🚁 Heli view: The triple hurdle green hydrogen must clear to power Africa

Western business has decided to double down on African green hydrogen in a big way.

Top guns: The Hydrogen Council, a club of global industry giants (see our Cheat Sheet below), this month got McKinsey to make the case for hydrogen’s potential on the continent. 

• The significance is not just in what the report says – but also who says it.

• This blueprint for industrialisation based on billion-dollar investments was commissioned by players with the necessary capital. 

A few details: McKinsey analysts chart the sector’s potential as follows.

• African hydrogen exports could be worth more than $15 billion annually by 2050.

• The sector can create 13 million job-years for African countries by mid-century.

• Projected African exports: 7 million tons pa (2030), 32 Mtpa (2040) and 72 Mtpa (2050).

• In South Africa, it could add 3.6% to GDP by 2050 and create more than 370,000 jobs.

Quick recap: What is green hydrogen? Using renewable energy to create hydrogen, a major ingredient in industry, transport and energy.

• Over the past year, green hydrogen has become perhaps the most dynamic part of Africa’s green economy. 

• More than $100 billion in projects have been announced across a dozen countries. 

Yes but: Before green hydrogen can take off in Africa, it needs to clear three major hurdles: Securing capital, ensuring demand, and finessing the local landscape. 

Securing capital: Access to funds and actual investment can be different things. 

• More than $400 billion may need to be invested (equivalent to South Africa’s GDP). 

• $40 billion will be invested by 2030 but over 90% of capital will only be deployed later.

• Highly variable perceptions of risk in Africa mean financing is subject to uncertainty.  

• A 6% increase in the cost of capital could increase hydrogen costs (LCOH) by 50% or more. 

Ensuring demand: Africa is not exactly early to the party.

• Only 5% of African projects are at the advanced planning stage and 1% have final investment decisions, compared to 20% and 7% globally.

• Europe and parts of Asia are the primary market as North America, Australia and Latin America are already building plenty of capacity.

• Potential government subsidies for American green hydrogen may exacerbate demand challenges in Africa.

Finessing the local landscape: Some African governments are struggling with hydrogen policies, though Kenya recently established its regulatory framework.

• Transport infrastructure, land rights, water access and human capital are also potential bumps in the road. 

Not stopping: The first quarter of the year has nonetheless seen a further stampede of interest.

Serious players: Conservative western industrial countries are now focusing on African green hydrogen. These are not your usual speculators. 

• Japan has struck a partnership with South Africa that may be worth $15 billion.  

• Germany supports a $10 billion project in Namibia, which will soon produce its first green hydrogen.

Action stations: Mid-size African countries are emerging prominently in the sector.

• Morocco will dedicate 2% of its landmass (1 mln hectares) to green hydrogen projects.

• Algeria wants to supply 10% of Europe's hydrogen demand by 2040 via a subsea pipe.

Big brothers: Some of Africa’s major economies are also keeping up with new announcements.

• A $5.8 billion deal in South Africa

• Seven new projects worth $40 billion in Egypt.

New entries: Laggards no longer want to be left behind.

• Uganda signed a $400 million deal for a green hydrogen-based fertiliser plant, aiming to enhance its food production and reduce imports.

Use cases: It’s no longer just about trade. Domestic applications are trialled.

• BMW launches a hydrogen test car for South African consumers.

What it means: This is different from what raised up Asia’s economies. It’s less about (labour-intensive) manufacturing than green industrial applications.

• Still, serious players are making the case for how hydrogen can reshape the continent, including forgotten places such as Mauritania. 

• Namibia may double its GDP, grow the labour force by 10% and reduce CO2 emissions by 45-60 million tons per year by 2040.