African green hydrogen might be too expensive for Europe

The European Union (EU) has been banking on affordable green hydrogen from Africa to decarbonise its industries.

However, a recent study shows that producing green hydrogen in Africa and shipping it to Europe may be more expensive than projected.

A report titled ‘Mapping the Cost Competitiveness of African Green Hydrogen Imports to Europe’, released last week and conducted by researchers from the Technical University of Munich, showed that achieving cost competitiveness with European green hydrogen will be challenging.

The EU has already signed partnerships with several African nations, including Namibia, Egypt and Mauritania, to foster the development of export-oriented green hydrogen production sites.

FINANCING CHALLENGES

According to the report, under current high interest rates, developers would likely face financing costs ranging from 8% to as high as 27%, depending on the country and specific project. Most existing models, by contrast, had assumed a range of just 4% to 8%.

“In this high-interest environment, the cheapest hydrogen produced in Africa for export to Europe would cost €4.9 per kilogramme without any policy support from Europe,” reads the report.

If European governments were to fully fund the projects with price guarantees and purchase agreements, that price could drop to €3.8 per kilogramme. In a low-interest scenario, the price would range from €4.2 without government support to €3.2 per kilogramme with full policy backing.

“Even under the most favourable conditions, African producers would face stiff competition,” reads the report.

The EU plans on importing 10 megatonnes of green hydrogen to decarbonise its steelmaking, chemicals and transport industries.

EU’S INVESTMENT IN NAMIBIAN
GREEN HYDROGEN

The EU has committed €50 million to renewable hydrogen investment funds in Namibia and South Africa, with €25 million specifically allocated to the SDG Namibia One Fund. This fund aims to raise $1 billion in blended financing for green hydrogen projects.

The EU, along with Germany, will provide €2.7 million in technical assistance for Namibia’s planning efforts in expanding renewable hydrogen generation capacity and increasing access. Additionally, a grant of €1.2 million has been provided to the Namibia Green Hydrogen Programme.

Recently, the EU and The Netherlands contributed N$508 million to the SDG Namibia One Fund.

This aligns with the N$258 million (€12.9 million) joint grant contribution from the EU and The Netherlands to the same fund.

Over 70 potential supply regions, many in Africa due to their abundant renewable energy resources, have been identified, and bilateral agreements have already been signed, for example, between the European Union and Namibia.

DOMESTIC POLICIES
AND PROJECT STATUS

African countries have started implementing domestic green hydrogen policies too, with countries such as Namibia, South Africa, Morocco and Kenya developing strategies focused on export.

According to the report, there are about 34 projects across seven countries, 89% of which are either at concept or feasibility stages.

Two of the projects have reached a financial investment decision and are under construction, and only one small-scale project (that is 3.5MW) in South Africa is operational.

Planned project sizes vary from 3.5MW to 6.9GW. Whereas Egypt and South Africa have numerous smaller projects planned, Mauritania has three large projects planned, totalling 7GW of capacity.

To date, only three green hydrogen deals have reached financial closure on the African continent.

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