Countries worldwide, including South Africa, see green hydrogen as a vital tool for tackling climate change. There are plans to use green hydrogen in South Africa for everything from producing fertiliser for farms to powering factories and heavy trucks.

As governments worldwide push for green hydrogen as a clean energy solution, a critical reality is being overlooked: producing green hydrogen is only one piece of a complex puzzle. The success of green hydrogen projects depends on simultaneously developing infrastructure that will transport the green hydrogen to industry. It will also need industries to adopt new technology or convert existing equipment so that they can switch from using fossil fuels to using green hydrogen.

Producing one kilogram of green hydrogen needs up to 30 litres of fresh water. This means that desalination or water recycling plants will be needed if green hydrogen hubs are set up in water scarce areas.

Think of it like building a new railway system. You wouldn’t construct a train station without first laying train tracks and making sure that trains are available to run on it.

Yet South Africa aims to build seven gigawatts of hydrogen production capacity by 2030 – enough to power up to seven million homes at once.

We are chemical engineers, with over five decades of combined experience in the petrochemical industry, who have researched the potential for green hydrogen commercialisation in South Africa.

Drawing on our experience, our latest research is about why ambitious energy projects succeed or fail. We researched how to manage the risks of setting up a green hydrogen industry – from project execution through to market readiness – in a way that’s fair to both developed and developing countries.

To develop our risk assessment framework, we analysed historical data from pioneer energy plants globally and examined some of the challenges experienced by megaprojects (those that cost more than R20 billion or US$ 1 billion to build). We compared different ways to use green hydrogen by measuring how many CO₂ emissions are avoided for each ton of hydrogen used. This helped us understand which applications are the most effective for cutting emissions.

What our risk assessment found was striking: projects that rush to use new technology at a massive scale typically see their costs double or triple from initial estimates. And over half of these projects fail to meet their production targets in their first six months.

Our risk analysis also shows that the funds needed to build production plants globally, including in South Africa, are just a fraction of what it will cost to build a functioning green hydrogen economy. The government will have to take these risks into account or the result will be stranded assets: expensive facilities that can’t be fully utilised because the supporting infrastructure isn’t in place.

The risks we found

Hydrogen, including green hydrogen, can only be moved around through expensive specialised pipelines, or by being compressed using extreme pressure. Other ways to move it include first converting it into other chemicals like ammonia, or converting it to liquid form at -253°C. Up to 48% of the energy content can be lost in transportation alone through compression, liquefaction, conversion to carriers (like ammonia or methanol), and pipeline or shipping inefficiencies, all of which require significant energy input.

Most existing natural gas pipelines cannot handle pure hydrogen without substantial modifications. These technical complexities mean new infrastructure must be built almost from scratch.

If these hurdles in transporting green hydrogen are overcome, the next problem is that green hydrogen needs customers with facilities equipped to use it. For example, the steel industry is looking at moving away from polluting ovens to producing steel using green hydrogen. This would produce almost no carbon dioxide emissions but requires entirely new infrastructure.

Fuelling stations are another example. For an ordinary fuel station to be converted so that it could serve hydrogen vehicles, it would need either massive cooling plants and cryogenic storage tanks (which store liquefied gas at below -250°C) or high-pressure storage vessels and compressors. A hydrogen filling station would operate more like a small chemical plant than a conventional service station.

The South African government’s green hydrogen strategy wants to carry out 24 feasibility studies to see how green hydrogen could be made and used by local industry. There are also plans to export it.

But the cost of producing and transporting green hydrogen is up to five times the cost of a fossil fuel alternative. Hydrogen is also very difficult to transport across the ocean. This means there is no chance of big green hydrogen exports happening in the short to medium term.

These factors create risks for a potential green hydrogen industry that will make it difficult for green hydrogen projects to attract financing. Production facilities costing billions cannot be justified if transportation systems and end users aren’t ready and waiting.

It is also worth considering that, in many cases, solar or wind power are cheaper and more efficient than green hydrogen. For example, green hydrogen is an expensive and inefficient way to power cars compared to battery electric vehicles or to heat homes compared to electric heat using heat pumps.

A path forward

Our research suggests that the South African government should focus first on industries that will find it easy to switch from fossil fuels to green hydrogen.

For example, green hydrogen could be produced and converted to green ammonia in one place, without needing new pipelines. Green ammonia can be used to make farm fertilisers that are transported as solid pellets, and so no extra infrastructure is needed to move and sell bags of green fertiliser.

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However, the higher cost of green ammonia-based fertiliser would be a problem for local sales. Nitrogenous fertiliser is used on staple crops such as maize. Higher fertiliser costs would have a knock-on effect for food prices.

The transition to green hydrogen requires careful coordination across the entire supply chain. Rather than a “build it and they will come” approach, production, transportation and usage infrastructure must be built at the same time.

As countries race to meet climate targets, policymakers must discuss all the infrastructure a green hydrogen industry needs. Without coordinated development across the entire value chain, the transition to clean energy could be set back.

• Craig McGregor is a Associate Professor in Mechanical and Mechatronic Engineering and Director of the Solar Thermal Energy Research Group, Stellenbosch University
• Bruce Douglas Young is a Senior Lecturer, Africa Energy Leadership Centre, University of the Witwatersrand
• This article first appeared in The Conversation

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Green hydrogen is produced through electrolysis, where renewable electricity splits water into hydrogen and oxygen. Unlike grey hydrogen, which is derived from fossil fuels, green hydrogen emits no greenhouse gases – only water vapour. It is seen as a good alternative to fossil fuels in sectors that are hard to electrify, such as heavy industry, aviation and long-haul transportation.

We are chemical engineers, with over five decades of combined experience in the petrochemical industry, who have researched the potential for green hydrogen commercialisation in South Africa.

The European Union’s recent pledge of €32 million (R628 million) in grants to support South Africa’s green hydrogen industry shows that the country’s potential is being recognised. However, our research shows that it is not enough. Getting a green hydrogen industry started will need more than this grant.

Green hydrogen production is expensive, costing between US$5 and US$8 (R89-R143) per kilogram – around five times the cost of hydrogen derived from fossil fuels.

It is also three to five times more expensive than oil. If green hydrogen is to be cost-effective enough to compete with fossil fuels, the green hydrogen industry will need government subsidies and incentives for manufacturers. It will also need supportive government regulations, such as carbon taxes or a requirement to use sustainable chemicals such as green ammonia for fertiliser made from green hydrogen.

Apart from this, substantial international investments will be needed to mitigate the risks, such as cost overruns, that come with building huge green hydrogen projects. In fact, South Africa’s future green hydrogen industry depends on government-backed support from the global north, through mechanisms like sovereign guarantees – a promise by a government to cover the financial obligations of a project if it fails to meet its debt repayments – or equity stakes – partial ownership, sharing in both the profits and risks.

European Union grants

The European Union has provided two grants, totalling €32 million (R634 million). The first is a R490 million grant to help set up a regional green hydrogen hub in the southern Africa region.

The European Union, and South Africa’s ministries of Trade and Industry and Electricity and Energy, say this grant aims to “leverage R10bn in private and public sector finance across the hydrogen value chain”. In other words, this grant is expected to entice investors to inject funds into green hydrogen production, transportation, storage and downstream industries (including green steel and aeroplane fuel).

A second EU grant of R138 million is supposed to attract additional funding to boost the state utility Transnet’s ports, railways and pipelines. This is so that green hydrogen can be exported efficiently.

South Africa’s green hydrogen commercialisation strategy aims to produce one million tonnes a year of green hydrogen by 2030, rising to seven million tonnes a year by 2050.

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If it does this, by 2050 the green hydrogen industry could potentially contribute R75 billion annually – 6.5% of South Africa’s gross domestic product. It could generate R24 billion in tax revenue, and create up to 370,000 jobs.

The European Union grants are a step towards this. But they pale in comparison to the estimated R410 billion (approximately €20 billion) needed to produce one million tonnes of green hydrogen by 2030. We calculate that the new grants represent less than 0.2% of the investment needed to get this done.

There is a vast financial gap that must be addressed. South Africa does not have the funds to set up a green hydrogen industry. The entire one million tonnes a year of green hydrogen that South Africa aims to produce by 2030 is entirely dependent on global north subsidisation.

We believe that the European Union grants will cover early-stage studies to assess the feasibility of setting up the green hydrogen industry, rather than any capital investments.

Green hydrogen risks

Green hydrogen industries depend on megaprojects: renewable energy infrastructure, electrolysers and water-sourcing systems. Each megaproject typically costs over US$1 billion (R19 billion).

The green hydrogen industry will also depend on an international supply chain so that the product can be exported. This supply chain will need pipelines and ports as well as long-term agreements with importing countries.

Megaprojects carry well-known risks – they frequently exceed their initial budgets by 20%-30%, and deadlines are often extended by years.

Unanticipated delays, equipment failures, or the need for additional infrastructure could dramatically increase costs. This would leave South African project developers struggling to cover the money they’d invested in the projects. Investors could also be left with stranded assets if the demand for green hydrogen failed to materialise because of competition from other energy technologies, regulatory changes, or slower-than-expected adoption.

The European Court of Auditors recently called for a “reality check” on green hydrogen, warning of these high costs, infrastructure bottlenecks and over-optimistic expectations surrounding the hydrogen market.

If the global north subsidises or buys shares in these projects, it could reduce financial risks for South African developers. However, the likelihood of cost overruns and schedule delays is extremely high. These will be pioneering megaprojects and they could be value destructive – where their returns will be below the cost of capital.

The European Union hopes to import 10 million tonnes per annum of green hydrogen by 2030. We believe the EU should bear the risks and use subsidies to pay for this.

Solutions

South Africa experienced frequent power cuts between 2007 and 2024 that hampered economic growth. Critics of green hydrogen argue that renewable energy should be used domestically before being channelled into producing green hydrogen for export.

As green hydrogen researchers, we believe that South Africa can set aside renewable energy for local consumption while expanding green hydrogen capacity at the same time.

South Africa will also have to make sure that local communities benefit from the green hydrogen industry.

As global interest in green hydrogen accelerates, the real test will be setting up the right partnerships to drive both economic development and the world’s energy transition.

South Africa could become a global leader in green hydrogen. The €32 million grant from the European Union is very welcome because it highlights the importance of international collaboration in addressing the climate crisis. However, there is a real danger that the global south could shoulder most of the risks involved in developing the green hydrogen industry while global north consumers benefit from the product.

• Bruce Douglas Young is a Senior Lecturer, Africa Energy Leadership Centre, University of the Witwatersrand
• Craig McGregor is an Associate Professor in Mechanical and Mechatronic Engineering and Director of the Solar Thermal Energy Research Group, Stellenbosch University
• This article first appeared in The Conversation

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