Balancing the equation

Rowland Brown - Over the past half-decade, green hydrogen has come into focus in a significant way in Namibia, driven largely through historical links to Western Europe, particularly Germany.Until the announcement of oil discoveries by Shell and shortly thereafter by TotalEnergies, green hydrogen was painted as the country’s “get-out-of-jail-free” card and “post-Covid recovery plan.”Until now, there has been little harm from the hydrogen hype (beyond the fact that it has been a distraction from the real grassroots reform needed, as detailed in a Cirrus report in December 2021), and it has perhaps contributed positively to Namibia from a global optics and recognition perspective. Moreover, the space has created a few jobs, and while these are certainly not worthy of the hype that has surrounded them, in a massively job-deficient economy, every little bit helps. At the same time, some pilot activities, all subsidised by foreign governments or private companies, have been established and may add some value to the local economy over the coming years, albeit on a small scale.DoubtsWhile there’s plenty of reason to be skeptical of hydrogen in general, green hydrogen specifically, and green hydrogen produced in Namibia even more so, there remains an outside chance that, despite the shortcomings and reservations, the industry does develop. Thus, the benefits have likely outweighed the costs to date, and while official employment promises are absolute fiction and the promises of enormous scale are highly unlikely to materialise, the pursuit of this sector as a future focus for Namibia has been without material downside.However, in a recent document produced by GH2Namibia titled “Namibia Green Hydrogen Sector Development: Frequently Asked Questions,” a question was asked and responded to as follows: Q: “Will government debt increase due to investments in GreenH2 projects?” A: “Depending on the nature of the funding received/utilised, government debt may increase. If funding from donor sources is tapped into, then the debt is not growing; however, when concessionary capital backed by government guarantees is used, then the size of the debt will grow. “However, the critical factor is the cost of the debt. If the government taps into normal loan facilities at the current cost of capital, then the debt burden grows; however, when cheaper and concessionary capital sources are used, the debt burden is smaller.”Shifting sentimentDespite the answer both dodging the question and being factually incorrect in places, a highly concerning change was seen - the answer was not a resounding “no.” Thus, it seems the sentiment is now shifting from “we will use donor funds” to “we might use Namibian taxpayers&#039; funds” to develop this industry, whether these are the tax funds of today’s or tomorrow’s taxpayers. This is deeply concerning, and thus it is now time to raise alarm bells.SkepticismSo why be skeptical of hydrogen? First and foremost, the global demand for hydrogen as a fuel source is low - very low. The vast majority of global use of hydrogen (currently around 85 Mt/annum) is for industrial use, with growth in this space forecast at just 2% per year over the next three decades. Thus, almost all of the forecast five-fold increase in demand for hydrogen touted for the next decade is linked to heating and transport - largely replacing fossil fuels. However, there is no guarantee of this, and hydrogen as a fuel source suffers from a very fundamental issue of physics: it has low volumetric energy density. It is inefficient. Converting the world from fossil fuels to a low volumetric energy density alternative is going to be cripplingly expensive and deliver a less optimal outcome than the status quo. In addition, for a vast number of touted uses for hydrogen, there are a number of other options, many of which are more commercially viable. This is especially true if one considers ongoing technological development (which is always assumed for hydrogen production and use). Thus, the problem - hydrogen in general fails the physics viability test.Green hydrogenThe second challenge, should one somehow address or ignore the physics, is the issue of “green” hydrogen. First and foremost, we need to be clear that green hydrogen is not commercially viable at present and, at best, won’t be for a while to come. Hydrogen, irrespective of “colour,” is a homogeneous molecule. In its “green” form, it is still many years, at best, away from being cost-competitive with other forms of the same. To conduct a like-for-like comparison, one needs to consider other low- or no-GHG emission alternatives. AlternativesTwo such alternatives exist: firstly, a low-GHG option—hydrogen from fossil fuels with carbon capture; and secondly, a no-GHG option—hydrogen from nuclear energy. According to the US department of energy: “With carbon capture and storage, hydrogen can be produced directly from coal with near-zero greenhouse gas emissions.” Given that brown, grey and black hydrogen can be produced at 50-60% of the cost of green hydrogen, and that emissions can be brought close to zero (and with technology development constantly improving carbon capture), the cost difference between green and gray/brown/black hydrogen (converted into “blue hydrogen” through carbon capture) in terms of cost-per-unit of GHG, becomes extreme.However, while low GHG options are potentially more viable than green hydrogen on a cost-per-unit of GHG basis, nuclear is zero GHG and can be produced at 60% of the cost of green hydrogen. Moreover, with nuclear, there is a fallback option: if the hydrogen hype dies, as it may, one is left with useful baseload energy, not hectares of intermittent energy supply to complement existing middle-of-day energy surpluses. So, the second problem is one of commercial viability - green hydrogen fails this test.Viability mattersSo why does this lack of viability matter? Firstly, it means that the production and/or use of hydrogen must be subsidised in order for the world to move to this energy source at scale. Conceptually, there are a few ways in which this could be done. Firstly, a straight subsidy on the production or use of the product; secondly, public provision of specific infrastructure for the sector, ensuring that not all of the sector costs are borne by the industry itself; and thirdly, through taxes and disincentives to use alternative energy sources, for example, carbon taxes and similar measures.SubsidiesSo, who will pay these subsidies? The western part of the Northern Hemisphere, most specifically Western Europe, is the primary envisaged market for green hydrogen by 2030 and 2045, as the economies of Europe push to achieve “net-zero” emissions as quickly as possible in a desperate attempt to reduce climate change. Thus, the expectation from Namibia seems to be that Europeans and other Westerners will be willing to pay almost any price in order to source clean fuels, such as green hydrogen. The zeitgeist assumes that they will be the ones to subsidise the non-viable GH2 production.‘Great caution’However, great caution needs to be exercised here. After a multi-decade foray into solar and wind energy in Europe, the fundamental challenges associated with overreliance on these forms of energy are becoming increasingly clear to the general public, despite being obvious to technical experts for decades. Firstly, they are not baseload and are, at best, complementary to baseload. As a result, system availability and stability require complementary baseload generation and spinning reserve, most of which isn’t strictly “green”. This includes coal and nuclear, as well as more “green” options like hydro or “transition” fuels like gas.Cheaper optionsSecondly, while solar and wind may be relatively cheap per unit of energy produced, when combined with the additional baseload capacity and spinning reserves needed, these become relatively expensive. Other options, such as nuclear and coal, can be materially cheaper. The eastern section of the Northern Hemisphere understands this well. While places like China produce vast inputs for the world’s solar and wind energy industry, relatively little is installed locally, with just 8% of China’s total energy coming from solar and wind, compared to over double this in Germany, according to Our World in Data. Because energy is so central to human development, productivity and growth, relative energy costs are fundamental to national politics, geopolitics, global trade balances, and beyond.NuclearBecause of the economic problems with overreliance on large-scale solar and wind, and because of the geopolitical complexities of reliance on external suppliers of input fuels for many forms of baseload energy, particularly gas, energy prices and energy availability in Western Europe - Germany specifically - seem to have started a political shift away from “green” and the Green parties, towards more centre-right parties with generally more economically sound energy policies. Of course, this is not to say that the move will disregard environmental concerns, but it is more likely to see a pivot to the other form of low/no-GHG emission energy, namely nuclear. The idea of “green” at any price may well be shifting.EconomicsAs we often explain, bad economics tends to have high latency. One can get away with bad policy for a while before it comes back to haunt you; however, at the end of the day, the old adage rings true: “economics is to politics as gravity is to jumping - it brings you back to earth.” The political shift being seen across Western Europe certainly suggests that policies which have driven up living costs, especially for necessities, that have dampened per capita growth to little more than stagnation, and that have caused a material shift in the manufacturing base (and the delta in the manufacturing base) to the east, where input costs are lower, do drive dissatisfaction among the populace and will drive political change.Extra costs?The big risk here is that this trend, or one similar, will engulf the green hydrogen (and perhaps hydrogen in general) movement before it really gets started. Because of the relative cost of hydrogen vis-à-vis fossil fuels, the ultimate question is: “What extra cost are the electorates of the world willing to pay, directly or indirectly, if at all, for the movement away from fossil fuels to a homogeneous molecule produced in one of the manners that results in low GHG emissions?” As the zeitgeist on solar and wind as the solution to the world’s environmental problems crumbles (in favour of the likes of nuclear), and as the public starts to declare en masse that the emperor is unadorned, the answer to this question is inevitably going to move toward “zero”.RiskSo herein lies the risk. Firstly, hydrogen in general is uncertain as a significant fuel source of the future; thus, large-scale infrastructure may well be a white elephant. Secondly, should hydrogen somehow find large-scale adoption, green hydrogen is highly uncertain to be the hydrogen of the future - if I had to bet, I would put my money on pink hydrogen from nuclear power. Thirdly, consumers are likely to be price-sensitive, even those in Europe, meaning that: 1. Lower-cost hydrogen will be preferred over higher-cost; once again, pink hydrogen is likely to win out; 2. hydrogen produced closer to market, where infrastructure already exists, will win out over hydrogen produced in far-flung places; and 3. hydrogen from coal and hydrogen from nuclear can both be produced closer to market, without the same space needs as solar and wind, and with reduced transport costs.SubsidiesGiven that demand for green hydrogen is largely linked to the northwestern sub-hemisphere, and that the sector needs to be subsidised, there is no conceivable reason that Namibia should be providing these subsidies. Indeed, if there is a need for subsidisation and this is not forthcoming from those who most want the transition, it should raise some red flags regarding the actual commitment to this space from the governments of Europe. Public fundsWere Namibia to use public funds to finance infrastructure specifically for hydrogen, or to invest in hydrogen projects without an expectation of commercial return, or to tax other forms of energy production, this would clearly constitute a form of subsidy, as the costs of hydrogen production would mean Namibian taxpayers would be on the hook for the GHG targets of Western Europe. This comes at a time when the target market, driven by its populace, seems to be shifting away from “green” in its current form. Moreover, given the relative sizes of the economies of Western Europe and Namibia, the relative risk for Namibia of undertaking such subsidies is disproportionately large - a dangerous gamble at a time when northern governments are doing little more than contributing relative pocket change for what is, in effect, an option to remain involved should the sector develop. Thus, the risk is not insignificant that Namibia will be left with the bill after the party comes to a close.

Balancing the equation

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Republikein 2026-02-03

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Balancing the equation

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Republikein 2026-02-03

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