‘Promoting South Africa as a green hydrogen investment destination of choice”. This was the motto of the Green Hydrogen Summit in Cape Town last week. President Cyril Ramaphosa, his ministers and big business flocked to Cape Town to showcase South Africa’s potential to become a major supplier of green hydrogen to the world. One of the potential importers is Germany. To reaffirm his commitment, German economy minister Robert Habeck travelled to Johannesburg this Wednesday to open a German-African business conference and meet Ramaphosa to discuss green hydrogen.

Experts agree that green hydrogen will play an important role in the global energy transition and that it offers economic opportunities for South Africa. In his keynote address at the summit, Ramaphosa spoke of green hydrogen as “one of the frontiers of a just energy transition”, about “huge growth and investment potentials” and of “enormous job-creation potentials for improving the economic life of our people”. Yet, there are also serious risks that the South African people will lose out on the benefits of the green hydrogen transition. 

Green hydrogen – what’s the hype?

Hydrogen is a gas made from water through a process called electrolysis. This requires large amounts of energy that can come from different sources. Most hydrogen in the world is “grey” hydrogen because it is made from fossil fuels. If renewable energy is used as an energy input, this creates “green” hydrogen. It can then be converted into derivatives such as green ammonia which allows it to be shipped around the world. 

Governments and industrial polluters around the world have become interested in green hydrogen because of its potential to lower carbon emissions in sectors that are difficult to decarbonise through solar and wind power alone. This is the case in the steel and chemical industry. Or think of the difficulty of using electric batteries for long-distance sea or air transport. 

Because producing green hydrogen needs large amounts of energy, land and water, the Global North wants to meet much of its demand with imports from the Global South. With its first-class solar and wind resources, South Africa is often said to be uniquely positioned as a supplier of green hydrogen to the global market. 

It almost sounds too good to be true. South Africa can do all at once: export green hydrogen, combat climate change and create new jobs. Where’s the catch?

Green energy imperialism?

The primary target for South Africa is the export market. At the Green Hydrogen Summit Ramaphosa presented South Africa as “a global exporter of green energy”. Estimates are that South Africa could capture up to 10% of the global export market share. In its soon-to-be published commercialisation strategy, the South African government prioritises the export of green hydrogen. The focus is on securing partnerships with international governments and businesses to receive foreign investments and tax revenues from exporting green hydrogen.

South Africa’s flagship export project is led by Sasol in Boegoebaai in the Northern Cape. The megaproject, which is still in its feasibility phase, aims to house 9GW of renewable energy and to expand this to 80GW by 2050 to produce green ammonia for export. This would make Boegoebaai one of the world’s largest green hydrogen projects.

The key question is: Will South Africa benefit from exporting green hydrogen? 

In a globally unequal system, benefits from the green hydrogen trade risk being captured by the Global North and the national elite in South Africa, while the majority lose out. South Africa’s international partners, most prominently Germany which is intensively engaging with South Africa on green hydrogen, want to cash in twice. Once from importing green hydrogen at low prices, and a second time by selling the technology needed for producing green hydrogen to South Africa. This would allow Germany to become a green technology leader and to make sure its energy-intensive industries can continue to operate as usual. German economy minister Habeck is aware that Germany’s grab for green hydrogen could become the target of criticism. When visiting Namibia a few days ago, he cautioned: “The last thing we should accept is some kind of green energy imperialism.”

One of the risks associated with the export of green hydrogen is financial. The South African government hopes to benefit financially from a revenue stream from green hydrogen exports. Yet, export projects will be located in so-called Special Economic Zones that give tax breaks to project developers, thus lowering the revenue share that the state receives. Furthermore, the government sees its role in building an enabling infrastructure, such as ports needed for shipping hydrogen around the world. Because private investors would not finance such high upfront investments in an uncertain market, the state steps in and takes on debt and market risks. 

Read in Daily Maverick: “Green hydrogen – how South Africa can capitalise on it, and why we need to do it fast”

Almost half of the funding requirements for green hydrogen in the government’s Just Energy Transition Investment Plan (JET-IP) is earmarked for port developments. Funding commitments have been made by international governments through the Just Energy Transition Partnership (JETP), announced at COP26. Yes, it makes sense that infrastructure for exporting green hydrogen is financed by those who will benefit from importing green hydrogen. However, 97% of JETP funding comes as loans in hard currency. Though most will be at below-market interest rates, it may nevertheless create new financial dependencies and increase South Africa’s debt burden. This is one of the reasons the Climate Justice Charter movement has called for a boycott of the JETP.

There are also risks that the social and environmental costs of green hydrogen megaprojects will be borne by local communities. In Boegoebaai, land conflicts have already erupted. Communities that just recently successfully reclaimed their communal land are now at risk of losing it again to the construction of the export facility. The building of a deep-water port and of desalination plants to supply water for the electrolysers risk negatively impacting marine ecosystems and fishing communities in the area. 

At the Green Hydrogen Summit, Minister of Public Works Patricia de Lille spoke of “fierce international competition” and promised to get green hydrogen projects up and running quickly by gazetting them as Strategic Integrated Projects. This allows for fast-tracking environmental impact assessments and community consultations. As adhering to social and environmental standards increases, the total costs for producing green hydrogen, community interests are likely to clash with governments and investors that seek to supply green hydrogen at low cost. While during the session on sustainability at the summit panellists agreed on the importance of social and environmental standards, it remains unclear if and when comprehensive standards for green hydrogen production will be implemented in South Africa.

In addition, green hydrogen deals are shrouded in secrecy. Negotiations with international partners and the drafting of the JET-IP have taken place behind closed doors. While industry was involved in formulating the national hydrogen strategy, civil society, trade unions and communities have been almost completely left out of the process. This overrepresentation of political and economic elites is mirrored at the summit at which only two from about 100 speakers came from civil society.

To sum up, there is a risk of green neocolonialism if South Africa takes on the role of the fuelling station for the Global North. Former trade unionist Dinga Sikewbu summed it up at a COP27 side-event on green hydrogen: “If the needs of people, if their concerns about water, about jobs are not taken care of… decarbonisation will be not viewed different to previous cycles of energy transition where the Global South was seen as sites for extraction by the Global North.”

Exporting electricity during an energy crisis?

The elephant in the room at the summit was energy. Green hydrogen requires a lot of renewable energy. The wind and solar power capacity that is envisioned only for the Boegoebaai project is significantly higher than all of South Africa’s currently installed electricity capacity together.

As everyone knows, South Africa faces a severe energy crisis with energy shortages and rising energy poverty. Now, imagine the social uproar if large amounts of renewable energy were installed in South Africa, but instead of improving energy access for the South African population, this would be used to produce cheap green hydrogen for export. Exporting electricity, while South Africans continue to struggle with rolling blackouts and rising electricity bills, will be a hard sell to the people. Energy expert Clyde Mallinson is right to ask: “Why would you sell sunshine in the form of low-cost green hydrogen to Germany? Why not invest in low-cost renewable energy for the locals?”

Even Rainer Baake, the German special envoy for the JETP with South Africa, did not hide his scepticism at COP27: “In a country where during this year 25% of the hours there was no electricity for the people of South Africa, I think it is a little bit ridiculous to use the electricity from wind and solar to produce hydrogen derivatives for the European market.” Ironically, his own government is eyeing green hydrogen imports from South Africa.

Green industrialisation as an alternative?

At the Green Hydrogen Summit, Ramaphosa emphasised that green hydrogen should benefit the South African economy. He talked about “a unique opportunity for South Africa… to link its mineral endowment with its renewable energy endowment to drive industrialisation.” And he added: “This is Africa’s century!”

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As an alternative to neocolonialism, a larger share of the benefits from green hydrogen could indeed be captured in South Africa. The country’s strong manufacturing base could be at the centre of a green hydrogen economy. For example, South Africa could use green hydrogen to produce value-added products such as green steel instead of exporting green hydrogen as a primary commodity at low prices. Examples of this are plans to reopen a mothballed steel plant in Saldanha Bay to produce green steel.

Other industrial linkages could come from the local manufacture of fuel cells that allow vehicles to run on green hydrogen. South Africa could also own and export the technology to produce green hydrogen if it developed its own electrolyser industry, using key resource inputs from its own platinum mines. This would mean not having to rely on electrolyser imports from German or Chinese suppliers. Green hydrogen’s need for large amounts of renewable energy also improves the case for setting up manufacturing industries for wind and solar components in South Africa, which could create many more jobs.

Read in Daily Maverick: “SA must be world’s green hydrogen investment destination — Ramaphosa”

At the summit many made it clear that this is their preferred development path. Hendrik Louw, CEO of the Northern Cape Economic Development Agency, proclaimed: “I want to dare ThyssenKrupp and Siemens Energy: you have to localise!” However, project developers and off-takers are not too excited about localisation because it may mean an increase in total project costs and in the price of green hydrogen. Furthermore, technology providers like Siemens want to sell their own electrolysers to South Africa and are not too keen on local competition on that front. This makes it uncertain whether localisation and beneficiation along the green hydrogen value chain will materialise.

While the government would like to see green industries developing, the short-term focus is on export. This creates questions around whether and when the shift to a domestic green hydrogen economy will happen and if the new industries will then be globally competitive. Furthermore, building up or transforming industries requires a lot of investments. Yet, in the JET-IP only 7.9% of green hydrogen funding is allocated to green steel and less than 1% to fuel cells. 

Cancelling South Africa’s debt, especially Eskom’s odious debt, and providing financial reparations to South Africa could be one way for the Global North to pay its climate debt and enable South Africa to invest in its own green hydrogen economy.

The risk of greenwashing

While green hydrogen is an essential part of the energy transition, some scepticism may be in order when looking at who is pushing the green hydrogen agenda. In South Africa, this is fossil fuel and mining industries. 

Some accuse the fossil fuel giant Sasol of using green hydrogen merely as a fig leaf to greenwash its fuel production, the bulk of which will still be made from fossil fuels. The mining company Anglo American wants to see the hydrogen economy expand to keep its platinum mines open. Yet, it’s unclear if this is in the interest of affected communities that have long struggled against mining companies for negatively impacting livelihoods and exploiting workers. Green hydrogen may also be used for greening the domestic fertiliser industry, an industry that food sovereignty activists are opposed to because industrial fertilisers reduce soil fertility and worsen the food crisis. 

The risk of greenwashing means that environmentally destructive industries can continue business as usual while it distracts from the need for systemic alternatives.

Coming back to the issue of energy. In a situation in which South Africa desperately needs stable and affordable energy supply, new electricity capacity that comes online should support these goals first. Once there is excess electricity, it could be used to produce green hydrogen. 

Studies also show that feeding renewable energy into the grid rather than into green hydrogen production is a more effective way of reducing carbon emissions. If Global North governments are serious about their climate ambitions, they should focus on expanding renewable energy supply in South Africa instead of financing green hydrogen for export. It is a question of prioritisation and resource allocation.

Instead of an investor-driven green hydrogen economy, energy democracy may be the way forward to solve the energy crisis in South Africa. Energy democracy is a systemic alternative to green capitalist development. It would mean to decentralise, democratise and decarbonise energy production, to put ownership of energy into the hands of the people, and to end energy poverty and energy racism. The call may well be for energy sovereignty first, hydrogen second.

Green hydrogen is a new topic in South Africa. Yet, there’s already a flurry of activity. The policy and regulatory frameworks are being put in place, finances are made available and agreements are signed with global investors and customers. South Africa is at a crossroads. The next few years will decide whether green hydrogen will bring economic sovereignty or neocolonial dependencies, whether industries will really transform or merely greenwash their fossil fuel business, and whether energy poverty is tackled or not. DM/OBP

Tobias Kalta is a visiting German scholar-activist at Wits University. Makoma Lekalakala is the director of Earthlife Africa and a board member of Natural Justice. She was the joint recipient, with Liz McDaid, of the 2018 Goldman Environmental Prize for Africa and the SAB Environmentalist of the year 2018.