Germany’s KfW launches green hydrogen programme for South Africa

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On behalf of the German government, the German development bank KfW has initiated a programme of up to €200-million in size to support the establishment of green hydrogen projects in South Africa and it intends releasing a formal request for information (RFI) by the end of June.

The funding, which is in the form of concessional loan finance, must be disbursed by December 2023 and KfW has appointed the Council for Scientific and Industrial Research (CSIR) and Meridian Economics to help it identify and evaluate high-potential projects for implementation during the course of this year.

Green hydrogen is produced using renewable electricity to split water into hydrogen and oxygen using an electrolyser. The German government’s National Hydrogen Strategy, adopted in 2020, envisages the energy carrier playing a key role in the decarbonisation of those sectors that are difficult to abate using renewable electricity directly, such as marine transport, long-distance land freight, cement, chemicals and steel.

Crucially for countries with potent renewables resources, such as South Africa, the strategy recognises the limits of producing green hydrogen in Germany itself and, therefore, envisages the creation of international partnerships in order to potentially import green hydrogen and green-hydrogen derivatives, such as green ammonia, carbon-neutral jet fuel and green iron and steel.

Germany expects to be producing only 420 000 t of the three-million tons it will be consuming yearly by 2030.

CSIR’s Thomas Roos tells Engineering News that a broad range of opportunities will be solicited through the RFI process, which has been preceded by a market-testing exercise that is allowing potential participants to share a high-level summary of their proposed projects via the Hydrogenproject@csir.co.za email address by June 4.

Roos says the projects could involve the production, transportation, export and/or storage of green hydrogen and green-hydrogen products, as well as projects in existing materials and chemicals value chains that support a transition from fossil-based processes to ones based on green hydrogen.

In addition, KfW is open to receiving funding proposals for innovative financial instruments that could either boost the immediate demand for green hydrogen, which is currently more expensive than grey hydrogen produced from fossil fuels, or unlock funding for green hydrogen projects.

The price premium between grey and green hydrogen remains material, with grey hydrogen currently being produced at a cost of about €1.50/kg and green hydrogen at €4/kg. However, that competitiveness gap is expected to close as more and larger-scale electrolyser plants are built around the world.

Meridian’s Adam Roff says that financial instruments are already starting to play an important role globally in ensuring that demand is created for green hydrogen and he is optimistic that South African financial institutions will seek to leverage the opportunity created by the KfW programme to introduce similar innovations locally.

The programme intends identifying both private- and public-sector projects that are already at a prefeasibility stage but, given the government-to-government nature of KfW’s activities, all project funding will be disbursed through a South African public institution.

Roff says the public entity will act either as a financial intermediary, on-lending to the recipients, or as a direct implementing partner in the project.

Earlier this year, Trade, Industry and Competition Minister Ebrahim Patel announced that he had mandated the State-owned Industrial Development Corporation to lead government’s efforts to commercialise green hydrogen. For the purposes of this project, other public entities such as the Development Bank of South Africa could also feature.

KfW, which formally launched the South African project on May 24, says South Africa’s rich endowment of world-class renewable energy resources, strong existing technical and financial capabilities and access to platinum group metals places the country in an extraordinary position to develop a thriving, globally competitive green hydrogen industry.

“The key objective of this initiative is to support the growth of a green hydrogen economy in South Africa by identifying and supporting high-impact project opportunities that best exploit the decarbonisation potential offered by green hydrogen,” the development bank’s launch statement reads.