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Blog Jun 10, 2024

Renewable Hydrogen in Africa: Goldilocks and the Six Facts

Future of Energy Tech

A shortened version of this article can be found on Cipher.

Renewable hydrogen is the (not so new) big thing. For the third time in history, the world has rekindled its fervor for hydrogen as a transformative fuel that can satisfy our search for a carbon-free energy alternative. With 95 million metric tonnes (Mt) of it used today in refineries and industrial facilities world-wide, hydrogen is hardly new. So what changed? While the use of hydrogen may not produce any carbon emissions, production of hydrogen is still dirty — emitting 13 kilograms of carbon dioxide for every kilogram of hydrogen.

This downside could change with the emergence of renewable hydrogen, a clean hydrogen production method which involves splitting water using renewable electricity and devices known as electrolyzers. The declining cost of renewables and a global surge in their adoption have significantly shifted the business case for renewable hydrogen. Geopolitically, renewable hydrogen has also emerged as a possible answer to energy security and diversification concerns, particularly in the wake of the COVID-19 pandemic and Russia’s invasion of Ukraine. For climate policy, the limits of electrification have steered attention towards renewable hydrogen for hard-to-decarbonize sectors like shipping and heavy industry. These intersecting political and technological dynamics have reignited enthusiasm for clean hydrogen.

The African Angle

With its vast renewable energy potential, Africa has garnered global attention as a prospective hub for renewable hydrogen. Fueled by ambitious models and amplified by optimistic leaders, a prevailing but unproven notion has emerged that Africa has a special edge for low-cost, large-scale renewable hydrogen deployment. This has resulted in a flurry of projects proposed across the continent. To help contrast this fervor against the reality, we created the African hydrogen projects tracker and reviewed proposed projects’, potential end uses, scale and status. Amidst the buzz and growing number proposed projects, here are six facts that keep us grounded:

Fact 1: Africa’s hydrogen footprint is small but dirty, much like the rest of the world.

Primarily concentrated in Egypt and South Africa, Africa annually consumes 3 Mt of hydrogen in oil refining, steel and chemical production — accounting for 3% of global hydrogen consumption. However, none of this hydrogen originates from clean sources. Global trends reflect a similar pattern, with less than 0.1% of all hydrogen consumed globally produced with renewables.

FIGURE 1: (Left) Africa’s hydrogen consumption relative to global hydrogen consumption. (Right) Hydrogen production by production pathway; clean hydrogen is less than 1% of all hydrogen produced globally.

Source: IEA, Global Hydrogen Review 2023.

Fact 2: Renewable hydrogen is not new to Africa.

Just a decade ago, prior to being decommissioned, two fertilizer plants in Zimbabwe and Egypt ranked amongst the top producers of renewable hydrogen. With a combined electrolyzer capacity of 265 megawatts (MW), these plants produced over 35,000 metric tonnes of renewable hydrogen using hydropower. To put these numbers in perspective, Africa’s historical renewable hydrogen production levels at its peak would have outpaced the United States’ current installed electrolyzer capacity by four-fold.

FIGURE 2: Decommissioned renewable hydrogen plants in Egypt and Zimbabwe and proposed clean hydrogen projects across Africa.

Fact 3: Proposed renewable hydrogen project in Africa proposals have unrealistic deployment scales and timelines.

Since 2021, more than 60 clean hydrogen projects across 16 African countries have been announced, with Morocco and Egypt leading in scale and number of projects. The expected $160 billion in investment needed to make them a reality by 2030 surpasses the gross domestic product of most African nations. The size of these projects ranges from a few MW to 20 gigawatts (GW) — a significant undertaking considering the absence of GW-scale plants worldwide. Moreover, total global installed electrolyzer capacity as of 2023 is at just 1.1 GW, with the recent largest year-over-year deployment increase attributed to two projects in China with a combined capacity of 400 MW.

FIGURE 3: Expected growth of electrolyzer capacity for Africa outpaces ambitious announced electrolyzer capacity for the world. Current installed electrolyzer capacity is depicted for contrast.

Source: World current installed electrolyzer capacity Hydrogen Insights December 2023 and World announced electrolyzer capacity IEA, Global Hydrogen Review 2023, (+)Africa current installed electrolyzer capacity assumes Egypt’s operational project capacity, and Africa’s announced electrolyzer capacity from project tracker.

Fact 4: Renewable hydrogen projects require additional renewable energy sources, which face strong headwinds in Africa.

Depending on the electrolyzer, it takes 40 to 190 kWh of renewable electricity to produce a single kilogram of hydrogen at standard conditions. As a result, renewable electricity is the largest contributor to the total cost of renewable hydrogen production. The majority of the proposed renewable hydrogen projects in Africa require large-scale, new, dedicated wind and solar projects. If just 5% (~5.4 GW) of the announced electrolyzers become operational, it could require more than 13 GW of renewables to be added to the continent, comparable to all installed solar energy capacity in Africa. Additionally, a recent assessment of utility-scale renewable projects in Africa shows that most renewables encounter a gauntlet of challenges in progressing to the construction phase due to high capital costs, rising inflation for inputs, and limited financing mechanisms — obstacles likely to confront renewable hydrogen projects as well.

Fact 5: Renewable hydrogen projects in Africa lack a buyer or are at very early stages.

Despite the enthusiasm for a renewable hydrogen economy in Africa, 94% of all proposed projects are at the conceptual phase without binding offtake agreements and far from financial investment decisions(FID). One project in Egypt is considered operational, having made its first sale of clean hydrogen to the United Kingdom from its pilot plant in November 2023. While this trend is not unique to the continent with only 4% of projects reaching FID globally, it underscores deep market uncertainty.

Fact 6: The export focus of many hydrogen projects in Africa adds costs and uncertainties.

Most proposed renewable hydrogen projects in Africa aim to export the gas or its derivatives such as ammonia, methanol, sustainable aviation fuel, or iron and steel to Europe, Japan, and South Korea. Hydrogen export and trade is a new phenomenon, as most hydrogen is currently produced and used onsite. For African countries, renewable hydrogen export means fierce competition with more technologically-advanced and proximal nations, as well as with cheaper alternatives like clean hydrogen produced from natural gas with carbon capture technology. Uncertainties in demand and the need for additional transportation and delivery infrastructure further elevate production cost. Additionally, geopolitical dynamics and other challenges associated with natural gas export from Africa to Europe are likely to be mirrored with renewable hydrogen export, impacting viability of some projects.

FIGURE 4: Proposed projects in Africa have large uncertainties as most projects are in concept phase with unspecified or export end-uses.

The Goldilocks Paradox of Africa’s Renewable Hydrogen Future

As wealthy countries spend billions on research, demonstration, and production and demand incentives to scale and accelerate deployment of clean hydrogen, Africa’s role generates more questions than answers. Much like electricity, hydrogen is an energy carrier and its ultimate productivity is defined by its end use. Industrial and hard-to-electrify end-uses need clean hydrogen as a viable alternative in a net zero future. Those sectors, however, need the cost of clean hydrogen to decrease to compete with existing dirty sources and enable switching. While additional and new end uses can potentially drive costs down through economies of scale, this path is very uncertain. When, how, and to what extent should African countries participate in this leap of faith? Jumping in too deep and too early may lock emerging economies in high-cost and high-risk investments, while waiting too long could cause them to miss the window to shape the market as it emerges.

African countries must also contend with the export dilemma. The continent wants to avoid the past pattern of exporting raw materials with low value-add and few local economic benefits like jobs or industrialization. With many proposed projects geared towards exports, which can help attract stable offtakers and initial investments. But exporting adds costs and creates its own risks. Furthermore, some wealthy countries and likely importers are using trade and industrial policies to promote domestic clean energy production. So, what are the long-term implications of these policies and uncertainties on an export-focused African renewable hydrogen market? Furthermore, it is unclear if an African renewable hydrogen industry optimized for exports will successfully pivot to support local industrialization and value addition.

Finally, with the persisting need for increased energy access across Africa, what separates the renewable hydrogen projects that could divert resources away from the ones that serve as useful demand anchors to enable a high-energy continent?

Africa’s high-energy future must strike the right balance between seizing opportunities and mitigating risks. Answering these questions and finding the right balancing act for African countries must begin with an open-eyed discourse free from the hype.

We’ll keep an eye on the evolving hydrogen landscape, aiming to answer these questions and so many more. Stay tuned.

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