand and supply dynamics of so-called green metals that are also used in the renewable energy value chain this decade?
Metals such as copper, cobalt, lithium and nickel are very important in the transition. In the case of green hydrogen there is some need for metals, but it is not as dramatic as the affect that electric vehicles, for example, will have on metals demand. Partially because green hydrogen production is starting from a smaller base, and because we will only really see things pick up from the end of this decade. Platinum group metals and iridium are important for green hydrogen, and this is one area where we might see incremental demand.
SA, with its abundant solar and wind resources, and large platinum group metals deposits, has already identified the opportunity of establishing a domestic hydrogen economy that will produce up to 7-million tonnes of fuel by 2050, exporting about 3-million of this. How do you rate the country’s potential to be a major green hydrogen producer and exporter?
SA is a key country and it could become a major producer, domestic user and exporter of green hydrogen. It has many advantages, as noted in the question, from a solar cost and minerals access perspective, but it needs to find the right financing.
What we are seeing at the moment is that the largest, most advanced green hydrogen projects are in regions with low-cost solar power and low-cost financing such as Australia, the Middle East and North America.
SA has the ability to deliver low-cost solar power. However, it may not rank up there with these other regions in terms of low-cost financing, and this is where some regulatory support from the government would be able to help.
What should this support from the government look like?
If you look at the US and Europe, the US is providing regulatory support by giving an incentive of $3 per kilogram of green hydrogen produced while Europe is incentivising the use of green hydrogen through its carbon pricing mechanisms (such as carbon taxes and emissions trading systems), which encourages industry’s use of green hydrogen rather than grey hydrogen. SA could try one of these routes.
Is there a risk that SA will fall behind and struggle to catch up if it does not move quickly to develop its own green hydrogen sector?
There will always be a chance to catch up, but the early movers will retain a competitive advantage. I wouldn’t think here of green hydrogen in isolation — it should be part of a renewable revolution that can happen in SA. The country has been experiencing issues with power for a long while and this is an opportunity to completely reimagine the power system in the country through advantage cost renewables, supported by green hydrogen, to extend the reach of renewables and also to stabilise the power system.
How will green hydrogen feature within the larger renewable energy sector?
It is a necessary part of a renewable power system in a net-zero world. In a net-zero future, beyond 2050, when the green hydrogen economy is operating at full scale, almost a third of global renewables could be used for green hydrogen production. Also, large-scale green hydrogen production will help to stabilise a renewables system which is otherwise intermittent and seasonally unreliable.
Green hydrogen is the way in which renewable power can ultimately supply heavy industry in which you need a greater concentration of energy, for example for industrial heating and to power heavy trucks such as those used in mining which otherwise struggle to shift to renewables.
To a large extent the uptake of green hydrogen will depend on the cost-competitiveness of this type of fuel. How long before green hydrogen will be able to compete with other fuels?
Green hydrogen is now where offshore wind was 10 years ago and where solar was 20 years ago. Since then, we have seen extraordinary cost reduction for both wind and solar from the benefits derived from scale and the modularisation of those technologies.
We believe by the end of the decade, as volumes increase, green hydrogen could cost below $3/kg, which would make it a very competitive fuel.
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