Banking on green

Jo-Maré Duddy – Foreign direct investment bigger than our gross domestic product, thousands of jobs and Namibia seen as one of the superheroes in the climate change battle: these were some of the promises as the country took centre-stage on the sidelines of COP26 announcing its ambitious plans to produce green hydrogen.

At the recent COP26 climate summit in Glasgow, Scotland, the British-German developer Hyphen Hydrogen Energy was announced as government’s preferred bidder to develop Namibia’s first large-scale vertically integrated green hydrogen project in the Tsau //Khaeb National Park in the Sperrgebiet near Lüderitz.

The project forms part of the country’s Southern Corridor Development Initiative (SCDI) included in the Harambee Prosperity Plan II. The SCDI portfolio includes renewable energy plants, green hydrogen ammonia assets, wind turbine blade manufacturing plant, railway, deep water port, mining hubs, green steel and fertiliser plants. Not only //Kharas, but Erongo and Kunene will also be considered as regions in which projects could be developed.

STAGGERING STATS

Tsau //Khaeb is among the top 5 locations in the world for low-cost hydrogen production, benefiting from a combination of co-located onshore wind and solar resources near the sea and land export routes to market, according to Hyphen CEO Marco Raffinetti.

The scale of the project is baffling: a total investment of about US$9.4 billion or more than N$140 billion at the current exchange rate.

In real terms, Namibia’s gross domestic product (GDP) last year was around N$133 billion. Investment or gross fixed capital formation in the country from 2016 to 2020 totalled about N$150 billion.

The first phase of the project is expected to enter production in 2026, and will see the creation of 2 gigawatts of renewable electricity generation capacity to produce green hydrogen for conversion into green ammonia, at an estimated capital cost of US$4.4 billion.

Nearly 15 000 direct jobs will be created during the four-year construction of both phases, of which 20% will be youth. Preference will be given to workers from the //Kharas region at an average monthly salary of about N$12 661. Currently the entire region employs about 30 000, Simonis Storm (SS) said in its report, “Namibia on greener pastures”, released this week.

A further 3 000 jobs will be created permanently during the operational phase of the project. More than 90% of all these jobs created are expected to be filled by Namibians.

Over a 40-year period, Hyphen estimates that Namibia could earn about US$35 billion – more than N$500 billion at current exchange rates – per year if it captures between 4% and 5% of the global market share for fertilizer (green ammonia), shipping fuel (green methanol), green steel and aviation fuel.

TOO GOOD TO BE TRUE?

Namibia’s green ambitions will realise, if – and only if - Namibians welcome it, James Mnyupe, economic advisor of Pres Hage Geingob and the country’s hydrogen commissioner told Business7.

Mnyupe, part of Namibia’s delegation at COP26, said interest in Namibia’s hydrogen agenda is immense. Local, regional and global investors “queued up” for the Tsau //Khaeb project and nine proposals were received.

“We raised N$1 million just from the [bidding] documents and N$50 000 per set. It gives you an indication of how many people bought the documents just to look at it,” Mnyupe said.

The short-term benefits are considerable. Besides job creation, N$250 million will be pumped into a feasibility study. Some 25% of that could stay in Namibia, according to Mnyupe.

Starting in the first quarter of 2022, government will receive N$100 million in concession fees.

“That’s even before the guys start. Divide that by 32%, which is our tax rate, and it is equivalent to a company with a profit before tax north of N$300 million. We don’t have many companies like that,” Mnyupe, a qualified chartered accountant, put it into perspective.

CONFIDENCE BOOST

Attracting an investment the size of Tsau //Khaeb is a major boost in confidence in Namibia’s economy. Indications are that Namibia’s SCDI could attract foreign direct investment (FDI) of more than US$12 billion, he said.

“Namibia has crafted a vision aligned with what the world is planning to do,” Mnyupe said.

US Pres Joe Biden has launched his “Build Back Better World” initiative to decarbonise economies, back by the G7. The European Union (EU) has its “Green Deal” to cut greenhouse gas emissions by at least 55% by 2030. The African Union (AU) has crafted a Continental Green Recovery Action Plan.

Namibia can tap into this momentum from the Green Industrial Revolution and this could be the catalyst to re-engineer the country’s economy, Mnyupe said.

A total of 32 countries, plus the EU, have agreed to work together to accelerate the development and deployment of clean hydrogen, the global energy news site Recharge reports. The pact — agreed at COP26 by nations including the US, China and India — was one of four so-called “Glasgow Breakthroughs”.

SOLAR, WIND

Cirrus Capital in their Mid-Year Economic Outlook analysed the newest energy phenomenon.

“Namibia, specifically, is viewed to have a comparative advantage when it comes to producing green hydrogen specifically, due to the large energy needs associated with such, and the abundance of local renewable energy resources – particularly solar irradiation and to a lesser extent wind,” Cirrus said.

According to SS: “What plays in Namibia’s (and any other country’s) favour, is the steady decline in renewable energy equipment and technology costs. Over the last decade, prices at global auctions for renewable installations decreased by 60% and 80% for wind and solar respectively. On the other hand, prices of wind and solar equipment has decreased by 33% and 88% in the last decade.”

To clinch the market share envisaged by Hyphen, Namibia needs to establish 150 GW of electrolyser capacity and produce 250 GW of wind and solar in the long run. Namibia would therefore have to continuously increase wind and solar energy production by 10 GW and 5GW of electrolyser capacity each year, given the 25 to 30 lifetimes of these assets, SS said.

Namibia and Germany in August signed a joint communiqué of intent to build up solar and wind energy potential in the country. Germany is prepared to pump up to 40 million euro into the partnership.

PRICE

Germany is convinced that Namibia can supply the cheapest green hydrogen in the world.

The country’s science minister Anja Karliczek is quoted by Recharge as saying Namibia’s wind and solar power will enable the country to produce green hydrogen via electrolysis at a price of €1.50-2.00 (US$1.76-2.34) per kg. This would make Namibia’s prices more competitive than in renewable hydrogen front-runner countries Chile and Australia.

“The [German] National Hydrogen Council estimates that German industry alone, excluding refineries, will have a hydrogen requirement of 1.7 million tonnes per year by 2030, which will continue to increase thereafter,” Karliczek is quoted by Recharge.

“This demand forecast shows that we need large quantities and cheap kilo prices quickly. Namibia can deliver that,” she said.

In another report, Recharge points out that green hydrogen is currently far more expensive to produce than the grey hydrogen derived from unabated fossil fuels which accounts for 95-99% of the world’s hydrogen demand currently.

The news site quotes the International Energy Agency which puts the current cost of green hydrogen at US$3-8/kg, compared to US$0.50-1.70/kg for unabated grey hydrogen.

Recharge maintains that governments will need to subsidise green hydrogen in the short to medium term to make it affordable and create a viable and sustainable market for the gas.

Cirrus also raised price concerns: “Although governments, business and individuals across the world are increasingly looking to reduce or offset carbon emissions, the cost of this will bear a material consideration. Where cheaper alternatives arise, this would drive substitution.

“This raises the question, presently, whether entities will be willing to pay the substantial ‘green premium’ and for how long this can be sustained,” Cirrus said.

NO GREEN BULLET

Green hydrogen may be an exciting opportunity for Namibia over the medium to long term, however establishing this industry successfully will take material changes in general investment policy and will likely only occur five to ten years from now, Cirrus said.

The analysts continue: “Given the risk and uncertainty around the global move to net-zero emissions, it remains possible that green hydrogen may fall by the wayside before real viability is reached. In this regard, efforts to pursue this sector should not be ignored, however, this industry cannot and should not be seen as a core part of the post-Covid recovery plan, but rather part of a longer-term initiative to develop and brand ‘Green Namibia’, taking advantage of the global move towards increased sustainability.”

SS said they remained concerned that green hydrogen is seen as a major solution to Namibia’s economic woes.

“While green hydrogen is receiving significant amount of attention and focus, we do caution that long standing challenges and growth impediments remain in place. These issues have been with us for a long time and would need to be addressed, not just to improve the economic recovery from the lockdown induced depression and to achieve sustainable long-term growth, but especially if we want the green hydrogen project to be successful,” SS said.

Cirrus said green hydrogen should not become “a smokescreen that creates a perception that the post-Covid world is bright”.

“Green hydrogen will not generate this bright world for most Namibians, and as such, it should be a side-line to the real project – a project of attracting and sustaining grassroots investment, employment and growth, and improved allocation of public resources, together contributing to improved household incomes and livelihoods,” Cirrus said.