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Multinational insurance company Allianz is concerned about the potential risks associated with the rapid push towards green hydrogen energy – particularly in South Africa.
Group head of energy and construction for its South African division, Robert Ter Morshuizen, said that in light of the rapid growth of the green hydrogen industry, there are some unique risks associated with energy.
He said the industry’s rapid expansion was driven by production costs, land availability, infrastructure construction or conversion, developing technologies, storage and water scarcity.
Morshuizen further noted that along with established oil and gas players, there would be fewer experienced operators in the market who can work remotely in repurposed facilities.
In addition, research conducted by the firm shows that fire and explosions are the main business interruptions in the energy industries.
“Hydrogen gas is a very small molecule, so it’s easy for it to escape.” You can’t see or smell it, it’s highly flammable, and when ignited, the flame is almost invisible. About 25% of hydrogen fires are the result of leaks, so proper handling is essential,” said Morshuizen.
It is important to make available the appropriate equipment for fire protection and detection and to take care of the design of electrical installations, he added.
“Green hydrogen plants must also ensure consistent sources of renewable energy or risk business interruption losses if they lose power.”
Morshuizen said new risks will enter the green hydrogen value chain as new players enter the industry. The use of scarce resources during the hydrogen production process and the arrival of new suppliers can lead to business interruption costs.
“Green hydrogen is an emerging industry, so AGCS has seen several large underwriting losses to date. But there have been losses in the market related to hydrogen pumps and hydrogen ejection followed by explosions because the flanges were not properly assembled and tightened,” he said.
South Africa
South Africa has been hailed as a hot spot for green hydrogen production, with billions of rand in profits said to be on the table if it can be developed quickly enough.
Precedence Research predicts that the global green hydrogen market will increase at a CAGR of 54% from 2021 to 2030, reaching $89 billion by then.
President Cyril Ramaphosa said that in light of the country’s transition away from coal-based energy supply, green hydrogen is one of the four frontiers of the Just Transition Investment Plan that shows “tremendous growth and investment potential”.
Infrastructure South Africa (ISA) has already raised R300 billion to fund green hydrogen projects. Public Works and Infrastructure Minister Patricia de Lille said more was needed, however.
Recent data from the feasibility report on South Africa’s Hydrogen Valley showed that the price of green hydrogen is expected to be around US$4 per kg by 2030, US$2 more than traditional methods.
Director of energy transition advisory group Royal HaskoningDHV, Gladys Nabagala, said South Africa has several geographical and technological advantages in the country in terms of green hydrogen production.
Nabagala said South Africa is in a perfect position because:
- Its size and climate allow for some of the largest renewable energy sources from the sun and wind;
- There is an abundance of land near the ocean;
- It has infrastructure assets such as Sasol’s proprietary Fischer-Tropsch process used to produce synthetic hydrocarbons such as methane, diesel and jet;
- It has world-class academic expertise in the field;
- Sasol’s ongoing investigation into green hydrogen at Boegobaai in the Northern Cape, supported by Ramaphosa himself.
Projects across the Northern Cape, as well as other parts of South Africa, are now being announced by De Lille for accelerated development.
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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 sources such as solar or wind.
According to Morshuizen, a significant selling point of hydrogen is that, unlike fossil fuels, it produces no carbon dioxide when burned – only water vapor. Most hydrogen today, however, is produced using natural gas or methane, which emits the greenhouse gas (GHG).
“The growth of green hydrogen is driven by stakeholder pressure on businesses to decarbonize, net zero obligations and the need to reduce reliance on Russian gas,” Morshuizen said.
Production costs are expected to decrease as fossil fuel costs rise, renewable energy costs continue to fall, greater production capacity creates economies of scale and governments support development with subsidies, Morshuizen added.
Read: 9 new mega-projects coming to South Africa
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