RYK VAN NIEKERK: On the line for [this special Moneyweb podcast] is Mike Peo. He is the head of infrastructure, energy and telecommunications at Nedbank CIB and he is a big proponent of green hydrogen as a potential fuel source – not only for South Africa and Africa, but also around the world. He recently moderated a panel on exploring the potential of hydrogen as an opportunity for Africa, which included various aspects of developing a green hydrogen industry on the continent.
Mike, thank you so much for joining me today. The green hydrogen industry worldwide and in Africa is still in its infancy and, while we appreciate the opportunity it represents in the current debate regarding fossil fuels and climate change, can you frame the current opportunities this industry represents to South Africa and the continent?
MIKE PEO: Thank you very much, Ryk, and thank you for the kind introduction. I think you’ve started the framing perfectly. Green hydrogen is not a single opportunity. It’s ot that we are going to build one project. What it represents is an opportunity to completely reindustrialise our country; obviously many other countries have the same opportunity to create an ability to reindustrialise, and in reindustrialising we can deal with a number of issues – poverty alleviation first and foremost through job creation.
So, because of the vast scale of different opportunities that become available as we move through a transition period, the ultimate objective would be obviously a carbon-free fuel source which largely alleviates the need for things like coal and/or heavy fuel oils, oil and LNG gas eventually.
As we move through that transition there are multiple opportunities that enable us to start building industries and, through those industries, to create jobs.
The very first obvious opportunity is in the export of green ammonia. Ammonia has been used widely in the world today for things like fertiliser, but there’s an opportunity to convert grey ammonia ino green, and that conversion process is merely the use of renewable energy.
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So a very large component of the production cost can be converted into non-high-emission fuel sources, and we were able to create green ammonia.
We start off by exporting green ammonia and we then continue up the line.
Ammonia is the storage medium for green hydrogen and ultimately, five to 10 years down the line, we will have a global market, a highly liquid tradable market of this new fuel source called green hydrogen.
Mike Peo, Nedbank, Green hydrogen, Moneyweb podcast, renewable energy
Mike Peo, head of infrastructure, energy and telecommunications at Nedbank CIB. Image: Supplied
RYK VAN NIEKERK: There are several green fuel-related technologies in various developmental phases. Some are more advanced than others. I immediately think of renewable electrcity and even battery technologies, and they seem to be very popular in many industries. How do you see green hydrogen within the future energy mix of the world?
MIKE PEO: Right now the absolute ultimate holy grail would be a point at which we use hydrogen as the fuel source to fuel base load [minimum level of demand on the grid] energy generation. So the ultimate end game would be able to replace coal as a fuel source with a completely carbon-free fuel source called green hydrogen. That would be the absolute end game.
That would complement most of the renewal energy technologies which exist today, which are unfortunately not base load. So while we have massive amounts of photovoltaic or solar projects being developed, wind projects being developed in South Africa, the only downside, while the fuel supply – if I can call it that – is free in that we are using either the sun or the wind, we have power from those sources only when the wind blows or when the sun shines.
While we’re seeng a massive improvement in the levels of battery technology and storage technology, solar plus wind plus batteries are unlikely to get us to a perfect replacement for fossil fuels today.
Green hydrogen, however, is the potential fuel source of the future. So while we have to use green energy from PV or wind to create green hydrogen, we will have to build massive amounts of additional energy capacity in building wind farms and PV plants.
The ability to then convert that into green hydrogen will enable us to move to a base load of energy which is predominantly what most industrialised countries need.
We need more base load.
Intermittent energy on its own is not a solution for a country that has the size and scale of energy needs that we do.
RYK VAN NIEKERK: That’s a very, very interesting perspective because of course we live in a world where there is a lot of effort to try and move away from fossil fuels. How would you see the development of such an industry in South Africa, becaue coal at the moment is by far the biggest fuel source for our power stations, and of course we would need a lot of hydrogen to fuel those power stations? But how do you see the development of this industry and how our electricity and base-load electricity infrastructure can use it and adopt it as the primary fuel source?
MIKE PEO: I think we really have to accept that we are in a climate crisis right now. If we are unable to significantly reduce emissions, South Africa – as well as the rest of the world – faces a number of massive crises, including a whole lot of problems like the ability to actually feed ourselves, etc.
The damage that climate [change] is causing will result in us running out of food sources inside of 20, 30 years. We will see mass migrations of people from areas that are going to become almost entirely desert, etc.
People are going to rush north and south on the continent. And some of the forecasts that institutions like the CSIR put out say South Africa could hae an influx of 40 million people in 20 years’ time as a direct consequence of climate change.
So we have to absolutely accept that we need to move from fossil-based fuels like the approximately 50 gigawatts of coal-fired projects in South Africa. We have got to shift away and clean that up.
However, the size and scale of investment that’s required means we have to move through a transition. We cannot switch off coal tomorrow morning, and switch on renewable energy – even if we were able to build the equivalent amount of capacity.
As I mentioned a few minutes ago, we are not replacing like for like. Coal is base load; renewables are not currently base load.
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So our view is that we will probably see a gradual decommissioning of coal with a transition to natural gas. Natural gas is approximately 5% of the CO2 emission value of coal. So it’s a 50% improvement, and then ultimately from gas into green hydrogen. And once we have gas-fired generators we move from gas to hydrogen fairly easily, provided the hydrogen is available as a fuel source.
So for South Africa it’s a reasonably long road; but it’s an imperative for South Africa. We are the single largest emitter of CO2 on the continent.
We have two institutions in Sasol and in Eskom that make up 95% of those emissions and we have to focus on the transition of those two institutions. So the imperative is absolutely there.
The way the transition works is that the private sector is currently looking very actively at developing two or three big catalytic projects which become the forerunners of this new industrialisation that I refer to.
New Boegoebaai port
Many people will have heard of the development of a new port on the West Coast of South Africa called Boegoebaai. Sasol is actively pursuing a strategy to investigate the fasibility of building a very, very large-scale green ammonia/green hydrogen production facility on the West Coast.
There is a company called Hive Hydrogen which is fairly far advanced in the bankable feasibility of a plant to be located down at Coega [Eastern Cape].
These projects potentially are massively catalytic. They enable us to run a pilot which tests the technology to see that we can produce hydrogen at scale, or green ammonia at scale. That green ammonia will eventually become full-scale green hydrogen production.
Over and above that there are probably nine or 10 smaller pilot projects in places like Prieska, in the Lephalale Valley – all of which are now initial forays into this emerging market.
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Globally there’s a massive amount of interest. Some very, very large projects have either achieved finanial close or are currently in production. These are all multi-billion-dollar projects, which means that the research and development that is going into this new area of green hydrogen is massive.
A company called ThyssenKrupp, one of the major producers of this type of equipment in the world based in Germany, has announced an investment of US$10 billion in building the electrolysers that are basically the engines that will allow us to extract green hydrogen. So a huge amount of work is happening globally.
In South Africa, we’ve really just got to focus now on allowing these projects to happen. The government’s role should be predominantly on providing the associated infrastructure, the port infrastructure, the land-based infrastructure to enable the private-sector institutions like Sasol and Hive Hydrogen to come along and build their projects.
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RYK VAN NIEKERK: You’ve referred to several international examples, but are there lueprints we can use [that emanate] from the development of this industry in other countries which may make it clearer exactly how this industry will develop in South Africa?
MIKE PEO: It’s a very new emerging industry globally. Just two points.
Ammonia has been produced for the past 1 000 years. Hydrogen has been produced and is used in very many processes today. So what we are talking about now really is the scaling up of that. We need to double and quadruple, and double and quadruple again, the quantum of hydrogen and/or ammonia being produced, and we need to build the renewable energy plants to be able to convert that hydrogen or ammonia that is currently being produced from being carbon based to being non-carbon based. And so it’s really the scaling up. So there are a number of examples globally that we can use.
A company called Aqua Power, which is very active in the South African renewable energy market, has got to financial close on the first major project of this nature in he world.
It’s being built in Saudi Arabia, but with exports of that green hydrogen to the United States. So there are a number of examples that are now proving that this can be done at scale. And obviously with any nascent industry the million-dollar trick is to move from a reasonably expensive technology today to a very cheap technology in the future.
We’re bringing down the costs and we have lots of examples of that. We have the LNG industry that developed in the 1970s, we had the mobile telephony business which started evolving 15, 16, 17 years ago. Everybody will remember how expensive the cost of a phone call was 15 years ago compared to its cost today.
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Even in the renewable industry in South Africa we have seen about a 60% to 75% reduction in the cost of the technology of building renewableenergy projects, so lots of examples which say it can happen.
I really do believe that now the imperative to shift towards green hydrogen is so important that virtually every major current fuel provider or manufacturer of equipment of that scale or nature is now focusing on the green hydrogen opportunity.
RYK VAN NIEKERK: Are there other emerging technologies which would also be able to supply fuel to generate base-load electricity?
MIKE PEO: There isn’t another single fuel source, but there are combinations. So the use of batteries, the technology and the development of – for example – solid state batteries and lithium batteries is improving massively.
But most of the global agencies don’t believe that that will ever get to sufficient scale, for example, to allow a country like South Africa to reduce its coal footprint by 50% or 100%.
We are seeing massive developments in small modular nuclear reactor technologies. So that does present an opportunity.
It’s even more formative interms of the actual technology. It’s a very complex process to get licensed and to be able to develop at scale because of safety issues. So there are other opportunities. But by and large, all of the global energy agencies are pretty much betting on green hydrogen as the transition fuel which will take us off carbon-based fuels.
RYK VAN NIEKERK: Is this technology not maybe oversold or excessively hyped?
MIKE PEO: Ryk, that’s a tricky question. I believe passionately that we have to focus very hard on making it a reality. There is a huge amount of investment. As I’ve already explained, we have to make it happen because the consequence of not getting it right is pretty formidable.
The absolute fact is we have to reduce CO2 emissions – and right now there are really not a lot of good options in the short term that can help us get there.
So we either accept that we miss all of the targets and see the disappearance of land mass through flooding, we see deserts arising where currently tere is lush land, we see massive population shifts give cognisance to that, to areas being changed, etc. So I really do believe we can no longer deny the effects of climate change. Now we’ve got to look at how quickly we can move in a new pathway that gets us to the 1.5% type targets
RYK VAN NIEKERK: On Monday [5 July], interestingly, the world actually experienced its hottest day ever. I think the average [global] temperature was around 16, 17 [degrees Celsius]. I don’t know how they measure that, but it is definitely a reality that climate change is going to change the world and we need to adapt to it.
But I don’t want to come back to the capital intensiveness of the development of such an industry. If it is the fuel of choice of the future, then South Africa must be very, very well placed to produce more green hydrogen than we use, and that could become, call it, a commodity of the future for South Africa. Do you have any sense of the investment this technology can attract in the hort, medium and long term?
MIKE PEO: Ryk, you’re absolutely correct. We have a number of absolutely fantastic endowment opportunities in South Africa. So really it’s a comparative exercise. Right now, [among] the leading areas in the world that are gearing themselves up for the production of green hydrogen with a view to this becoming the fuel of the future, we are competing with Australia, we are competing with the United States.
The United States government, as they’re able to do, have provided an incredible subsidy for producers of green hydrogen. So we are not competing on a level playing field; we are competing on a playing field of massive pressure …
And then there is a huge amount of development going on in North Africa across Egypt, Tunisia, Morocco, as well as Saudi [Arabia], the UAE, etc – all of which have fairly similar characteristics. We all have a reasonably large amount of land that is available with high wind or solar resources.
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South Africa has a big endowment of platinum group metals. Platinum is a massive component of the electrolysers that need to be built to create green hydrogen. But we sit in the fortunate position that we straddle the east and the west.
By producing on the West Coast and on the East Coast we can move those commodities ultimately to countries like Japan, which are massively focused on their decarbonisation through green hydrogen. And we can export to the United States or to Europe.
The demands from Europe are massive. Europe has fundamentally accepted it will decarbonise through green hydrogen. We can, for example, create bunkering opportunities by effectively selling fuel to major shipping lines that need to move East to West, or even East/West to the North.
There are a number of opportunities that really do exist for us to be able to compete with anybody else in the world in this particular space.
RYK AN NIEKERK: Well, South Africa needs investments and hopefully this can not only increase investment into South Africa, but also contribute to a greener world.
But we’ll have to leave it there. Mike, thank you so much for your time today and for sharing your insights.
MIKE PEO: It was an absolute pleasure. Thank you for having me on the show, Ryk.
RYK VAN NIEKERK: That was Mike Peo. He’s the head of infrastructure, energy and telecoms at Nedbank CIB.
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