South Africa joins forces with Denmark and Netherlands in $1 billion green hydrogen initiative

Screenshot 2023 06 22 at 11.08.38

On Tuesday, the South African government, in collaboration with the governments of Denmark and the Netherlands, announced the launch of a $1 billion Green Hydrogen Fund, as reported by Reuters. This fund, known as SA-H2, is seen as a vital step in South Africa’s journey towards decarbonisation.

In alignment with the country’s energy transition plan, the objective is to establish an ecosystem and export hub for green hydrogen, a clean fuel generated using renewable energy that emits no greenhouse gases. The country has ambitious plans to utilise green hydrogen in aviation, green steel, transportation, among other sectors, and even foresees potential for export to the European Union.

However, realising this vision comes with considerable costs. President Cyril Ramaphosa estimates that 319 billion rand ($17.57 billion) would be necessary.

The newly launched SA-H2 fund will be administered by Climate Fund Managers, a joint enterprise between the Dutch development bank, FMO, and the South African insurance giant, Sanlam. Their mission will be to bolster the budding green hydrogen sector in South Africa.

In a statement, Climate Fund Managers clarified the purpose of the initiative: “The SA-H2 Fund initiative will aim to secure US$1 billion in funding, to be raised directly in South Africa or indirectly via other channels.”

South Africa, which stands as the world’s 14th largest emitter of carbon dioxide, has attracted the support of European countries seeking to help the nation transition towards a greener economy, as part of wider global efforts to mitigate climate change.

Currently, South Africa relies on 15 outdated coal-fired power plants for its electricity production. The green transition, including the creation of a green hydrogen industry, has previously received support from a group of wealthy countries, including France, Germany, Britain, the United States, and the European Union, who pledged $8.5 billion to South Africa in 2021.

The SA-H2 fund follows a similar model to a green hydrogen fund established for Namibia last year.

However, critics have pointed out a significant hurdle in establishing a green hydrogen industry in South Africa: the slow pace of renewable energy roll-out, an essential prerequisite for green hydrogen production. According to Boston Consultancy Group, South Africa would need to implement 6-7 gigawatts (GW) of renewable capacity annually for the next two decades to sustain a green hydrogen industry. This is a significant leap from the 6 GW managed since 2011.

Despite the challenges, the establishment of the SA-H2 fund marks a significant milestone in South Africa’s green energy transition, potentially catalysing a cleaner, more sustainable future.

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