South Africa and the governments of the Netherlands and Denmark on Tuesday launched a US$1-billion green hydrogen fund to help kick-start an industry seen as critical to the country’s decarbonisation efforts.

South Africa’s energy transition plan envisages setting up an ecosystem and export hub for green hydrogen, which is made using renewable energy and without producing greenhouse gas emissions.

The nation wants to produce the fuel for use in aviation, green steel, transport and more, as well as for export to the European Union. But President Cyril Ramaphosa has said this would require R319-billion rand.

The new fund, dubbed SA-H2 and run by Climate Fund Managers, a joint venture between the Dutch development bank, FMO, and South African insurer Sanlam, will look to support South Africa’s green hydrogen sector.

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

European nations are eager to help South Africa, the world’s 14th biggest emitter of carbon dioxide, transition towards a greener economy to help mitigate climate change. The country currently relies on a fleet of 15 ageing coal-fired power plants for electricity.

Green transition

A group of rich countries including France, Germany, Britain, the US and the European Union pledged $8.5-billion to South Africa in 2021 for its green transition, including a green hydrogen industry. A similar fund targeting green hydrogen was also set up for Namibia last year.

Critics say a key challenge to setting up a green hydrogen industry in South Africa is its slow renewable energy roll-out, an imperative for green hydrogen production.

According to Boston Consultancy Group, South Africa would need to set up 6-7GW of renewable capacity per year for the next two decades to support a green hydrogen industry, compared with the 6GW it has managed in total since 2011. — Promit Mukherjee and Carien du Plessis, (c) 2023 Reuters