Global trade will be key to accelerating a more cost-effective hydrogen economy, as main demand centres and ideal renewable hydrogen production areas are often not geographically aligned.

Africa’s potential in the renewable hydrogen industry has been emphasised by different stakeholders both in the continent and abroad. Most recently, the Hydrogen Council – a global ceo-led initiative promoting hydrogen – published a report with the help of McKinsey & Company highlighting such potential.

The continent benefits from world-class renewable resources. The report estimates renewable capacity factors of 69% for wind and 25% for solar, thanks particularly to northern and southern countries. Central African countries enjoy hydropower and in the East African Rift Valley, geothermal potential has been identified. Coupling these resources with abundant land, Africa is strongly positioned to become a renewable hydrogen and derivatives producer and exporter.

The Africa Hydrogen Opportunity report published by the Hydrogen Council estimates that countries in the region could capture 15% of the expected globally traded hydrogen volume. Green hydrogen production for export could grow from 1 million tonnes/year in 2030 to 11m t/y in 2050. Overall, renewable hydrogen production could mobilise a cumulative investment of $400 billion in Africa, it forecasts.

However, despite the major opportunities highlighted by the Hydrogen Council and a number of other stakeholders, major challenges need to be overcome.

Low FID rates, project progress

Leaving aside the green colonialism debate, a major barrier to renewable hydrogen development currently relates to the cost of financing. Over 80% of the levelised cost of hydrogen (LCOH) production comes from annualised capex including renewables and electrolysers. McKinsey notes that given the capital-intensive nature of hydrogen projects, a 6-percentage-point increase in the weighted average cost capital (WACC) could lift LCOH by 50% or more.

That means that higher costs of capital lead to higher production costs and lower competitiveness, making African green hydrogen production more expensive than in the Middle East and Australia. Higher financial costs also often result from additional project risks in developing countries, roughly divided into two risks – country-related and project execution.

Legal uncertainty, as well as political and monetary instability, are among the biggest risks and volatility drivers. While they are seen as some of the hardest to mitigate, insurance and hedging can provide some relief.

Project execution risks could be reduced by working with capable engineering, procurement and construction (EPC) suppliers, putting in place shared infrastructure, and securing offtake agreements and equipment supply. Concessional finance could also help minimise risks and increase project success.

“The African hydrogen project pipeline is less mature than the global average,” the report warns. “In Africa, only about 5% of the project investment volume is at the front-end engineering design and further (FEED+) stage, compared with 20% globally. What’s more, only 1% is past the final investment decision [FID] stage, compared with 7% globally.”

McKinsey’s analysts estimate that as of October 2023, the African hydrogen project pipeline corresponds to investments of over $50 billion by 2030. More specifically, $24.5 billion in the announced stage and $28.3 billion in the planning stage. Globally, the announced figure stands at $259 billion and the planning at $203 billion, they forecast.

The International Energy Agency (IEA) previously estimated that only 4% of the global announced hydrogen projects had reached FID last year. On 17 April, the agency said that based on announced projects that aim to trade hydrogen or hydrogen-based fuels, 16m t of hydrogen equivalent could be moved around the globe by 2030.

“However, three-quarters of export-oriented projects are in early stages of development. Less than one-third in terms of volume by 2030 have identified a potential offtaker,” says the IEA, illustrating this isn’t an Africa-isolated challenge.

Domestic benefits, positive spillovers

Assuming supportive measures are taken and the right enabling conditions are in place, green hydrogen could unlock $15 billion in African export value in 2050 and create up to 13 million jobs by 2050, according to the Hydrogen Council.

The group, which includes 140 companies from North America to Asia-Pacific, Europe, Africa and MENA region, is confident that green hydrogen will also “enable the faster deployment of renewable power for domestic use at lower costs.”

“Hydrogen production can act as a secure offtake of renewable energy, and it facilitates additional and larger scale renewables deployment. Local players can gain experience supplying the hydrogen production industry and later utilise their skills in energy production for domestic demand,” the council explains.

Another trade body, the African Hydrogen Partnership (AHP), says hydrogen can help address the Global South constraints and necessity, particularly in Africa. “The speed of electrification and generally the transition away from fossil fuels to renewables in the Global North could have significant repercussions in several sectors and regions in Africa,” the group explains.

With major constraints on power distribution, African countries have often relied on fossil fuel-based alternatives such as diesel-powered generators. According to AHP, Nigeria, for example, has at least 40 gigawatts of diesel generator capacity for both primary and backup electricity. That’s about the total electricity generation capacity of Norway, and roughly 10 GW more than Belgium’s installed capacity.

However, the energy transition led by the Global North is expected to impact the price and availability of refined fuels used in such generators. As a result, African countries are likely to turn to hydrogen for power generation and transport fuel, the AHP believes. “It is not realistic to expect that sufficient electric grid coverage will be developed [in the Global South and parts of Africa] before 2050,” it adds.

According to the Hydrogen Council’s report, 75% of the domestic renewable hydrogen demand in Africa will come from the chemicals, refining and transportation sectors, including bunkering. Together, they should account for 6.5m t/y of clean hydrogen consumption by 2050, “bringing further benefits to local economies.” There’s also identified potential for power generation, industrial use, and iron and steel, though at smaller volumes.

Global hydrogen import pie

Yet, Africa’s main hydrogen role would be played internationally. The European Investment Bank (EIB) has highlighted Africa’s “extraordinary green hydrogen potential” to produce 50m t/y by 2035. The optimistic target is based on three identified hubs: Northwestern Africa, Egypt and Southern Africa.

The Northwestern Africa hub covering Mauritania and Morocco could export 7.5m t/y of green hydrogen via pipeline to Spain. The Egypt hub could export another 12.5m t/y via pipeline to Greece and Calabria, and by ship to Japan, India and other countries. Meanwhile, the Southern Africa hub involving Namibia and South Africa could export another 2m t/y in the form of ammonia or liquid hydrogen to international markets.

The EIB estimates African green hydrogen to cost less than €2/kg ($2.13/kg), “a price which competes well with oil, meaning Africa becomes an important player in international energy markets.” The forecast was based on a €90/barrel oil price, Kallanish notes.

Through several initiatives, the European Union is pushing its clean energy agenda to Africa, offering investment, regulatory guidance and technical expertise. Either via Brussels or via Germany, the Europeans are mobilising public and private investment in the region. In Namibia, for instance, the EU has pledged €1 billion in joint investment to kickstart green hydrogen production. Germany already promised €40m investment in the country in addition to offering its technical and financial support.

“It is essential to have a stable offtaker for the development of new hydrogen industries,” the Hydrogen Council says. “An early focus on exports to European and Asian demand centres can provide a steady basis for Africa to initiate hydrogen production.”

As the report concludes, Africa can serve part of the sizeable global hydrogen demand. It has the potential to take a piece of the estimated 72m t/y global hydrogen import pie by 2050.