SOUTH AFRICA: EMBRACING GREEN AND BLUE HYDROGEN
The South African Hydrogen Society Roadmap (HSRM) was published on 17 February 2022 by the Department of Science and Innovation. It establishes a national framework for policy and actions relating to hydrogen in South Africa[1] and intends to serve as a national coordinating framework in facilitating the integration of hydrogen-related technologies.[2]
The HSRM is a significant step in kick-starting South Africa’s hydrogen economy. Answers to some of the commonly asked questions related to the framework for blue and green hydrogen projects in South Africa are as follows.
Policy and Regulation
What are the strategies/policies relating to hydrogen in South Africa?
The HSRM is the national framework for policy and actions relating to hydrogen in South Africa.[3]
Other government policies also recognise hydrogen’s role and potential uses in the South African economy. These include: the Renewable Energy Policy of South Africa [4]; the Integrated Energy Plan [5]; and the Integrated Resource Plan. [6]
What key goals and commitments are included in the strategy/policy?
The identified goals and commitments in the HSRM include:
- the decarbonisation of the transport and energy-intensive sectors by 2050;[7]
- the creation of a green hydrogen export market so that South Africa may capitalise on the projected increase in demand in response to international climate commitments;[8]
- the creation of a Centre of Excellence in Manufacturing for hydrogen products and fuel cell components which will contribute to their respective value chains;[9]
- transforming and stabilising the power sector by employing green technologies;[10] and
- increasing the role of hydrogen in the South African energy system.[11]
Which industry sectors are most likely to be affected by hydrogen deployment?
Energy-intensive and electricity generation sectors are most likely to be impacted by the deployment of hydrogen. Others include transport, aviation, and mining.
Does the Government hydrogen strategy/policy support the development of both low-carbon (blue) hydrogen and renewable (green) hydrogen?
Yes, the HSRM aims to, amongst other outcomes, develop the role of blue and green hydrogen in the energy system.[12] However, the HSRM makes provision for the eventual transition from blue to green hydrogen by 2050.[13] In the short term, South Africa will focus on catalytic projects to stimulate local demand for all types of hydrogen and illustrate its commercial viability and scalability.[14]
If the Government hydrogen strategy or policy supports the development of low-carbon hydrogen, to what extent is carbon capture and storage being taken forward?
As part of the building blocks for creating a South African hydrogen society, the HSRM includes two carbon capture, usage and storage (CCUS) pilot projects.[15] One project focuses on creating a CCUS site in an identified priority area in Mpumalanga that has a high concentration of coal mining and power generation.[16] This project forms part of HSRM’s Action Plan for Hydrogen generation, storage and distribution and will be implemented between 2021 and 2024.[17] It has been reported by the Council for Geoscience that geological mapping at the site has commenced and the project is set to become active in 2023.[18] The second pilot project aims to create CCUSs on a national scale.[19]
Are there targets for the production of hydrogen?
Yes, the HSRM provides targets for hydrogen production. The targets, and their respective timeframes, are as follows:
- 2021-2024: small-scale electrolysis production and at least 1MW of green hydrogen to be used, for example, in the transport sector and in power generation[20];
- 2025-2030: the construction of 5GW electrolysis capacity; the deployment of a total of 11.7GW electrolyser capacity; and, at least, 500kt of hydrogen produced annually by 2030. The main areas of utilisation include power generation and the transport sector [21]; and
- 2030-2040: increase electrolysis capacity to at least 15GW for full use in the transport industry and power generation.[22]
Are there any incentive mechanisms/business models in place to support the production of hydrogen?
There are currently no direct incentive mechanisms or business models that support hydrogen production. However, the HSRM recognises existing incentive opportunities, such as tax incentives, that could support hydrogen production.[23] These include:
- Section 11D of the Income Tax Act 58 of 1962 (ITA) may be used to advance research and development relating to hydrogen production as it does not circumscribe the categories of R&D; [24]
- Companies operating in Special Economic Zones (i.e., designated areas for targeted economic activities) may have a reduced corporate tax rate of 15% and an accelerated 10% tax allowance on buildings as per sections 12S and 12R of the ITA; [25] and
- The Support Programme for Industrial Innovation (SPII), which is particularly focused on the development phase of innovative products or processes,[26] may be used to promote the development of hydrogen technologies.[27]
Are there any standards in place for the classification and/or certification of low-carbon or renewable hydrogen?
There are no existing standards in place for the classification and/or certification of low-carbon or renewable hydrogen in South Africa.[28]
Does the regulatory framework clearly define the regulatory requirements relating to the production, storage, transportation or supply of hydrogen?
South Africa does not have a regulatory framework that specifically concerns hydrogen. However, there are other, non-specific, regulatory regimes that may impact its production, storage, transportation or supply. This includes, for example, the Occupational Health and Safety Act 85 of 1993 regulations.
Are there any foreign investment restrictions related to energy and infrastructure sectors?
There are no restrictions on foreign investments in the energy and infrastructure sectors. Neither the primary legal framework governing foreign investment in South Africa[29] – the Protection of Investment Act 22 of 2015 (Investment Act), nor sectoral regulations provide for such restrictions. However, the ownership requirements in the Broad-Based Black Economic Empowerment Act 53 of 2003 must be considered. These do not create compulsory investment thresholds but such thresholds may be a requirement for participation in any government investment support scheme.
What international treaties are in place that may offer protection to international investors in hydrogen projects in the jurisdiction?
According to the United Nations Conference on Trade and Development (UNCTAD), South Africa has signed 50 bilateral investment treaties (BITs).[30] Of the 50, however, 27 were signed but are not in force, 12 have been terminated and only 11 are currently in force.[31] A summary of these treaties can be found on the UNCTAD’s Investment Policy Hub database. It must be noted that South Africa is not currently engaged in any new BIT negotiations and future negotiations are unlikely.
The Investment Act is national legislation that is aimed at providing protection to investors and their investments.[32] Significantly, the Act states that ‘existing investments that were made under such treaties [namely BITs] will continue to be protected for the period and terms stipulated in the treaties. Any investments made after the termination of a treaty, but before promulgation of this Act, will be governed by the general South African law.’[33] Therefore, it is envisaged that international investors will likely be protected in terms of national and not international law.
Market Developments and Opportunities
Are there any government grants or other government funding available to hydrogen projects (including for research and development)?
There are no government grants or funding directly relating and available to hydrogen projects. However, the Critical Infrastructure Programme (CIP) run by the Department of Trade, Industry and Competition (DTIC) aims to, amongst other objectives, provide financial support to projects that alleviate dependency on the national grid.[34] In the revised guideline to the CIP, published in November 2021, support for clean/green energy infrastructure was included.[35]
Although the CIP guideline does not define ‘clean/green energy’, the Deputy Minister of the DTIC has stated that the CIP would involve financial assistance in alleviating the infrastructure costs associated with hydrogen production, fuelling and transport facilities.[36] The CIP guideline does not provide an estimate of the available funding.
Are there any notable pilot/demonstration projects in place or planned for the production or offtake of clean hydrogen?
Yes, there are pilot projects planned to determine the feasibility of green hydrogen in different sectors and to kick-start the development of a hydrogen society in South Africa.[37] This includes the following:
- The Hydrogen Valley or Platinum Valley Project is a project of the DSI, with various partners, to study the feasibility of developing catalytic green hydrogen hubs. These hubs will form part of the Hydrogen Valley and will be connected to form a ‘Hydrogen Corridor’. The identified hubs are in Johannesburg, Durban/Richards Bay and Mogalakwena/Limpopo. The hubs will host pilot projects in the industrial, mobility and building sectors. The projects involve, for example, developing ethylene and ammonia from green hydrogen and running paper mills with hydrogen instead of natural gas fuels[38];
- The COALCO2 – X Project aims to use green hydrogen and other pollutants found in flue gas from coal-fired boilers to make value-added products. The objective is to support the transition to a decarbonised energy system and assist in reducing gas emissions. This project will, in addition, be used to scale up domestic demand for hydrogen and create capabilities for the export market[39];
- Boegoebaai, an area in the Northern Cape, has been identified by the Government as a Strategic Integrated Project in the South African National Development Plan. The project will be lead with Sasol and is focused on determining whether an export hub for green hydrogen and ammonia is feasible. The study commenced in June 2021 and will take 24 months to complete. In addition, Sasol has finalised a memorandum of agreement with both national and local government to develop the Boegoebaai site. The following construction projects are envisaged: green hydrogen and ammonia production sites, a desalination plant to support the production of green hydrogen and a storage facility. The development aims to produce 400 000 tonnes of green hydrogen annually.[40]
Are there any commercial-scale clean hydrogen production projects in development or already operating?
There are currently no commercial-scale clean hydrogen production projects in development or already operating in South Africa.
[1] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 26.
[2] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page J.
[3] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 26.
[4] Published under Government Notice 513 in Government Gazette 26169 on 14 May 2004.
[5] Published under Government Notice 1430 in Government Gazette 40445 on 25 November 2016 at page 169.
[6] Published under Government Notice 1360 in Government Gazette 42784 on 18October 2019.
[7] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 47.
[8] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 47.
[9] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 55.
[10] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 60.
[11] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page J.]
[12] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 63.
[13] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 63.
[14] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 63.
[15] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 39.
[16] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 20.
[17] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 65.
[18] Wendell, Roelf ‘South Africa aims to bring pilot carbon capture project online in 2023’ (2021) available at: https://www.reuters.com/world/africa/south-africa-aims-bring-pilot-carbon-capture-project-online-2023-2021-08-23/
[19] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 38.
[20] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 40.
[21] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 40.
[22] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 40.
[23] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 27.
[24] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 28.
[25] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 28.
[26] Department of Trade, Industry and Competition ‘Support Programme for Industrial innovation (SPII)’ available at http://www.thedtic.gov.za/financial-and-non-financial-support/incentives/support-programme-for-industrial-innovation-spii/
[27] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ at page 28.
[28] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ at page 36.
[29] The Foreign Investment Regulation Review 7ed The Law Reviews at page 180.
[30] United Nations Conference on Trade and Development’ Investment Policy Hub available at https://investmentpolicy.unctad.org/international-investment-agreements/countries/195/south-africa
[31]United Nations Conference on Trade and Development’ Investment Policy Hub available at https://investmentpolicy.unctad.org/international-investment-agreements/countries/195/south-africa
[32] The Protection of Investment Act 22 of 2015.
[33] Section 15 of the Protection of Investment Act 22 of 2015.
[34] Department of Trade, Industry and Competition ‘Programme Guidelines Critical Infrastructure Programme’ (2021) at page 5.
[35] Department of Trade, Industry and Competition ‘Programme Guidelines Critical Infrastructure Programme’ (2021) at page 5.
[36] Deputy Minister Fikile Majola on Driving Growth of the Hydrogen Economy 14 October 2021 accessible at: https://www.gov.za/af/node/809929
[37] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 69.
[38] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 71.
[39] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 72.
[40] Department of Science and Innovation ‘South African Hydrogen Society Roadmap’ (2022) at page 75.