By Fitch Solutions

Key View:

  • Most markets in the SSA region perform poorly on our Green Hydrogen Suitability Index although several stand out as having potential for green hydrogen production.
  • South Africa is still the region’s top-ranked market given that it is the most industrialised economy in SSA and has the largest installed base of non-hydroelectric renewables capacity in the region. The market is also planning to develop an SEZ for the production and export of green hydrogen in Boegoesbaai. Namibia, while only ranked eighth, is planning to develop a 4GW hydrogen production facility in cooperation with Germany at a cost of USD9.4bn.
  • Although high risks across most markets, coupled with low levels of installed power capacity leaves us bearish on the prospects of green hydrogen production in SSA, we maintain our view that there is still upside risk for governments across the region to look toward the resource’s development as a way of triggering new economic growth.

Fitch Solutions has developed a Hydrogen Index which assesses the suitability of a market for the development of a green hydrogen industry. The Index’s assessment of green hydrogen development suitability is scored out of 100, with the higher the score indicating a more favourable balance of risks and rewards. The index combines Fitch Solutions Non-Hydropower Renewables forecast data to form the Renewable Industry Rewards as well as our economic, political and operational research teams’ assessments to form a Country, Project and Industry Risk profile. Furthermore, we include 33 industry-dependent indicators to assess current and future demand for hydrogen as well as capture existing technical expertise.

Sub-Saharan Africa (SSA) performs poorly on our Green Hydrogen Suitability Index, with the lowest average score globally. The average score for the region is 32.1 compared to the global average of 46.6. South Africa remains the region’s highest-ranked market at 42nd, while also being the only country in SSA to be ranked in the top half of our index. Globally, we expect to see an increase in both the demand and supply of green hydrogen over the decade despite the majority of the gas currently being supplied by fossil fuels. While other regions are taking a leading role in the technologies development thanks to its more advanced transition of its power sector to renewable energy and high levels of manufacturing capability, hydrogen production capacity will remain limited in the SSA region. However, we do highlight a few key markets in the region that will have potential for hydrogen development going forward.

Lack Of Capacity Growth And High Risks Limits SSA Hydrogen Potential

Structural economic and political risks, as well as limited power capacity across most markets in SSA results in the region performing poorly on our Green Hydrogen Suitability Index. We also forecast that non-hydropower renewables will make up a limited share of the total electricity output in the region. We highlight that this factor drives up the Index’s scores in two key markets namely Kenya and Namibia, who are the only two markets to average of more than 10% of total electricity generation between 2022 and 2030 at and average of 70.5% and 38.5% respectively. Furthermore, the regions highest ranking market, South Africa, will only see renewables represent 10% of total electricity output by 2030. This underlines our view for the limited scope for green hydrogen production in the SSA region.

We still maintain our view that certain markets in the region stand out for having potential to produce green hydrogen over the coming decade and beyond, particularly in countries where the government will aim towards economic diversification by producing and exporting green hydrogen.

South Africa Remains Regional Leader While Nigeria Climbs In Rankings

South Africa: The market will remain the highest-ranked market in SSA over the next decade. Although the share of non-hydropower renewables is limited, which has skewed scores as South Africa’s total power capacity is vastly larger than that of the rest of its regional peers. In fact, South Africa boasts the largest installed non-hydroelectric renewables capacity in SSA at an estimated level of 6.7GW in 2021, which we forecast to increase to 11.4GW by 2030. This fact, coupled with it being the most industrialised economy in the region, means we expect it to be the market most suited for hydrogen production in SSA. South Africa’s well-developed ports also bodes well for potential green hydrogen exports to markets outside of SSA.

South Africa has been developing a hydrogen roadmap whereby it will plan to produce hydrogen for both domestic use (primarily blue, from natural gas, and brown from coal) as well as exports (focusing on green hydrogen). In addition to this, President Ramaphosa announced in October 2021 that a special economic zone (SEZ) was being planned in Boegoebaai, which will be developed with the aim of producing and exporting green hydrogen. An agreement between SASOL and the Northern Cape Development Agency was reportedly signed for a feasibility study, which will take approximately 24 months. However, we still maintain that regulatory delays and political tensions are key factors that would deter more risk-averse investors or cause lags in project developments.

Namibia: Namibia is ranked 8th in the SSA region and 86th globally on our Hydrogen Index. The primary reasons for its low ranking are the low levels of installed power capacity as well as a lack of domestic demand given limited industrialisation. However, we highlight the market as a bright spot for hydrogen production given its commitment to developing non-hydropower renewables capacity as well as its plans to develop a large-scale green hydrogen production capacity.

Announced in 2021, Namibia is planning to develop a 4GW green hydrogen production facility in partnership with Germany. High levels of sunshine (estimated at 3,500 hours per year) and favourable wind speeds means Namibia has ideal conditions for the development of non-hydroelectric renewables capacity for green hydrogen production. Germany’s Federal Research Ministry has reportedly also pledged EUR40mn as part of an economic stimulus package in this regard. They have also stated that they estimate that hydrogen produced in Namibia could eventually reach costs of between EUR1.5/kg to EUR2/kg, which would be among the lowest in the world enabling the market to capture export market share. The hydrogen facility is planned for completion in 2026 at an estimated cost of USD9.4bn. Hyphen Energy was selected as the preferred bidder for the project in November 2021.

Nigeria: Nigeria remains the second-highest ranked market in SSA while ranking 71st globally. The main factors informing our scores are future demand, particularly given Nigeria’s strong regional performance for dry natural gas consumption, road freight capacity and crude steel production. Nigeria also boasts the largest gas-fired power capacity in SSA, indicating further demand potential where hydrogen could be mixed with natural gas to reduce emissions from the market’s power sector. Although the Nigeria has signed an agreement with the German government for a roadmap of green hydrogen production in the 15 countries in the Economic Community of West African States (ECOWAS) group, we remain bearish given high risks in the sub-region as well as the lack of established non-hydroelectric renewables capacity in the country.

This article has been sourced from Fitch Solutions and can be accessed here