Mining in a time of transition: why hydrogen is so important

Mining has traditionally been a major driver of the South African economy. However, the Cop-26 Summit (which was held in Glasgow in 2021), saw the world rallying towards carbon neutrality. Mining companies are having to address their company strategies to provide the feedstocks that are necessary for a decarbonized world. This needs to be done in the cleanest way possible.

From a business rescue/turnaround perspective, this is an important shift. Mining companies need to gravitate towards metals and minerals that will serve the future needs of consumers. How is this achieved?  As highlighted in a recent media round table discussion; this gravitation is why the adoption of hydrogen is so important.

In October 2021, the Department of Science and Innovation released a report on the South African Hydrogen Valley and the importance that it can play in the future of the country. It is important for turnaround professionals to read this report and figure out how we can offer advice to our clients so that they are aligned with this future.

Hydrogen Valley & Hydrogen Hubs
The report points out that hydrogen is a key priority for South Africa. In his last State of the Nation address, President Ramaphosa cited that hydrogen fuels cells are a national priority as an alternative energy source. Hydrogen presents a significant opportunity for economic development in South Africa, including the creation of new jobs and the monetization of the platinum industry. It is also a contributor to South Africa’s decarbonization objectives, leveraging PP1, REDZ2 and other renewable development programs to produce green hydrogen, now at the centre of many sectors level green strategies (e.g., green steel, green buildings). Finally, global commitments towards hydrogen production and demand create an opportunity for South Africa to engage in energy export at the international level.

The South African Government’s Department of Science and Innovation (DSI) is looking into opportunities to transform the Bushveld complex and larger region around Johannesburg, Mogalakwena and Durban into a Hydrogen Valley.

The report adds that, to realize these objectives for South Africa, Hydrogen Valleys can be leveraged to kickstart the hydrogen economy, leading to cost savings through shared infrastructure investments, improving the cost competitiveness of hydrogen production through economies of scale, enabling a rapid ramp-up of hydrogen production within a given territory, and leveraging an incubator for new pilot hydrogen project.

Three catalytic green hydrogen hubs have been identified in South Africa’s Hydrogen Valley. These hubs have been identified based on locations with potential for a high concentration of future hydrogen demand, the possibility to produce hydrogen (e.g., access to sun/wind, water infrastructure), and contributions to the just transition—an economic development plan that brings positive social impact particularly to more fragile groups and communities. These hubs – in Johannesburg, Durban/Richards Bay, and Mogalakwena/Limpopo – will host pilot projects and contribute to the launch the hydrogen economy in the Hydrogen Valley.

Hydrogen Demand
The report points out that hydrogen demand in the Valley could reach up to 185 kt H2 by 2030, or 40% (low demand case) to 80% (high case) of demand in the national hydrogen roadmap. Demand in the Valley has been developed based on a bottom-up assessment of technical potential of off-takers in each hub, complemented by hydrogen uptake curves reflecting the expected competitiveness of hydrogen in each application.

In Johannesburg, hydrogen demand could reach up to 74 kt by 2030 in a high uptake scenario. Demand is primarily driven by the industrial sector, with large H2 uptake in Sasolburg’s chemical and iron and steel sectors. There is also significant demand from Heavy Duty trucks servicing the N3 freight corridor, and public buses and buildings within the Johannesburg/Durban metropoles.

In Durban, hydrogen demand could reach 70 kt by 2030 in a high uptake scenario. Demand is primary driven by the mobility sector, with the growth of fuel cell Heavy and Medium-duty trucks along the N3 freight corridor, as they reach cost parity with diesel trucks. The ports of Durban and Richards Bay present opportunities for hydrogen in port operational vehicles such as forklifts and cold ironing from fuel cells as well as marine bunkering in the long-term. Some industrial demand, such as pulp and paper factories, and public building demand is also foreseen.

The report adds that Mogalakwena/Limpopo is positioned as the mining hub, with 90% of its nearly 40 kt of H2 demand driven by possible demand from mining trucks across the region’s mines. The flagship Limpopo Science and Technology will also provide demand for fuel cells to power its building stock.

Hydrogen export could be a potential future source of demand. However, the Valley will face competition from other hydrogen exporting countries such as Morocco and Australia and from other ports in South Africa such as Boegoebaai. Nevertheless, the co-location of demand and supply gives synergies opportunities within the hub that will help initiate and scale up pilot projects.

Hydrogen Supply
The report points out that by 2030, green H2 LCOH is expected to be about $4 per kg H21 across hubs, still more expensive than gray hydrogen, with a green premium of $2-$2.5 per kg.

All three hubs see similar costs of hydrogen production. Costs in 2030 will be lower in Johannesburg (4.08-4.11 USD/kg H2), compared to Durban (4.25-4.55 USD/kg H2) and Mogalakwena/Limpopo (4.10-4.27 USD/kg H2) due to higher solar irradiation levels. Additional transports costing up to 0.5 USD/kg H2 are considered to bring hydrogen from supply locations to off takers within the hubs. With the addition of transport, hydrogen production costs reach 4.70 – 5.00 USD/ kg H2 by 2030 (see graph). For all hubs, we recommend using solar PV for green hydrogen production, with some onshore wind as the cost optimal supply mix.

The report adds that SA H2 Valley LCOH estimates are higher than some other analyses, due to the use of PEM electrolysers instead of alkaline electrolysers, as well as conservative, yet significant cost-down assumptions (~60% between today and 2030), based on observations about the limited impact of economies of scale in electrolyser installations. Our electrolyser costs go beyond capex to include the full cost of installation. We have also taken a conservative approach in LCOH cost evolution and recognized that further reductions are possible depending on policy and technology evolution to 2030.

Given the estimated demand of hydrogen, the optimal transport solution consists of transporting hydrogen through trucks from the production site to off-takers, while hydrogen pilot projects take shape and begin to scale. Building a hydrogen pipeline requires high levels of hydrogen demand before becoming economically viable.

The report anticipates infrastructure constraints, and each hub must anticipate infrastructure requirements in electricity supply, water supply, pipeline infrastructure and storage. For electricity supply, a dedicated RES off-grid supply is recommended to mitigate grid reliability risks and avoid network charges and taxes. Most hubs are vulnerable to water supply and hubs may consider locating hydrogen supply next to existing water sources, desalination infrastructure, or implementing water recycling or truck delivery. With no extensive H2 network in the region, existing gas pipelines could be leveraged for H2 transport and distribution in the longer term. While underground storage is not feasible before 2030, above ground storage can be leveraged to lower LCOH.

Socioeconomic Impact
The report points out that the H2 Valley could potentially add 3.9-8.8 bn USD to GDP (direct and indirect contributions) by 2050, while also creating 14,000 – 30,000+ direct and indirect jobs per year.

Spending on capex and opex hydrogen production, from offsite renewable energy supply and electrolyser capacity, for the full vision of the Hydrogen Valley is expected to have a positive impact on GDP and job creation. Estimates have placed the potential GDP impact, both direct and indirect, of the hydrogen projects at 3.9 billion USD (low demand case) to 8.8 billion USD (high demand case) should the full vision of the Hydrogen Valley be realized.

The report adds that estimates also indicate job creation opportunities from projects in the Valley, putting in place about 14 000 (low case) to 32 000 (high case) jobs per year by 2030, should the full vision of the project be realized.

These jobs are based on the RES and electrolyser investment only; fuel cell investment may further contribute to job creation beyond these figures.

This job growth may be seen in sectors across the whole hydrogen value chain, starting at the sourcing of resources such as water resources management and platinum mining, to production including electrolyser development, to transport including the pipeline and trucking industries, to storage such as liquefaction, to finally applications such as fuel cell manufacturing. Jobs span the entire hydrogen value chain from R&D, engineering, maintenance, training and outreach. This job creation also has the potential to contribute to the just transition; for example, jobs requiring training the workforce will put male and female workers on equal footing.

The report points out that the PGM sector is expected to see a marginal increase in demand from the Hydrogen Valley, as platinum is a required raw material for both fuel cell and (PEM) electrolyser manufacturing. However, the volume of platinum required for the Valley only constitutes a small percentage of platinum production today. No platinum supply constraint to satisfy the demand of the Valley is anticipated. The proposed projects in the Hydrogen Valley could bring up to 70 million USD (high case) to platinum industry in South Africa in 2030.

Positioning South Africa
There is no doubt that South Africa has significant potential to become one of the major global players when it comes to the hydrogen economy. We have an existing mining industry that are looking to innovate to address the energy demands on their operation as diesel becomes more expensive and a fuel that the world is beginning to shun.

We have significant capacity when it comes to renewable energy production that can produce hydrogen as a by-product. This can be used and exported as an energy source in places where there is a less of a guarantee for reliable sunlight and wind to produce renewable energy.

Saudi Arabia and other members of Opec became monopolised the production of fuel when they discovered oil and their ability to mass produce it. How does South Africa position itself to become the kingpin in the global hydrogen economy?

Robin Nicholson is a Director at Corporate-911 and is a Senior Business Rescue Practitioner