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Can Africa ride the Green Hydrogen Wave?

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Green hydrogen presents an opportunity for Africa to replace fossil fuel imports and build a new industry that will drive development, writes Samuel Ogunlaja, Partner at Shearman & Sterling LLP.

  • Having failed to fully capitalise on the continent’s hydrocarbon wealth, African governments should act quickly to catch a green hydrogen wave that could be truly transformational.
  • Africa’s abundant renewable energy resources create obvious green hydrogen production potential.
  • Governments need to create a regulatory framework, and investment climate, that encourages the development of green hydrogen projects, and associated industries.

The dash for hydrogen

Green hydrogen is playing a starring role in the energy transition and, accordingly, the ‘dash for hydrogen’ is underway.

But why the hype around hydrogen? Hydrogen is not new, and is commonly used industrially; with most hydrogen produced using fossil fuels, therefore generating carbon emissions. However, attention is now on ‘green’ hydrogen, which is produced via electrolysis powered by renewable energy. Green hydrogen can be produced with (almost) zero emissions and generates zero emissions on use.

Being energy-dense, green hydrogen can be used to decarbonise hard-to-electrify sectors like power generation, transportation, and heavy industry. It can also be liquefied, or converted into ammonia, and transported, enabling the export of renewable-based resources in a way not possible with conventional renewables.

Industrialised nations are looking to green hydrogen to meet decarbonisation commitments, but what does this green hydrogen ‘wave’ mean for Africa? Africa’s abundant renewable energy resources create obvious green hydrogen production potential; however, how can African states position themselves to capitalise, and build a green hydrogen economy that drives development?

The export opportunity

Industrialised nations are leading the dash for hydrogen, hoping to facilitate decarbonisation and improve (non-Russian) energy security. The European Union’s (EU) hydrogen strategy targets increasing hydrogen from 2% of Europe’s current energy mix to 13-14% in 2050. Many industrialised nations around the world have similar strategies.

But industrialised nations cannot achieve their hydrogen targets through domestic production alone. Consequently, these hydrogen-hungry nations are creating opportunities for African green hydrogen producers to become exporters of the ‘future fuel’ that will power the energy transition.

North African countries (e.g. Egypt, Morocco and Tunisia) are well placed to benefit. These countries combine the outstanding renewable resources required for green hydrogen production with geographical proximity to the world’s key green hydrogen import market – the EU. Consequently, the EU contemplates installing 40GW of electrolysers in ‘neighbouring regions’ for the export of green hydrogen to the EU.

Thinking beyond export

With North Africa set to become a green hydrogen export hub, what about Sub-Saharan Africa (SSA)? Being further from key demand centres. SSA exports are arguably less compelling. Also, Middle Eastern and Australian producers will compete with SSA producers for sales in Europe and Asia, respectively.

Reduced export opportunities for SSA may not be negative. The African commodities boom has been characterised by the export of African resources to industrialised nations, where they are processed and sold (often to the same African states) at a significant profit.

Green hydrogen presents an opportunity for Africa to reset this dynamic by using green hydrogen to replace fossil fuel imports and capture more of the green hydrogen value chain in-country.

Import substitution has its limits. The prevalence, and low cost, of hydrocarbons in Africa (and absence of an environmental imperative for decarbonisation on the Continent) provides little incentive to substitute hydrocarbons for costlier green hydrogen. However, this may change if green premiums or carbon taxes make producing hydrogen-based products attractive or necessary. This will also change as green hydrogen production costs reduce.

Importantly, green hydrogen offers Africa the opportunity to create new hydrogen-based industries that can drive growth. For example, South Africa, home to 80% of global platinum reserves (a key material for hydrogen fuel cells), will benefit from the increased platinum demand as fuel cell production increases. Moreover, South Africa could move beyond platinum export into manufacturing fuel cells, and possibly fuel cell vehicles, creating new industries and growth for existing industries, enabling the benefits of the green hydrogen wave to ripple throughout the economy. This is the integrated, ‘multiplier’ approach required for African countries to leverage green hydrogen for wider development.

How?

To realise this vision, African governments need to create a regulatory framework, and investment climate, that encourages the development of green hydrogen projects, and associated industries.

Extensive external support is required, including: R&D, market development, project execution support and funding (increasing access to finance for green projects being a key take-away from COP 27), supply chain infrastructure development and incentives to promote green hydrogen production and use.

Additionally, to ensure that the African green hydrogen economy is equitable and sustainable, African states will need to navigate ESG issues, like ‘land grabbing’, water scarcity and the dichotomy of scaling renewables for hydrogen production on an under-electrified Continent.

Africa can build a successful green hydrogen economy, but doing so will not be easy or immediate. Having failed to fully capitalise on Africa’s hydrocarbon wealth, African governments should act quickly to avoid repeating history and catch a green hydrogen wave that could be truly transformational.

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