Unlocking Africa’s hydrogen potential requires risk mitigation, report advises

Africa could capture 15% of globally traded hydrogen volumes, but higher project financing costs risks its production build out, a new Hydrogen Council report has found.

Released today (March 26), The Africa Hydrogen Opportunity report said African countries could meet 15% of globally traded hydrogen demand, by leveraging its abundant renewable energy potential.

The report estimated renewable hydrogen production on the continent could grow from one million tonnes per annum (mtpa) in 2030 to 11 mtpa in 2050, mobilising a cumulative investment of $400bn and increasing African export value by $15bn.

However, it found Africa’s higher country-level risk and project execution risk are driving up financing costs, making the expected hydrogen production cost “higher than those in the Middle East and Australia.

Country-level risk includes political instability, legal uncertainty, monetary instability and currency risk. While project execution risk include inexperience EPC contractors, difficulty in securing hardware, limited reliability and availability of surrounding infrastructure, permitting timelines and inexperienced workforce.

­According to the report, a six percentage point increase in the weighted average cost of capital (WACC) could increase the leveilised cost of hydrogen (LCOH) by over 50%, adding, “Higher financing cost often result from additional project risk in developing markets.”

© Hydrogen Council: The Africa Hydrogen Opportunity

The report highlighted that the African hydrogen project pipeline is less mature than the global average, despite boating announced project and projects in planning corresponding to over $50bn of investment if realised by 2030.

But just 5% of Africa’s project investment volume is at front-end engineering and design (FEED), compared to 20% globally. Additionally, only 1% has made it past FID, compared to 7% globally.

However, the report had said close collaboration across project timelines will help African projects overcome additional difficulties.

It said governments exploring investments can create a “favourable” investment climate by providing clarity on permitting, regulation and taxes, and by local community and authority engagement early on.

“Having a clear infrastructure plan creates planning transparency and allows stakeholders to capture synergies like common-use infrastructure shared across different projects. Investments in upskilling local workers will enable them to participate in the new hydrogen economy to their fullest potential,” it added.

Furthermore, importing countries and development partners can de-risk projects through instruments such as the European Bank for Reconstruction and Development (EBRD) and the World Bank’s Multilateral Investment Guarantee Agency (MIGA) which have offered bridge loans and insurances for large-scale projects.

It also noted that development partners such as H2Global can facilitate offtake agreements.

“Assuming close collaboration is realised and all involved parties take the necessary steps, consequent risk mitigation and successful project execution can position African producers as important leaders in their respective domestic markets and strong contenders for the international hydrogen trade,” the report concluded.

Sanjiv Lamba, CEO of Linde and Hydrogen Council Co-Chair, said unlocking Africa’s potential will require “coordinated efforts across public and private sectors.”

“By working together to create a supportive economic and legal framework that helps mitigate risk and enables investment, we can realise the economic benefits while accelerating the energy transition worldwide,” he added.

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