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JEREMY MAGGS: We’re going to start with this, a new fund promoting the financing of green hydrogen initiatives in South Africa has been announced. It’s a joint effort between the Netherlands, Denmark, and South Africa, and also supported by a number of institutions, including Sanlam, among others.
With us now is Kevin Anderson from the organisation, Climate Fund Managers. Kevin, welcome to you. This is how the fund is being sold, green hydrogen is both the pathway and the solution to the global energy transition. That’s a lofty statement, explain the thinking to me.
KEVIN ANDERSON: Good afternoon, Jeremy, and thank you. Ja, definitely an interesting statement. Maybe just some background, so Climate Fund Managers is a joint venture between the FMO Group – the Dutch entrepreneurial development bank in the Netherlands – and Sanlam in South Africa. The real incentive of this fund is to deal with climate change. We believe that we are in a climate crisis, and for that reason, we need to set up the necessary vehicles to deal with that.
So what we do have is a fund that deals with energy, renewable energy specifically. Our second fund is a water and oceans fund, and then more specific to your question is the green hydrogen fund. So the green hydrogen fund really is there because we believe that hydrogen per se, is the energy carrier that can deal with decarbonisation. The world, as you know, is shifting towards a less oil and gas intensive world and that alternative needs to be identified and that alternative is hydrogen.
To produce hydrogen is not new. It’s not a new technology, it’s been around for many years, but it’s just become commercially viable more recently and for that reason, we’ve announced this fund and for that reason we are looking to really develop these projects in South Africa.
JEREMY MAGGS: I’m wondering if the timing on this initiative is just right or are we slightly behind the curve?
KEVIN ANDERSON: I think it’s just right. I think South Africa is poised to become a global leader in this space. If we don’t do it now, we’ll miss out. We have to keep in mind that hydrogen is not exclusive to South Africa. There are many other countries in the world that can produce hydrogen competitively. If you think of the likes of Morocco, Egypt, Mauritania, which is close to Europe, which will be a big offtake market.
In Australia, they’ll focus on off taking to the likes of the whole Asia market, Japan, South Korea. Then the … markets such as Chile, Argentina, Brazil, Columbia, they’ll focus on the US markets. So South Africa needs to move fast in order to be competitive.
JEREMY MAGGS: I’m thinking to myself that listeners will be hearing this conversation and saying to themselves, any port in a storm, what would the timeline on implementations of projects emanating from the fund be? And when would we see real benefit?
KEVIN ANDERSON: So the timeline is, ja, so maybe just one step back. So, in order to get these projects off the ground, we are talking mega-sized projects. To put it in context there’s a project being announced in Namibia, it’s called Hyphen, the capex (capital expenditure) for that project is US$10 billion. So that’s equivalent to Namibia’s GDP; more or less.
There are similar sized projects being earmarked for South Africa and in order to build such big projects, you need quite a long lead time. So there’s a lot of development work that needs to go into these projects. Development work, it could be as long as two to three years’ time of putting all the pieces of the puzzle together, where after you reach financial close, which in itself is quite a process to get all the different financiers around the table and get them on board, and then you go into construction. So, I would say to put a timeline to it, you’re looking to anything from three to five years, just because of the complexity of putting these mega projects together.
JEREMY MAGGS: So too soon to get excited about the benefits when it comes to a reduction in load shedding, for instance.
KEVIN ANDERSON: Ja, a double question on that. So on the one side, the nice thing about hydrogen per se, is that it is a storage mechanism as well. You can store hydrogen in either gaseous or liquid format, and you can convert it back to electron. So on the one side, you produce it with an electron, a green electron, be it solar or wind. You can then store it in molecule formats and then you can reconvert back into an electron again.
But we won’t see that on the South African grid in the next three to five years at least. I think what is very important is that all molecules or all electrons produced currently should be going to the grid. So all renewable energy projects that we are aware of at least should be focused on producing electrons for the grid and to help with the crisis.
JEREMY MAGGS: So, and correct my maths if I’ve got this wrong, seed capital of $250 million, target is a $1 billion. How quickly can that be raised? That’s the target, and is there an appetite for that right now, do you think?
KEVIN ANDERSON: There is an appetite, yes. So we’ve done some soft sounding in the market both locally and internationally. We have seen that there’s a lot of interest locally. You’ve mentioned Sanlam earlier, Sanlam are looking to come on board as an anchor equity investor in the fund and hopefully bring along their peers, which we think will be very important.
We believe the capital markets in South Africa have liquidity and have appetite to perhaps look at this new sector. It does provide a new infrastructure opportunity. It is going to be, as I said earlier, going to be big numbers, but South Africa on its own can’t do it. If we keep in mind that $10 billion project in Namibia that I mentioned earlier, it will require funding to come from international sources as well. So we have also reached out to our international investors to see how they would look at it and there is definitely appetite to join this fund, come on board and get going.
JEREMY MAGGS: Kevin Anderson, thank you very much.
