Blended financing to catalyze green hydrogen projects in South Africa and Namibia; meeting net zero emissions ambitions

by MMC
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With the green hydrogen sector expected to help meet southern Africa’s growing energy demand – and help achieve the region’s strict commitments to net zero carbon emissions – a group of financiers is leading initiatives to raise over US$1 billion respectively to accelerate South Africa’s development. and Namibia’s green hydrogen sectors, through innovative blended finance solutions called the SA-H2 Fund and SDG Namibia One.

In South Africa, the funds are supported by Climate Fund Managers (CFM) and Invest International BV (II) of the Netherlands, Sanlam Limited of South Africa (Sanlam), the Development Bank of Southern Africa (DBSA) and the Industrial Development Corporation. of South Africa (IDC), in collaboration with other strategic partners. For Namibia, the fund is supported by Climate Fund Managers, Invest International and the Environmental Investment Fund of Namibia (EIF).

A closer look at the fund’s ambitions and the solutions green hydrogen can bring to Southern Africa took place at a ‘Powering Green Hydrogen: Shaping Southern Africa’s Energy Future’ event, which was held recently in Johannesburg.

Andrew Johnstone, co-founder of CFM, said: “The opportunity for green hydrogen in Southern Africa is huge. We believe that green hydrogen is both the path and the solution to the global energy transition; and that Southern Africa combines deep technical and financial markets with world-class conditions to produce renewable electricity through solar and wind power, key drivers of green hydrogen production. However, the ultimate enabler is blended finance; it’s the bridge for everything to come together.

The event promoted blended finance as a key mechanism to unlock the benefits of investments in green hydrogen projects. Blended finance involves the strategic use of donor capital to mobilize commercial capital. It is an innovative financing model that combines concessional and development financing with commercial financing to create a solution that mitigates risks and improves returns while enabling investment throughout the project lifecycle .

Johnstone said there is availability of public and private funding, in considerably large amounts. “Blended finance is interesting because it brings together governments, development financiers, donors and the private sector around the table to complete the different pieces of the complex puzzle we are building to find the solution. »

A wide range of energy, finance and industry experts attending the event largely agreed on the positive economic, environmental and social impacts of green hydrogen projects.

Assaad Razzouk, world-renowned clean energy entrepreneur, author, podcaster and commentator, said: “There is no clean energy solution without green hydrogen; without green hydrogen, there simply cannot be a debate on climate change.”

Green hydrogen is a clean and sustainable alternative to fossil fuels, the demand for which is expected to see rapid growth across the world. Southern Africa is ideally positioned and already a pioneer in meeting the increase in demand. For example, Namibia is pursuing its Hyphen project – one of three proposed green hydrogen projects in that country – and hopes to reach its final investment decision by 2025. And South Africa already has 19 projects of green hydrogen which were published in Parliament. , nine of which are considered “integrated strategic projects”. Projects are spread across the country, often near small centers, to ensure the widest possible distribution of associated benefits.

As with any large infrastructure project, green hydrogen projects can take years and require significant investment to complete. The Namibian and South African projects – currently in the development and feasibility phase – will therefore require significant capital to implement once they receive the green light. The Development Bank of South Africa (DBSA) estimates that South Africa’s total investment in green hydrogen will reach $250 billion by 2050.

“The SA-H2 Fund will help South Africa claim its rightful place as a global leader in this exciting and necessary sector. Once established, the fund will join the SDG Namibia One Fund as the second such regional blended finance fund, aimed at developing and financing green hydrogen projects,” Johnstone said. Fundraising for the SA-H2 fund is not yet underway as it still requires regulatory approvals; but it remains clear that advancing essential development financing is an important factor in accelerating the development of the sector.

Environmentally, green hydrogen can mitigate climate change by replacing fossil fuels and thereby reducing carbon emissions. “Green hydrogen supports the transition to a sustainable energy system and conserves natural resources,” Johnstone said, before addressing concerns that electricity demand from new electrolysis plants would exacerbate electricity supply. precarious situation in South Africa. These facilities will have new dedicated renewable electricity generation infrastructure that will not redirect existing supply intended for electricity security. At the economic level, green hydrogen projects create new job opportunities; stimulate investments in critical infrastructure; attract much-needed foreign capital; and boosting GDP growth through export revenues, among others.

According to Mike Peo, head of infrastructure, energy and telecommunications at Nedbank CIB: “We need catalysts to address the multiple challenges of transitioning to green forms of energy. And we must balance the rhetoric of net zero emissions with that of the just energy transition. The “E” and the “S” are inextricably linked; the energy solution must have both social and environmental benefits. If we killed oil or coal producers overnight, for example, not only would we lose GDP growth, but there would also be thousands of job losses. The policy framework in South Africa is therefore of crucial importance.”

Carl Roothman, CEO of Sanlam Investments, said that, if done correctly, the funds would mobilize significant capital inflows into a critical sector in South Africa and Namibia, while creating the building blocks for new business opportunities. innovative investments, focused on the environment and society, adapted to local investors. especially. “These and similar financing initiatives will revive the economy, create new investment opportunities and put both countries back on the investment map at a time when the number of listed market opportunities is declining,” he said. -he declares.

Local asset managers are already leading the charge in blended finance. Sanlam Investments has integrated impact and social investing into its core values ​​and aims to generate investment returns while making a real difference to the environment and society. The asset manager’s investments in alternative market opportunities are already focused on job creation and retention; support the growth of small and medium-sized businesses; and providing access to the “missing middle” to affordable, quality housing and education, in addition to providing investors with commercial investment returns.

“Green hydrogen can become a catalyst for real economic, environmental and social improvements in Southern Africa and across the continent; this offers enormous promise for solving our energy challenge and, as a company that believes in a just transition to clean energy, we continue to find ways to support our country and our continent in their quest for clean energy alternatives ” Roothman said.

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