The big risks being overlooked in South Africa’s new energy ‘gold rush’

 ·9 Dec 2022

Multinational insurance company Allianz is concerned over the possible risks associated with the rapid push towards green hydrogen energy – especially in South Africa.

The group’s head of energy and construction for its South African division, Robert Ter Morshuizen, said that in light of rapid growth in the green hydrogen industry, there are some unique risks associated with the energy.

He said that the rapid scaling up of the industry is challenged by production costs, land availability, the construction or repurposing of infrastructure, evolving technologies, storage and water scarcity.

Morshuizen went on to note that along with the established oil and gas players, there would be fewer experienced operators in the market who may work remotely in repurposed facilities.

On top of that, research conducted by the firm shows that fire and explosions are major business interrupters to energy industries.

“Hydrogen gas is a very small molecule, so it is easy for it to escape. You can’t see or smell it, it’s highly flammable, and when ignited, the flames are almost invisible. Around 25% of hydrogen fires are the result of leaks, so proper handling is essential,” said Morshuizen.

It is important that appropriate fire safety and detection equipment be made available and care to be taken in the designing of electrical installations, he added.

“Green hydrogen plants also need to ensure consistent sources of renewable energy or risk business interruption losses if they lose power.”

Morshuizen said new risks would enter the green hydrogen value chain as new players enter the industry. The use of scarce resources during the process of hydrogen production and the advent of new suppliers could lead to business interruption costs.

“Green hydrogen is an emerging industry, so AGCS has seen few major insurance losses to date. But there have been losses in the marketplace related to hydrogen fueling stations and hydrogen escaping followed by explosions because flanges were not assembled and tightened correctly,” he said.

South Africa

South Africa is being hailed as a hot spot for green hydrogen production, with billions of rands in profit said to be on the table if it can develop fast enough.

Precedence Research projects that the global market for green hydrogen will increase at a CAGR of 54% from 2021 to 2030, reaching $89 billion by that time.

President Cyril Ramaphosa said that in light of the country’s transition away from coal-reliant energy supplies, green hydrogen is one of the four frontiers of the Just Transition Investment Plan that shows “huge growth and investment potential.”

Infrastructure South Africa (ISA) has already compiled R300 billion for funding green hydrogen projects. The minister of public works and infrastructure, Patricia de Lille said that even more is however needed.

Recent data from a feasibility report on South Africa’s Hydrogen Valley showed that the cost of green hydrogen is expected to be roughly $4 per kg by 2030, $2 more than traditional methods.

Director of the energy transition advisory group Royal HaskoningDHV, Gladys Nabagala, said that domestically South Africa has several geographical and technological advantages to green hydrogen production.

Nabagala said that South Africa is in a perfect position due to:

  • Its size and climate allow for some of the highest renewable energy loads from solar and wind;
  • It has abundant land in proximity to oceans;
  • It has infrastructure assets such as Sasol’s proprietary Fischer-Tropsch process that is used to produce synthetic hydrocarbons such as methane, diesel and jet full;
  • It has world-class academic expertise in the field;
  • Sasol’s ongoing investigation into green hydrogen at Boegobaai in the Northern Cape, backed by Ramaphosa himself.

Projects across the Northern Cape, as well as other parts of South Africa, have now been gazetted by De Lille with the aim of fast-tracking development.

9 new mega-projects coming to South Africa


What exactly is green hydrogen?

Green hydrogen refers to the production of hydrogen that can be used as an alternative to fossil fuels. What makes it green, according to Allianz, is that the processes behind its production are powered by renewable energy supplies such as solar or wind.

According to Morshuizen, hydrogen’s significant selling factor is that, unlike fossil fuels, it produces no carbon dioxide when it is burned – only water vapour. Most hydrogen today is, however, produced using natural gas, or methane, emitting greenhouse gases (GHGs).

“Growth in green hydrogen is being propelled by stakeholder pressure on businesses to decarbonize, net-zero commitments and the need to reduce reliance on Russian gas,” said Morshuizen.

It is anticipated the costs of production will come down as fossil fuel costs rise, renewables costs continue to fall, higher production capacity creates economies of scale, and governments support development with subsidies, added Morshuizen.

Read: 9 new mega-projects coming to South Africa

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