Despite the enthusiasm for a green hydrogen economy in Africa, most proposed projects are still in the conceptual phase without binding offtake agreements, remaining very far from financial investment decisions.

A discussion on opportunities to shape the hydrogen opportunities in Africa at the Africa Energy Forum (aef) in Barcelona last week saw energy experts look at the risks and benefits of clean hydrogen enthusiasm on the continent.

Publicly available data suggests more than 60 hydrogen-related projects announced across 17 African countries.

And just as renewable energy projects in Africa face specific challenges related to financial instruments and inflation, hydrogen projects raise their own questions.

Risk and uncertainty in this space, because hydrogen is still an emerging product with unproven technology, means there are a lot of complex layers to decipher.

Green hydrogen for local use or export?

Most of the proposed projects in Africa target export as a key market. While this could eventually be lucrative, it brings along much competition from developing technologies in advanced countries.

Another big issue is the cost of infrastructure to deliver the product. This is the cost to make and transport hydrogen.

Right now, the world consumes around 95 million tonnes of hydrogen, but this is all produced and consumed in close proximity. So, there is essentially no trading of hydrogen to speak of just yet.

What does this then mean for African countries’ path to creating clean hydrogen?

Going too fast creates a risk of high technology costs and getting locked into a market path that doesn’t turn out to be viable. But what if you wait too long to join the conversation and miss the boat that gets us to the much-needed energy transition?

In North Africa

Egypt wants to get 42% renewables in the country mix by 2035. It is rich in renewable energy sources and well-located to become a gateway of green energy from Africa to Europe.

The North African country has created incentives to attract investment into its nascent green hydrogen sector, but country officials acknowledge the challenges of securing an offtaker outweigh any speculation around pricing and cost of eventual green hydrogen production.

Another significant hurdle is standardising green hydrogen certification. With only the EU agreeing on a certification process, the world has yet to buy into and sign up for a common green hydrogen certification process. So, at this point, even agreeing on the exact definition of green hydrogen is still up in the air.

Morocco wants to produce green hydrogen for both domestic use and export. The country plans to produce around a million tonnes of ammonia by 2027 alongside 200 kilotonnes of hydrogen.

A big advantage is that the country would use ammonia as a feedstock for its phosphate industry. It used to get the bulk of its imported ammonia from Ukraine but now spends billions sourcing it elsewhere.

Still, they acknowledge that the whole industry needs infrastructure development on a global scale.

How do you cost the financing?

The conflict between Russia and Ukraine is a game-changer for energy and electricity security.

Germany, in particular, is making a big push to support the nascent hydrogen industry through the H2Global Fund, which seeks to secure long-term offtake by helping to make projects bankable.

Then there’s a PtX Development Fund, which provides non-reimbursable grants to industrial-scale projects at various stages along the green hydrogen value chain, and a $380m envelope Germany provided to the EIB for grant funding for viable projects.

And it’s not the only country throwing money at the problem.

However, the big banks seek evidence of long-term offtake, not countries’ desperation for a new energy source.

They already understand that driving down the cost of funding makes the renewable energy project competitive. So long-term tenors for projects really help. This becomes even more true of green hydrogen projects.

Solutions include finding projects that incorporate a large proportion of local use. Then, as projects scale up and export opportunities are found, they can grow that market.

Large multilateral banks want to finance projects, but there is still a lot of technological research they need to wrap their head around, and more and more, they are asking – what is the local use case?

What’s the effect of a green hydrogen economy for people on the ground?

A positive aspect of green hydrogen projects raised in proposed plans in emerging markets is the socio-economic effect of the project on local communities.

The idea is to oversize the project and create excess green energy to power a local community. Or provide potable water.

Building carbon credits or green certification into the project is another proposal to measure a project’s effect on a community.

But without a use case, it’s hard to tell whether the proposed effect will become reality.

Phasing out fossil fuel subsidies and putting a price on emissions/pollution (even symbolically at first) is another prickly discussion that is starting to be bandied about.

Policy, regulation, frameworks, risk

Specific industries, such as nitrogen-based fertiliser and creating green hydrogen for refineries, are all good and well, but transporting the green hydrogen creates storage and transport logistics problems that have not yet been explored or solved.

One piece of advice offered to regulators at the talk was that the energy experts who help to develop projects in any given country should also look at the due diligence of foreign investment.

Making all aspects of the investment clear and transparent and setting up the framework for not only regulatory policies but also how to handle technical risk and other challenges would help.

But all panel participants agreed that while regulation is important, that is not the driver that gets a project to reach financial close – the offtake security, feasibility and bankability of the actual project is all-important.

If the risk to the project can be sufficiently mitigated and the project revenue secured, it stands a better chance of getting off the ground. And then, we have the test case that proves green hydrogen is an energy carrier and feedstock that will lead to the much-vaunted energy transition. ESI