Fuel Cell Electric Vehicles in South Africa - The development of a Hydrogen Society and the case for local electric vehicle production - Guy ...

 
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Fuel Cell Electric Vehicles in South Africa - The development of a Hydrogen Society and the case for local electric vehicle production - Guy ...
Fuel Cell Electric Vehicles in
                                        South Africa
                            The development of a Hydrogen
                       Society and the case for local electric
                                         vehicle production

info@twimsafrica.com                             Guy Bowden
   +27 31 7675202
www.twimsafrica.com                                 June 2021
© 2021 Toyota Wessels Institute for Manufacturing Studies
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Established by the Toyota Wessels Trust, TWIMS is a not-for-profit initiative dedicated to the
development of manufacturing executives in Africa.

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An industrialised Africa built on world class management capabilities.
Our Mission
A prosperous Africa empowered by sustainable industrialisation.
Our Objective
Develop world-class management capabilities to drive African industrialisation.

Disclaimer
Whilst every care has been taken to ensure the accuracy and integrity of the information and
analysis presented in this report, TWIMS, its staff members, and associates, take no
responsibility whatsoever for decisions derived from its content.

About the Author
Guy Bowden is a Research Assistant at TWIMS. He is currently completing his master’s in
Development Economics via the School of Economics at the University of Cape Town. His
research interests are focussed on the intersection of industrialisation, trade, green energy, and
future technology.
Contents

Contents .................................................................................................................................................. 1
Abbreviations .......................................................................................................................................... 2
Executive Summary................................................................................................................................. 3
Introduction ............................................................................................................................................ 4
1 - Progress of South Africa’s Hydrogen Society and Platinum Valley .................................................... 6
   Government’s Hydrogen Strategy ...................................................................................................... 6
   Hydrogen Production in South Africa ................................................................................................. 7
   Platinum Valley Project ....................................................................................................................... 8
2 - BEVs versus FCEVs............................................................................................................................ 10
   Infrastructure .................................................................................................................................... 10
   Total cost of ownership .................................................................................................................... 10
   Performance ..................................................................................................................................... 12
   FCEVs and BEVs as complimentary technologies ............................................................................. 14
3 - FCEV strategies of major automotive manufacturers ..................................................................... 15
4 - Potential Viability of FCEV demand and production in SA .............................................................. 18
   Ownership and Operating Costs ....................................................................................................... 18
   Domestic Demand............................................................................................................................. 20
   Local Production of FCEVs and BEVs ................................................................................................. 21
Conclusion ............................................................................................................................................. 24
References ............................................................................................................................................ 26

                                                                                                                                                           1
Abbreviations

BEV – Battery Electric Vehicle

EV – Electric Vehicle

FCEV – Fuel Cell Electric Vehicle

FCT – Fuel Cell Technology

HFCT – Hydrogen Fuel Cell Technology

ICE – Internal Combustion Engine

LNG – Liquid Natural Gas

OEM – Original Equipment Manufacturer

PGM – Platinum Group Metals

                                        2
Executive Summary

          This report was compiled to (1) discuss the progress of South Africa’s proposed
Hydrogen Society and Platinum Valley Project, (2) elaborate on the ongoing debate between
Battery Electric Vehicles (BEV) and Fuel Cell Electric Vehicles (FCEV), and (3) to explore
the potential viability for Fuel Cell Electric Vehicle (FCEV) production and demand in South
Africa.

          Key findings of this report are that South Africa’s Hydrogen Economy is still in its
infancy. While FCEVs are proposed as a source of demand for platinum group metals (PGM)
beneficiation, national government policy and industry research seems primarily focussed on
developing cost-effective Hydrogen Fuel Cell Technology (HFCT) for export as well as
building capabilities for the domestic manufacture of Fuel Cell Technology (FCT). South
Africa has been widely regarded as a major potential generator of renewable electricity through
solar and wind energy, this would create a significant advantage to locally produce green
hydrogen. While clear opportunities for the export of South African green hydrogen and HFCT
have been identified, it appears that the local economy will be slower in its uptake of green
hydrogen and HFCT for domestic use. Globally, it seems that BEVs are the preferred
replacement for Internal Combustion Engine (ICE) passenger vehicles primarily operating in
urban areas, while FCEVs are shown to be more effective in heavy and long-range modes of
transport. In particular, FCEVs have competitiveness potential in the large passenger vehicle
segment as well as light commercial, medium commercial, heavy commercial and extra-heavy
commercial vehicle markets.

                                                                                             3
Introduction

   Hydrogen has been identified as a compelling form of energy transportation and storage
that could unlock greater potential for other forms of renewable electricity generation.
Hydrogen provides a crucial solution to intermittent supply and demand peaks associated with
wind, solar and hydro electricity generation. To this effect, hydrogen offers a viable means of
storing energy over long periods of time – a capability that battery technology does not yet
have (Simolka, Kubler, & Voller, 2020). Hydrogen will play a significant role in the future of
global electricity generation and energy storage as the world increasingly moves away from
fossil fuels. Provided that hydrogen is produced with renewable energy, or if carbon capture
storage is used alongside fossil fuels, hydrogen offers an environmentally friendly source of
electricity. This is because, the by-products of using pure hydrogen are simply heat and water.
Table 1 shows several advantages for HFCT, making FCEVs a viable alternative to ICE
vehicles.

Table 1: Advantages of hydrogen fuel cell technology
        Advantages of FCEV                                        Explanation
 Safety                               Hydrogen is as safe as petrol and diesel.
 Reliability                          Less moving parts than an ICE.
 Energy density                       Hydrogen is more energy dense than lithium and LNG.
 Range                                Comparable range to existing ICE vehicles.
 Refuelling time                      Comparable to ICE (5 minutes).
 Weight                               H2 is significantly lighter than a battery pack and gasoline.
 Lowest carbon footprint (Green H2)   Mining of lithium gives off pollution.
 Price                                In the long-term price of green H2 will be cheaper than LNG.
            Source: BloombergNEF (2020); Hydrogen Council (2020); Roos and Wright (2021)

       Hydrogen offers a viable alternative to current national and global energy complexes
without completely having to overhaul some existing infrastructure and systems. Since
hydrogen can be stored as a liquid or gas it can be transported and stored in similar methods to
existing non-renewable liquid and gas fuels. For example, existing pipelines, storage
containers, and ships can be adapted to transport hydrogen. However, maximising the cost
effectiveness of hydrogen transport and efficient hydrogen storage remain key challenges that
will require enormous investment. Over three times more hydrogen storage capacity will be
needed than what is presently available, if hydrogen is to replace natural gas as expected
(BloombergNEF, 2020).

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South Africa is not the only region to have recognised the potential for a hydrogen-
based economy. Australia, Chile, Germany, the European Union, Japan, New Zealand,
Portugal, Spain, and South Korea already have strong national/regional strategies for the
introduction of hydrogen as an integral means for electricity generation and energy storage.
The EU and Japan have made it clear that green hydrogen will be an important component of
their energy complexes. Due to their limited renewable energy potential, specifically limited
solar resources, they will be large importers of green hydrogen creating new economic
opportunities for countries that can capitalise on their renewable resource endowments.

       Therefore, the opportunities for South Africa surrounding hydrogen are twofold.
Firstly, the country has the potential to export hydrogen to markets that are transitioning to
green economies. This would create valuable export earnings for the country and stimulate
wider investment, economic growth, and job creation. Secondly, South Africa has an
opportunity to transform its own energy infrastructure and take positive steps towards a green
economy if it can harness some of its own renewable energy potential and hydrogen fuel
generation. A renewables and hydrogen based energy complex could eventually overhaul the
country’s aging energy infrastructure and dependence on fossil fuels. However, in the nearer
future, it could be used to power key manufacturing and industrial sectors ensuring continued
access to valuable export markets for new and existing products in the face of looming carbon
border tariffs. In effect this could afford the country a very real opportunity to reverse its
industrial decline whilst simultaneously lowering the carbon footprint of locally produced
goods. In the context of South Africa’s automotive industry, the use of renewable energy and
green hydrogen in production could help to boost demand and drive economies of scale for
domestic green electricity generation. Moreover, it simultaneously lowers the carbon footprint
of locally produced automotives making them more competitive in export markets such as the
UK and EU which will introduce increasingly stricter restrictions on ICE vehicles and carbon
intensive goods and services in the next few years.

                                                                                            5
1 - Progress of South Africa’s Hydrogen Society and Platinum Valley

Government’s Hydrogen Strategy

        South Africa’s transition to a hydrogen economy is still in its early stages. Very little
hydrogen infrastructure has been developed domestically. At this stage, the country is
positioning itself to be a producer and exporter of HFCT as opposed to a major HFCT user.
The transition to a renewables-based and hydrogen dependent economy will not take place in
the short-term. At this stage public and private fuel cell technology stakeholders in South Africa
seem focused on taking advantage of export opportunities as major markets such as the EU and
Japan have and continue to announce greater green energy targets and carbon generation
restrictions (Nagashima, 2020; Roos & Wright, 2021).

    The South African Hydrogen Strategy or HySA was instituted in 2008 by the Department
of Science and Technology (DST). It was tasked with stimulating and guiding innovation
within the local hydrogen value chain, with a distinct focus on PGMs beneficiation. HySA has
been responsible for developing local intellectual property, knowledge, human resources,
products and processes around hydrogen infrastructure, fuel cell powered systems, and fuel
cell catalysis and components (Bessarabov et al., 2012). Examples of recent achievements
include the development of hydrogen based auxiliary power units in partnership with airbus,
the development of HFCT manufacturing capabilities, the establishment of a local supply chain
using SMMEs, and the development of world class HFCT and patents (BusinessLIVE, 2014;
Pollet et al., 2014).

    The Hydrogen Society Roadmap is a new government policy document spearheaded by the
Department of Science and Innovation (DSI), currently under draft, that is intended to inform
and guide stakeholders in developing and deploying hydrogen technologies. The Hydrogen
Society Roadmap process began in June 2020 (M. Creamer, 2020d). The roadmap will also
guide stakeholders as to how hydrogen technology will be integrated into the national
government’s South African Renewable Energy Masterplan (also currently under draft) – one
of 14 industry specific masterplans being developed in conjunction with the Department of
Trade, Industry and Competition (DTIC) (Engineering News, 2020).

                                                                                                6
Hydrogen Production in South Africa

       The Hydrogen Society Roadmap is intended to identify the costs associated with green
hydrogen production and green hydrogen technology in South Africa. Importantly, South
Africa has been identified as a large potential exporter of green hydrogen. Figure 1
demonstrates the country’s abundant wind and solar potential – among the highest in the world.
As a result, South Africa has the potential to be a global leader in green hydrogen production
(Hydrogen Council, 2020; Roos & Wright, 2021). However, it will take time to develop the
necessary infrastructure as well as overcome the few remaining technological barriers in order
to unlock the production of green hydrogen at a cost-effective scale. In the long-run, green
hydrogen will be cheaper than fossil fuels as well as all other forms of industrial hydrogen
production (BloombergNEF, 2020; Hydrogen Council, 2020; Roos & Wright, 2021).

Figure 1: Hydrogen costs from hybrid solar PV and onshore wind systems in the long term

                                                 Source: International Energy Agency (2019)

       In the meantime, already established industrial and less environmentally friendly
methods of producing hydrogen have been ear marked as a means to build up demand for
HFCT and unlock the economies of scale required for the proliferation of green hydrogen.
Figure 2 shows the “grey” and “brown” non-environmentally friendly hydrogen alternatives.
As Figure 2 demonstrates, grey and brown hydrogen can be coupled with carbon capture
storage (CCS) in order to produce environmentally friendly “blue” hydrogen. CCS does impose
additional cost and technological challenges, but it has been shown to be 85-95% effective at
removing CO2 emissions (Figueroa, Fout, Plasynski, Mcilvried, & Rameshwar, 2008).

       In addition to South Africa’s renewable energy production potential, Patel (2020) notes
that South Africa has a first mover advantage in brown hydrogen production that could unlock

                                                                                            7
falling costs for locally produced green hydrogen. Both Sasol and PetroSA have existing
infrastructure and expertise in the Fischer-Tropsch process that could be repurposed to produce
hydrogen from coal (T. Creamer, 2021a, 2021b; Patel, 2020). While brown hydrogen is not
environmentally friendly, this could be combined with CCS to produce blue hydrogen so as to
meet the CO2 emissions targets and export demands of the EU and Japan. This would also
safeguard an avenue for South Africa to realise the potential value of its coal fields as the
country slowly moves towards greater renewables-based electricity generation.

Figure 2: Types of hydrogen based on production methods

              Not Environmentally Friendly                Environmentally Friendly

           Grey H2             Brown H2               Blue H2               Green H2

            Source               Source                Source                 Source

          Fossil fuels             Coal              Fossil fuels        Renewable energy

            Process              Process               Process               Process

        Steam-Methane        Coal gasification   Grey H2 or Brown H2 +      Electrolysis
           Reforming                               Carbon Capture
                                                    Storage (CCS)

               Source: Derived from Feblowitz (2020); Metcalfe, Burger, and Mackay (2020)

       Moreover, on the 13th of April 2021, Sasol made public its intent to leverage its existing
human and technological expertise to lead South Africa’s hydrogen economy and position itself
as a global leader in green hydrogen production (Grobler, 2021). The company also announced
its exploration into converting existing assets at its Sasolburg and Secunda plants along with
investing in greenfield projects to produce green hydrogen.

Platinum Valley Project

       Platinum group metals (PGMs) are an important material in the production of catalysts
for fuel cells and in Proton Exchange Membrane (PEM) electrolysis systems. Because fuel
cells operate at high temperatures the use of PGMs is fundamental. However, in the production
of hydrogen through electrolysis there are three major technologies: Alkaline Electrolysis,

                                                                                               8
PEM and Solid Oxide Electrolysis Cell (SOEC). Of these three technologies, only PEM
requires the use of PGMs. PEM electrolysers have certain advantages, namely: cheaper running
costs, they require less space, are capable of compressing hydrogen to a greater extent, and
have greater operational flexibility. The latter being particularly useful in the variable
electricity supply received from renewable energy sources. However, they involve greater
initial costs due to high-value catalyst materials and have shorter lifetimes than alkali systems
(Patel, 2020). SOEC systems are very new and are also expensive with short lifetimes, but,
they have other unique properties making them suited for certain applications. Most
interestingly, SOEC systems can operate in reverse, as if they were a fuel cell and an
electrolyser (Patel, 2020). Patel (2020) notes that PEM electrolysers are favoured in most new
installations. However, it should be made clear that use of other electrolyser technologies will
not require PGMs and so technological developments in this regard should be monitored.

       The production of FCT has been identified as an integral link for platinum beneficiation
in South Africa. This has been identified as an integral solution to South Africa’s platinum
industry crisis and as a means for realising the potential value of the country’s platinum
reserves. This has increasingly led calls for the establishment of a National Platinum Strategy
(Minerals Council South Africa, 2019). To this effect the government is in the process of
developing a “Platinum Valley Corridor Project” consisting of several special economic zones
(SEZs) stretching across the Northern Cape, the North West Province, Limpopo, Gauteng and
KwaZulu-Natal. The project is intended to unite various hydrogen applications in the country
to form an integrated hydrogen ecosystem (M. Creamer, 2020a). The project is still in an early
phase with the Bojanala Platinum Valley SEZ supposed to have been completed recently (M.
Creamer, 2019). However, there has been no update on the progression of this project. It is
expected that the government’s Hydrogen Society Roadmap will provide greater detail on the
country’s platinum strategy and the status of the Platinum Valley Project (M. Creamer, 2020d).

                                                                                               9
2 - BEVs versus FCEVs

   The debate between BEVs and FCEVs has largely been centred around three key themes,
namely: Total cost of ownership (TCO) (this includes the purchase price of the asset and the
cost of ownership), performance (of which driving range is an important factor), and
infrastructure.

Infrastructure

   BEVs have a significant head start over FCEVs as they already have sunk infrastructure in
major cities and regions around the world. In comparison, FCEVs currently have extremely
limited infrastructure, confined to only a handful of cities (Hydrogen Council, 2020).

   In terms of hydrogen infrastructure, significant investments need to be made in renewable
energy generation, hydrogen production, hydrogen storage, hydrogen transportation and
hydrogen refuelling sites. The conversion of existing petrol and diesel storage and refuelling
stations shows potential, but this will still be an enormous infrastructural undertaking.
However, there are still major infrastructural challenges associated with BEVs. Firstly, BEVs
will cause spikes in electricity demand at peak times (FuelCellsWorks, 2020). Secondly, longer
refuelling times (roughly 40 minutes for a “rapid charge”) poses a significant social,
engineering, and technological hurdle. This is because there will be limited capacity (parking
space and electric current) to ensure rapid charging for every BEV at peak times given existing
road and urban designs. However, BEVs by their nature will encourage a shift in consumer
“refuelling” habits as some BEV owners – at least those who live in standalone homes – will
charge their vehicles overnight.

Total cost of ownership

       Table 2 shows the expected timeframe for various road-based hydrogen powered
vehicles to reach parity in terms of total cost of ownership with internal combustion engine and
battery electric alternatives. Longer time frames for FCEVs to reach parity in various segments
indicates lower levels of competitiveness because it gives more time for BEVs to become
established – in effect raising the barriers to entry for these segments. For example, FCEVs

                                                                                             10
must then compete with capital and infrastructure investments and not just in terms of TCO.
Table 2 uses a colour scale to indicate the competitiveness of FCEVs against their BEV and
ICE alternatives. Shades of green indicate quicker timeframes and greater levels of
competitiveness, while shades of yellow to red indicate longer time frames and less
competitiveness – with red being the least competitive.

        Table 2 shows that fuel cell powered HCVs (heavy commercial vehicles) and XHCVs
(extra-heavy commercial vehicles) have the most potential for competitiveness with both ICE
and BEV alternatives. The table shows good potential for FCEVs reaching competitiveness
with both BEV and ICE alternatives in the long-range LCV (light commercial vehicle), long-
range bus and long-range coach segments. The table does indicate competitiveness potential
for long-range large PVs (passenger vehicles) and short-range MCVs (medium commercial
vehicles), but to a lesser degree. Finally, Table 2 shows that FCEVs contain the least
competitiveness potential in comparison to BEVs for the small short-range PV (passenger
vehicles) and short-range bus segments.

Table 2: Expected TCO year of parity for FCEV ranges in relation to BEVs and ICE vehicles

 Type of vehicle       Usage         Range Year of parity with ICE   Year of parity with BEV
 Small PV              Short range   200 km                     2035                      2050
 Large PV (i.e. SUV)   Long range    600 km                     2030                      2030
 LCV                   Long range    650 km                     2030                      2025
 MCV                   Short range   300 km                     2025                      2030
 HCV                   Long range    500 km                     2025                      2020
 XHCV                  Long range    600 km                     2025                      2020
 Bus                   Short range   150 km                     2025                      2040
 Bus                   Long range    450 km                     2025                      2025
 Coach                 Long range    500 km                     2025                      2025
                                        Source: Adapted from Hydrogen Council, 2020, p. 33-41

        A market segment not represented in Table 2 that does present TCO competitiveness
opportunities for FCEVs is e-hailing. Even though most e-hailing services (e.g., Uber, Lyft and
Bolt) use small or large passenger vehicles, the frequency of vehicle use generally makes
FCEVs better suited than BEVs. This is because FCEVs have quick refueling times meaning
that vehicles have quick turnaround times and can serve a greater number of clients. Moreover,
e-hailing typically follows standardized travel patterns (i.e., much of their time is spent
servicing airports, business districts, etc.), combined with advanced mapping and machine
learning it is significantly easier to build hydrogen infrastructure in locations that suit the travel
patterns of e-hailing services than it is for private small and large passenger vehicle users.

                                                                                                   11
Performance

       Table 2 shows that FCEVs are generally more competitive in long-range and heavier
modes of transport. A key reason for this is the weight associated with battery packs in BEVs.
For example, the battery packs in the Tesla Model 3 and Chevy Bolt – two prominent passenger
BEVs – weigh 480 and 435 kilograms, respectively (Arcus, 2018). In comparison, the Toyota
Mirai’s three full hydrogen tanks weigh a combined 30 kilograms (Toyota Motor Sales USA,
2021). Heavier vehicles with longer-range uses require much larger battery packs, which drives
up TCO and weight. As a result, a significant amount of the battery’s extra capacity is wasted
on carrying around this additional weight. There is, therefore, a diminishing relationship
between a battery’s effectiveness and the weight of the battery itself. This relationship extends
beyond road-based modes of transport and holds true for the shipping and aviation sectors
(Hydrogen Council, 2020).

Table 3: Performance comparison of FCEV and BEV

 Performance Indicator            FCEV                                  BEV
   Passenger Vehicle          Toyota Mirai                         Tesla Model 3
 Range                   647 km                   423 km (568 km for long-range model)
 Refuelling time         5 minutes                9 hours (40 minutes for rapid 80% charge)
 Power output            136 kw                   211 kw
 Top speed               171 kph                  225 kph
 0-100 kph               9 seconds                5.3 seconds
           Bus           Hyundai Elec City FCEV               Hyundai Elec City BEV
 Range                   434 km                   210 km
 Refuelling time         15 minutes               72 minutes
 Power output            180 kw                   240 kw
      Heavy Truck           Nikola Two FCEV                       Nikola Two BEV
 Range                   1207 km                  563 km
 Refuelling time         20 minutes               "several hours"
 Power output            745 kw                   745 kw
 0-100 kph               30 seconds               30 seconds
Source: Hyundai Motor Group Tech (n.d.); Nikola Corporation (2021); Tesla (2021); Toyota
Motor Sales USA (2021)

       Table 3 shows performance comparisons between existing FCEV and BEV models for
the passenger vehicle, bus, and heavy truck segment. As the most prominent examples of
passenger FCEVs and BEVs, respectively, the Toyota Mirai (base version) and Tesla Model 3
(base version) were compared against one another. In the case of busses and heavy trucks, the
comparison was aided by the fact that Hyundai and Nikola both make fuel cell and battery
powered variants of the same chassis. Table 3 shows the Toyota Mirai’s longer range and vastly
                                                                                              12
superior refuelling time. The range of the Toyota Mirai is comparable to that of most passenger
ICE vehicles. Due to the nature of hydrogen storage and the technological limits of hydrogen
storage tanks at present, it is difficult to increase the range of passenger FCEVs at this moment.
Despite, further range and better refuelling time, Table 3 shows that the Tesla Model 3 has
significantly greater power output. Furthermore, Table 3 shows that passenger BEVs are still
capable of fairly impressive range (the long-range tesla model 3 is capable of 568 km) which
is certainly sufficient for urban commute on a day-to-day basis.

          Table 3 shows greater performance indicators for FCEVs in the bus and heavy truck
segments. The hydrogen powered Hyundai Elec City Bus has roughly double the range and a
shorter “refuelling” time compared to its battery electric counterpart. Like the case of the
Toyota Mirai and the Tesla Model 3, the bus FCEV creates less power output compared to its
BEV counterpart. The heavy truck segment shows the most significant competitiveness
advantages for FCEVs versus BEVs. The fuel cell Nikola Two has more than double the range,
much quicker “refuelling” time, the same power output and the same acceleration compared to
its battery electric variant. While these comparisons may contain some limitations (for
example, the manufacturers may have exaggerated perceived weaknesses or advantages by
catering to different consumer demands), they support a similar trend discussed in Table 2, and
the fact that FCEVs are particularly suited to long-range and heavy modes of transport.

Figure 3: Energy efficiency of BEV vs FCEV

                                         Well-To-Tank                             Tank-To-Wheel

                                                                                           Electric
      B       Energy                       Transportation                     Battery
                                                                                           Motor
      E
      V
  Available
   Energy     100%                             80%                                      76%

     F        Energy   Electrolysis   Compression
                                                    Transport &
                                                                  Fuel Cell   Battery
                                                                                           Electric
                                                    Dispensing                             Motor
     C
     E
     V
  Available
   Energy     100%        70%            62%            49%         32%                 30%

                                                            Source: Adapted from Volkswagen (2019)

                                                                                                      13
While Table 2 and Table 3 show clear advantages for FCEVs in the long-distance truck
and bus segments, they depict a slightly less clear scenario for passenger vehicles. Due to scale
and different consumer demands, the competitiveness of FCEVs in the passenger segment are
more affected by infrastructure requirements and overall effectiveness of HFCT
(FuelCellsWorks, 2020). A key reason for this is the energy loss that occurs from the moment
energy is generated to the time it reaches the wheel in a BEV and FCEV. Figure 3 shows that
76% of initial energy generation remains by the time electricity reaches the wheel in a BEV.
By comparison, only 30% of initial energy generation remains by the time electricity reaches
the wheel in a FCEV. However, this is still more effective than a petrol powered ICE vehicle
with one study showing that only 11-27% of its initial energy generation remains by the time
energy reaches the wheel (Albatayneh, Assaf, Alterman, & Jaradat, 2020).

FCEVs and BEVs as complimentary technologies

       The most substantial challenges facing FCEVs are the financing and rollout of
hydrogen infrastructure at scale; the cost-effective production of hydrogen; and the energy
efficiency of FCEVs compared to BEVs, as shown in Figure 3. Significant demand for green
hydrogen and FCEVs is needed to drive economies of scale in production so that HFCT can
reach its potential. In the meantime, governments along with automotive manufacturers, fuel
producers and other stakeholders will need to provide incentives as well as layout initial
infrastructure investments so that technological advancements and economies of scale can be
accelerated within the industry. This does not mean, however, that BEVs and FCEVs are in a
race against each other.

       Toyota chairperson Takeshi Uchiyamada said in a Reuters interview at the Tokyo auto
show in 2017, “We don’t really see an adversary ‘zero-sum’ relationship between the BEV and
the hydrogen car. We’re not about to give up on hydrogen electric fuel-cell technology at all”
(Reuters, 2020). Furthermore, Hyundai Motor Company and Nikola Motor Company have
questioned whether there is even a race between BEVs and FCEVs at all. They insist that the
technologies will serve to complement each other, filling various consumer niches where the
other may not be suited (FuelCellsWorks, 2020; Horrell, 2020). Lastly, the nature of transport,
mobility and urban design is steadily changing in order to combat congestion and other urban
challenges. This will inevitably see present concerns and limitations of FCEVs and BEVs shift
as cities and transport networks are no longer built around ICE vehicles.

                                                                                              14
3 - FCEV strategies of major automotive manufacturers

        Figure 4 provides a visual representation of the stance towards FCEVs for many of the
world’s largest automotive manufacturers. It is important to point out that this list is not
exhaustive. It does not cover niche manufacturers or smaller firms that are solely dedicated to
FCEV development and production. For example, firms like Arcola Energy, Nikola Motor
Company, Linde, and Solaris Bus & Coach are not featured in Figure 4.

       The firms located in the “passenger FCEV (in)” column are those firms which either
have existing FCEVs (e.g., Toyota, Hyundai, Honda) or have made public their intentions to
develop and produce FCEVs for the passenger market. Firms located in the “commercial FCEV
(in)” column are those firms/partnerships that have existing commercial FCEV models or have
publicly stated their intent to develop them. It is important to note that these firms have not
necessarily chosen FCEVs over BEVs as these firms are also engaged in BEV research,
development, and production. Firms located in the “passenger FCEV (out)” column are those
firms that have explicitly stated that they do not intend to develop or produce FCEVs.
Interestingly, Renault-Nissan, Daimler-Mercedes-Benz, and Ford announced their coordinated
strategy to research and develop FCEVs in 2013. This partnership disintegrated with Mercedes-
Benz completely pulling out of FCEVs (Woodraschke, Leutner, & Capata, n.d.). Since then,
Daimler (soon to be separated from Mercedes-Benz) announced a partnership with Volvo to
develop FCEV trucks (Daimler, 2020), and Renault has developed a range of fuel cell light
commercial vans.

       Table 4 shows the leading applicants who have filed patents within the FCT Patent
Family (PF) as well as the leading countries/regions in which FCT patents have been filed. It
reaffirms Toyota’s leading position within FCT research and development. Expectedly, the
other two major proponents of FCEVs (Honda and Hyundai) round out the top three. The table
provides a good representation of firms conducting research and development into FCEVs and
FCT. Table 5 also provides a good indication of the geographic regions in which major FCT
research and development are taking place. The USA, EU, Japan, and China are each
responsible for a relatively significant number of filed patents relating to FCT.

                                                                                            15
Figure 4: FCEV stance of major automotive manufacturers

      Passenger FCEV (in)            Commercial FCEV (in)            Passenger FCEV (out)

*Vehicle manufacturers in the same cell, indicate a partnership/alliance.
                                                             Source: Image created by author

                                                                                            16
Table 4: Leading applicants and jurisdictions for FCT related patents

                     Applicants                               Number of PFs
 Toyota Motors                                                                         360
 Honda Motors                                                                          210
 Hundai Motors                                                                         175
 Daimler AG                                                                            160
 GM Global Tech                                                                        103
 Operations Inc.                                                                        92
 General Motors Corp.                                                                   62
 Bosch GMBH                                                                             57
 Kia Motors Corp                                                                        56
 Ford Global Tech Llc.                                                                  55
    Source: Alvarez-Meaza, Zarrabeitia-Bilbao, Rio-Belver, and Garechana-Anacabe (2020)

Table 5: Leading jurisdictions for FCT related patents

                 Jurisdiction Country                         Number of PFs
 USA                                                                                  1583
 Germany                                                                              1147
 Japan                                                                                1095
 WIPO                                                                                  928
 China                                                                                 838
 EPO                                                                                   552
 South Korea                                                                           413
 Canada                                                                                192
 France                                                                                 88
 Great Britain                                                                          58
                                                         Source: Alvarez-Meaza et al. (2020)

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4 - Potential Viability of FCEV demand and production in SA

Ownership and Operating Costs

          Table 6 shows the estimated price of a Toyota Mirai (base version) and a Tesla Model
3 (base version) in South Africa. Since neither the Tesla Model 3 nor the Toyota Mirai are on
sale in South Africa, it was possible to compare an estimation of their respective prices in South
Africa by assuming that one would have to buy both vehicles in the United States and pay
customs duties, ad valorem excise duties and VAT to have them imported into South Africa.
Table 6 shows that the Toyota Mirai would be roughly R340 000 more expensive than the Tesla
Model 3.

Table 6: Price comparison of FCEV and BEV in South African Market

                  Import associated costs                      Toyota Mirai              Tesla Model 3
    US market purchase price (converted to Rands) (A)                  R727,634                    R543,753
    SA customs duty (B)1                                                     5%1                        5%1
    SA ad valorem excise duty (C)                                            30%                       22%
    SA VAT rate (D)                                                          15%                       15%
    Final import price in SA (less shipping costs)                   R1,142,203                    R801,030
    Effective tax rate at price point                                        57%                       47%
    Formula: Final import price in SA                             ((A x (1 + B)) x (1 + C)) x (1 + D)
*Exchange rate: R14.71 = $1 (22nd March 2021)
*Other levies, such as the tyre levy and CO2 levy, are not taken into account.
Source: ("Customs and Excise Act 91 of 1964,"); SARS (2018, 2019, 2021); Tesla (2021);
Toyota Motor Sales USA (2021)

          According to Air Products South Africa (Pty) Ltd (2021), the price of industrial
hydrogen in South Africa is approximately R300 per kg in February 2021. Japan has set a target
price of R52.20 per kg for imported blue/green hydrogen. This has been labelled as achievable
for South African hydrogen producers (M. Creamer, 2020c). Furthermore, a joint European
Union and South African investigation into power fuels and green hydrogen found that a long-
term price of R26.50 per kg is possible for South African produced green hydrogen.

          GlobalPetrolPrices.com (2021) collects data at several levels of electricity consumption
to provide average annual electricity rates for both households and businesses in South Africa.

1
 The customs duty specified in Table 6 differs to the customs duty stated by SARS shown in Table 8. Based on
consultation with industry expert Justin Barnes, the average rate of customs duty applied by South African
vehicle importers after rebating customs duties under the APDP is close to 5%.

                                                                                                          18
Using this data, and accounting for Eskom’s 15.63% tariff hike that came into effect on the 1st
of April, this puts the average household electricity price at R2.51 per kWh
(GlobalPetrolPrices.com, 2021). At this price point it would cost R205 to fully charge a Tesla
Model 3, equivalent to a cost of R0.49 per kilometre using the stated range shown in Table 3.
As of the 7th of April 2021, the South African inland price of petrol sits at R17.32 per litre (AA,
2021). Under this scenario a petrol ICE vehicle with a consumption of 10 litres per every 100
kilometres would cost R1.73 per kilometre. However, a small fuel efficient 1.1 litre hatchback
with a consumption of 5.5 litres per every 100 kilometres works out to R0.95 per kilometre.
Therefore, a BEV represents significant operating cost savings compared to all ranges of ICE
vehicles in South Africa.

Table 7: SA hydrogen price and passenger FCEV cost per kilometre

                 Type of Hydrogen                  Price (ZAR per kg) Toyota Mirai (ZAR per km)
 Current price for industrial H2                                 300                       2.61
 Japanese target import price for green H2                     52.2*                       0.45
 Long term price for green H2 in SA                            26.5*                       0.23
*Prices for green hydrogen are well-developed estimates quoted from external work, it should
be noted that the price of green hydrogen is highly dependent on associated factor costs,
technological development, and the achievement of economies of scale.
Source: Air Products South Africa (Pty) Ltd (2021); M. Creamer (2020c); Roos and Wright
(2021)

         Table 7 shows the cost per kilometre for a Toyota Mirai. It shows that using current
industrial prices for hydrogen the Toyota Mirai would cost over five times per kilometre more
than a Tesla Model 3 and close to three times more than a fuel-efficient ICE hatchback. The
longer-term targets for hydrogen prices in South Africa show that a Toyota Mirai would be
cheaper per kilometre than all ranges of ICE vehicles and the Tesla Model 3 at current prices.
While the price of fossil fuels have and will continue to rise into the future, electricity prices
in South Africa could decrease significantly if supply limitations are solved and as local
electricity generation transitions to cheaper and greener forms of energy. Given this trajectory,
FCEVs will become cheaper per kilometre than comparative ICE vehicles as Table 7
demonstrates. However, it is difficult to estimate the future cost per kilometre advantage of a
Tesla Model 3 versus a Toyota Mirai and vice versa. The cost per kilometre for BEVs and
FCEVs are both likely to improve as South Africa transitions to greener electricity generation
and as greater economies of scale are achieved.

                                                                                                19
Domestic Demand

       At present there are no road going FCEVs in South Africa. There are, however, close
to 1 000 BEVs on South African roads today. In 2018, slightly less than 70 BEVs were sold in
South Africa, down by 42% from 2015 (Greencape, 2019). South Africa’s overall EV market
is still small and has yet to experience accelerated growth. However, Autotrader’s survey of
South African vehicle owners found that the overwhelming majority of surveyed consumers
consider themselves increasingly likely to purchase an EV in the future (Autotrader, 2020).

       BEVs have a head start over FCEVs in South Africa. The country already has several
charging stations in big metropoles and along major regional highways. For example, there are
already enough charging stations dispersed along the N1 for a BEV to travel from Cape Town
to Johannesburg (Greencape, 2019). Given existing BEV penetration into the South African
private passenger vehicle market, sunk infrastructure, and cheaper total cost of ownership, it
seems likely that BEVs will take a leading stake in South Africa’s private passenger post ICE
vehicle market over the next few years and possibly decades. With little infrastructure and
limited private consumer exposure to FCEVs it seems unlikely that there will be a significant
passenger FCEV market in South Africa until there are at least significant cost, performance,
and infrastructural improvements. However, FCEVs may prove to be a viable alternative to
ICE vehicles over BEVs for market segments where HFCT is competitive in South Africa.
FCEVs could well become popular in South Africa’s commercial market segment and for
specific types of public transport such as e-hailing and regional travel in the next few years.

       On the 13th of April 2021 Sasol and Toyota South Africa announced a joint project to
establish a hydrogen mobility ecosystem along the N3 corridor between Johannesburg and
Durban (Grobler, 2021; Kirby, 2021). The project would involve the creation of two hydrogen
generation sites and hydrogen refuelling facilities along the N3. Furthermore, Toyota South
Africa would supply several commercial FCEVs through its Toyota-Hino partnership to create
a pilot programme that demonstrates a business case for hydrogen mobility in South Africa.
The project would be a significant steppingstone in the development of hydrogen infrastructure
and the incorporation of FCEVs into logistics and freight operations in South Africa.

                                                                                                  20
Local Production of FCEVs and BEVs

       At present there are no FCEVs or BEVs produced in South Africa. Existing benefits
and incentives provided to automotive OEMs in South Africa under the Automotive Production
and Development Programme (APDP), its recent 2021 amendments and the Automotive
Investment Scheme (AIS) do not exclude EV manufacturers. Therefore, EV producers would
receive existing government incentives and support.

       However, high ad valorem excise duties, shown in Table 8, which are placed on the
excisable value of both locally produced and imported electric vehicles currently serve as a
hindrance to local demand and manufacturing of all vehicle types in South Africa. While South
Africa maintains reasonably high customs duties on imported electric vehicles, also shown in
Table 8, which could incentivise local production, these duties can be rebated through
Production Rebate Certificates (PRCs) under the APDP (DTIC, 2021). Therefore, it remains
unclear how exactly local OEMs will use existing government production and investment
incentives to onshore local FCEV and/or BEV production capabilities. What is apparent is that
government taxes on all types of automotives, both imported and locally produced, remain
high. Table 6 showed that the effective tax rate on an imported Toyota Mirai and Tesla Model
3 would be 57% and 47% respectively, assuming that PRCs were not used to offset customs
duties. What is particularly worrying is the application of ad valorem excise duties on locally
produced vehicles. Therefore, the reduction or removal of ad valorem excise duties on EVs
could be a viable means of incentivising demand and in turn production of FCEVs and BEVs,
especially given that government subsidies may not be feasible in South Africa.

Table 8: Import and excise duties on electric vehicles in South Africa

                                                  PV       LCV      MCV       HCV      XHCV
 Customs duty (imports)                            25%      25%      25%       20%       20%
 Max ad valorem excise duty (imports and local)    30%      30%      30%       30%       30%
                                                                   Source: SARS (2019, 2021)

       There is scope for local production of FCEVs and BEVs in South Africa, especially
when combined with potential value chain linkages associated with the governments Platinum
Valley Project and Hydrogen Strategy; other natural resource endowments such as manganese
(an important material used in lithium-ion batteries) of which South Africa has 78% of the
worlds known reserves (Greencape, 2019); an existing battery production and recycling
industry; enduring automotive supply-chain sectors that will be important to EV production
(e.g. steering, wiring harnesses, seats, lights, shock absorbers, brakes, etc.); and secured
                                                                                            21
preferential trade access to big automotive markets such as the EU. Therefore, local production
of FCEVs and BEVs and the timing of which (if this is to happen) will largely come down to
the individual decisions of OEMs and their global strategies, logistics and production
mechanisms.

       To this effect, Toyota South Africa announced on the 13th of April 2021 that its
transition towards the local production of EVs would begin with Petrol Hybrid Electric
Vehicles (PHEVs). Toyota would begin production of its first PHEVs in the country by the end
of 2021 (Kirby, 2021). Importantly this could create opportunities for local value addition
surrounding new technologies involved in BEVs whilst maintaining opportunities for existing
supply firms that specialise in ICE specific components. This would provide these local
suppliers with some time to transform their business operations and production processes for
the eventuality that they may exclusively supply components for electric vehicles or go out of
business.

       However, what is unclear is the extent to which renewable electricity and green
hydrogen could be used in the production of automotives – in effect greening the value chain.
So far little has been mentioned by government, in terms of its Hydrogen Society Roadmap
and Renewable Energy Masterplan, and OEMs about the potential for creating value added
goods through green energy. In this regard, there is a clear opportunity to reduce carbon
emissions stemming from industrial activities, unlocking competitiveness advantages as carbon
border tariffs are instituted in key export markets. Not only does this ensure the longevity of
South Africa’s automotive industry, but it helps to drive the local market for green energy,
further aiding the development of a hydrogen economy and making BEVs and FCEVs more
affordable to produce and purchase within South Africa.

       Key to the localisation of FCEV and BEV production is the development of local
demand. This, then, is intimately tied to the local generation and supply of green energy. South
Africa’s existing coal-based energy complex and supply challenges severely inhibit the overall
effectiveness of EVs. Not only does it inflate running costs and affect recharging practices of
BEVs, but it curtails the green potential of both FCEVs and BEVs. Therefore, the future
production of FCEVs and BEVs in South Africa must be ushered with serious commitments to
expand South Africa’s green energy supply. While it is hoped that the government’s Hydrogen
Society Roadmap and South African Renewable Energy Masterplan will guide this, it is also
clear that there will need to be considerable initiative taken on behalf of private firms to

                                                                                             22
accelerate and supplement the development of green energy generation in South Africa. In the
case of the automotive sector, OEMs have a vested interest in the expansion of green energy.
Inevitably an adequate supply of green energy will lead to cheaper electricity prices that will
drive demand for EVs, creating a serious business case for the local production of FCEVs and
BEVs in South Africa.

       Specifically looking at FCEV’s there is a major opportunity for local production that
could revolutionise the local and regional automotive value chain. As explained earlier, BEVs
are particularly suited for passenger vehicle and other short range market segments. BEV
technology, production and demand are more advanced in larger and wealthier markets and
South Africa would likely be less competitive in producing such vehicles given the size of the
domestic and regional passenger vehicle market. In 2019 South Africa produced a total of
254 418 ICE LCVs (light commercial vehicles) accounting for a significant 1.3% share of the
global LCV market (Lightstone Auto, 2021; OICA, 2021). The overwhelming majority of
vehicles produced in this segment were pickup trucks or “bakkies” as they are commonly
referred to in South Africa. Table 2, earlier, showed a clear competitiveness case for FCEVs in
this market segment. Therefore, clear synergies exist between South Africa’s established LCV
manufacturing capabilities, it’s local and regional LCV market, and HFCT. Key to unlocking
such synergies would be significant investment in local green energy production which will in
turn drive green hydrogen production and FCT manufacturing capabilities in South Africa.

                                                                                            23
Conclusion

       South Africa’s Hydrogen Society is still in its infancy. The governments Platinum
Valley Project, and Hydrogen Strategy are focussed on the development of local HFCT
manufacturing capabilities so as to position the country as a future exporter of green hydrogen,
FCT, and fuel cell powered systems. South Africa possesses several infrastructural, human
capital and natural resource endowments that present significant opportunities to be a future
potential leader in the production of green hydrogen.

       In terms of FCEVs there is presently no established infrastructure and demand in South
Africa. While BEV’s have a head start in this respect, several industry leaders insist that the
two technologies will serve to complement one another. It is clear, that FCEVs are more
effective for long-range and heavy modes of transport. In this respect, FCEVs contain
competitiveness opportunities in the heavy truck, long-distance bus, light commercial vehicle,
and large passenger vehicle segments. FCEVs are also particularly suited for other modes of
transport such as e-hailing. On the other hand, BEVs are more effective for short range modes
of transport, in particular the passenger vehicle and urban bus segment. As local OEMs
transition to building fully electric vehicles in South Africa, it will be important to prioritise
these market segments where FCEVs and BEVs already have strong cost competitiveness
profiles and where local consumer demand is likely to complement this.

       Finally, there is scope for both domestic production of FCEVs and BEVs in South
Africa - the country is certainly making attempts to position itself in both spaces. EV producers
are included under existing benefits and incentives under the APDP and AIS. However, the
onshoring of domestic EV manufacturing capabilities will largely come down to the individual
decisions of South Africa’s foreign owned OEMs and their respective global manufacturing
strategies and logistics. Ultimately, the future production of FCEVs and BEVs in South Africa
is dependent on technology development, industry preferences, government policy and the
broader economic trajectory of South Africa. Key to this will be the creation of domestic
demand for EVs, of which the reduction of ad valorem excise duties will be an important
incentive. However, increasing the supply of domestic green energy will be a crucial driver for
the adoption of EVs in the local market. More importantly, it is key to harnessing the synergies
between FCT, South Africa’s potential for green hydrogen production, and the country’s
existing LCV market and manufacturing capabilities. This alone could revolutionise the South

                                                                                               24
African automotive value chain as it guarantees superior economies of scale and higher levels
of competitiveness around core product offerings.

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