Oil and gas shaped the modern history of states such as Saudi Arabia and Qatar, Venezuela and Nigeria, Texas and Alberta. The presence or absence of such resources, and the use made of them, shift economics, societies, and geopolitics. Green hydrogen, the emerging clean fuel, is quite different: it needs sun, wind, and land. So it should be an ideal opportunity for many developing countries where those three things are in abundance – but can they seize it?
Green hydrogen uses renewable electricity generated from solar, wind, or even hydropower or geothermal, to split water into its constituents via electrolysis. There is virtually zero worldwide green hydrogen production today, but excitement has surged since 2020. It seems an ideal way to use newly-cheap renewables to make a zero-carbon fuel, with wide potential to decarbonize heavy industry and provide sustainable fuels for ships and airplanes. The vast quantities of renewable electricity required, though, favor countries with vst areas of flat, mostly empty land.
A variety of investments
In March, a consortium of the UAE’s clean energy company Masdar, Egyptian energy provider Infinity and German developer Conjuncta signed a preliminary agreement for a 10 gigawatt, $34 billion green hydrogen project in Mauritania. The northwest African country has a GDP of just $10 billion and power generation capacity of barely half a gigawatt. To call such a project transformational, if it happens, is an understatement.
And this is not Mauritania’s only hydrogen concept: British oil major BP, France’s TotalEnergies, gas minnow Chariot, and international renewable developer CWP Global are working on others. In total these could amount to 80 gigawatts and hundreds of billions of dollars of investment.
Namibia, in southwest Africa, with 2.5 million people and a GDP only a little higher than Mauritania’s, also possesses a long Atlantic coastline and extensive desert territory. Hyphen Hydrogen Energy, with African and German hareholders, plans a $10 billion hydrogen plant.
More established energy producers in the continent – South Africa, Egypt, Morocco, Angola – have also announced projects. On current pronouncements, Africa stands behind only Europe in the volume of green hydrogen production by the early 2030s.
Mauritania, Egypt and Morocco have the advantage of proximity to Europe, set to be the biggest importing market globally. Japan and South Korea are more distant and are expected to seek supplies from the Middle East and Australia.
Hurdles to sustainable development
Such huge projects will drastically reshape their host countries. However, they face numerous challenges. Even if they go ahead, they will not bring the same easy wealth as oil and gas – but, done well, there is the potential for broader-based and more sustainable development.
First, there is the simple challenge of delivering such huge investments in countries with limited infrastructure and expertise. This favors the north Africanstates and South Africa. Even here, it has been difficult to sign long-term offtake contracts, essential to underpin financing. The market is nascent, users are waiting to see how projects advance and costs decrease. Developers need to execute their projects in order to purchase equipment in bulk so that costs can fall, and electrolyzer-makers are waiting on orders before gearing up production lines. This is a three-sided chicken-and-egg problem.
Second, Africa faces competition. Australia, Brazil, Chile, and the Arabian Peninsula have similar advantages of sparsely-populated, coastal land with strong sun and wind, and more established economies and technical expertise.
But perhaps the biggest threat of all comes from the US. It has empty land with strong wind in the Midwest and sun in the southwest. It has a massive, highly-skilled energy industry with abundant finance and entrepreneurial talent. And President Joe Biden’s Inflation Reduction Act, which was signed into law a year ago offers remarkably generous subsidies for hydrogen production, of up to $3 per kilogram, meaning that by the early 2030s, it could be virtually free to make in favorable locations.
It’s hard to imagine that such largesse will persist – it will become impossibly expensive, if green hydrogen expands into a large industry. But right now, America is the land of opportunity. There is the risk that developers will sit on their African projects until the market shakes out.
Third, there is the question of how African countries turn their hydrogen potential into gold. It will be a costly and competitive industry. Taxing it heavily or demanding government shares will drive away investors.
So states in Africa should ensure that at least some of the hydrogen is used to generate value locally and not just exported. Hydrogen, a very light and leak-prone gas, is costly to transport internationally. Most announced projects plan to turn it into ammonia, a constituent of fertilizers and an important hemical feedstock, which is much easier to transport.
African farmers could certainly do with more fertilizers. The hydrogen can also be used to convert iron ore into usable iron, and to make synthetic fuels.
Despite these challenges, Gulf investors, such as private UAE firm AMEA Power and Saudi Arabia’s ACWA Power, as well as Masdar, are interested in the continent’s hydrogen potential. While indigenous, European, and Australian firms are well-represented already, China, the US, and Japan are conspicuous by their absence. The opportunities are there for fruitful partnerships, and energy trades quite differently from past extractive models.
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