A fresh wave of investment is flowing into South Africa’s emerging hydrogen industry as a new fund reaches its first close.
By Alida Ban Pavlovic, One Planet Agency
A new investment fund has raised ZAR 3 billion, about $182 million, to finance green hydrogen projects in South Africa as investors look to build new industries around the country’s renewable energy resources.
The SA H2 Fund, also known as Climate Investor Three South Africa, reached its first close with backing from public institutions, pension funds and private investors.
The fund aims to eventually raise ZAR 12 billion ($650 million) by mid 2028. It will invest across the green hydrogen supply chain, including hydrogen production, green ammonia and green methanol, as well as projects aimed at cutting emissions from industries that are difficult to electrify.
Green hydrogen is produced using renewable electricity to split water into hydrogen and oxygen. It is being explored as a lower carbon alternative to fossil fuels in industries such as steel, fertiliser, chemicals and shipping.
The fund is being managed by Climate Fund Managers, a climate focused investment manager that uses public and private money to finance projects in emerging markets.
Its structure is designed to reduce some of the risks faced by private investors in early stage projects.
Public money will provide development capital and technical support to help projects reach a stage where they can secure final investment decisions. Equity funding will then help projects move from financial close into construction.
“The first close reflects confidence in Climate Fund Managers’ blended finance model and our track record of developing and scaling infrastructure projects in emerging markets into institutional grade assets,” said Andrew Johnstone, chief executive of Climate Fund Managers.
The European Commission is backing the fund through its Global Gateway strategy, which aims to mobilise investment in infrastructure and development projects outside the European Union.
Invest International, the Industrial Development Corporation of South Africa and the European Commission are among those backing the fund’s development tranche.
The equity tranches include investment from South Africa’s Public Investment Corporation, which manages money for the Government Employees Pension Fund, as well as Sanlam Life, Invest International and the European Commission.
The Development Bank of Southern Africa is also supporting the fund.
For South Africa, the investment comes as the country seeks to develop industries around renewable energy rather than relying mainly on exporting raw resources.
“South Africa’s combination of world class renewable resources, a strong industrial base and growing demand for low carbon fuels positions it to play a leading role in the emerging green hydrogen economy,” said Mphokolo Makara, chief executive of SA H2 Fund Managers.
The fund has already signed development funding agreements for two projects.
One is a wastewater to green methanol plant in Gauteng being developed by Green Efuels Producers. The other is the Hive Hydrogen Coega Green Ammonia Project, which is described by the fund as South Africa’s first large scale green ammonia production plant.
Green ammonia can be used in fertiliser production and is also being explored as a lower carbon fuel for shipping.
The European Commission sees the investment as part of a wider effort to attract private capital into emerging clean energy markets.
“This milestone sends a clear signal: Global Gateway is helping create the right conditions for private investors to enter fast growing markets with high potential,” said Jozef Síkela, the European commissioner for international partnerships.
He said the partnership would support job creation and industrial development while helping cut emissions from international industry.
The investment also reflects growing interest among African pension and development institutions in financing the energy transition.
South Africa’s Public Investment Corporation said its investment followed a hydrogen strategy adopted in 2022.
“Our investment in hydrogen gives the PIC the ability to assist its clients in diversifying their energy needs and meeting their net zero targets,” said Lucky Pane, the PIC’s head of research and innovation.
The fund is part of a wider expansion of climate finance in emerging markets.
Climate Fund Managers says its previous funds, Climate Investor One and Climate Investor Two, have together mobilised more than $2 billion for renewable energy, water, waste and ocean infrastructure.
The new fund will need to raise a further ZAR 9 billion to reach its target.
Its success will depend on whether projects can move beyond early stage development and attract enough capital to reach construction and commercial operation.
For South Africa, that could determine whether its renewable energy advantage translates into a larger industrial base built around hydrogen and its derivatives.
OPA News Agency
