- Fitch Solutions has developed a Hydrogen Index which assesses the suitability of a market for the development of a green hydrogen industry. Although most markets in the Sub Saharan Africa (SSA) region perform poorly on our index, several stand out as having potential for green hydrogen production.
- South Africa remains the region’s top-ranked market, given its well-established power sector and having the largest installed non-hydropower renewables capacity in SSA. Nigeria will climb 18 spots in the global rankings over the next decade given its large natural gas industry and potential future demand picture.
- While political and economic risks will deter more risk-averse investors, we highlight upside potential for both green hydrogen and non-hydropower renewables development for markets in the region looking to stimulate economic development following the Covid-19 pandemic.
The Sub-Saharan Africa is the lowest-ranked region globally for its green hydrogen development potential. The region holds an average score of 25.3 in our Hydrogen Index, which is below the global average of 45.7. Based on 2020 assessments, South Africa (42nd place) is the only market in the region that ranks in the top half of the 117 markets covered globally.
The Hydrogen 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 Power and 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 technology expertise. The combination of the following form our Hydrogen Industry Rewards:
Existing Industry Feedstock: Indicators of current industry demand for hydrogen, including crude oil production, refining capacity and production as well as ammonia and methanol production capacity. In total, these activities make up 80% of current global hydrogen demand.
Future Use Cases: Indicators of future use cases for green hydrogen gas include commercial vehicles fleet size, bus and coach fleet size, heavy truck fleet size, and inland waterway freight transport. We also expect that hydrogen blending into the gas sector will emerge over the decade, displacing gas consumption – particularly in Europe. As such we use indicators reflecting the consumption of natural gas as well as the share of gas fired power generation in the market’s electricity generation mix. Furthermore, steel production has also emerged as a viable off taker for hydrogen products as a low carbon fuel for steel manufacturing and associated indicators are also included.
Infrastructure & Industry Expertise: Indicators in relation to the quality and scope of existing infrastructure and industry expertise, which are also crucial for the development of green hydrogen, including port infrastructure, gas pipeline infrastructure, existing hydrogen production capability, natural gas production.
As highlighted in our previous research 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. Many markets are now looking to rapidly expand renewable-based green hydrogen, production systems utilising electrolyser technology while developing renewable capacity in synergy. While Europe is 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.
SSA Region Underperforms Due to Limited Capacity and High Risks
The SSA region overall performs poorly on our Hydrogen Suitability Index. This is largely attributable to factors stemming from political and economic risks that are widespread across the region. Furthermore, limited economic diversification as well as relatively low levels of power capacity in most markets also limits the scope of hydrogen production for domestic use or export. Non-hydropower renewables also play a limited role in the power sectors of most markets in SSA, reducing the scope for green hydrogen production.
However, we still highlight a few key markets in the region that do stand out for potential green hydrogen production going forward. We also expect that the hydrogen market would provide a lucrative option for markets in the region looking to reboot their economies following the effects of the Covid-19 pandemic, especially given the good overall conditions for wind and solar power across the region.
South Africa Remains Regional Leader while Nigeria Climbs in Rankings
South Africa: We forecast South Africa to remain the top-ranked market in the SSA region over our 10-year forecast period to 2030. The market’s suitability for green hydrogen production will climb up in the global rankings from 42nd in 2020 to 37th in 2025, before dropping again slightly to 40th in 2030. Key factors in this regard are South Africa being the region’s most industrialised economy while also having the largest installed non-hydroelectric renewables capacity base in SSA. From 2021 to 2030, we forecast South Africa’s renewables capacity to grow by an annual average rate of 7.2%, increasing from 6.7GW to 11.2GW. In contrast, the market with the second largest renewables capacity base in 2030 will be Kenya with just under 2.0 GW.
The government has started the development of a hydrogen roadmap, with the goal of producing hydrogen for both domestic use and for export, identifying Japan and the EU as potential offtakers. Although domestic production will also include brown and blue hydrogen as part of a transition effort for the power sector, we expect that more stringent carbon regulations in overseas markets will drive the development of green hydrogen. For domestic use, the government has stated a planned “hydrogen corridor”, which will involve heavy duty fuel cells for the country’s air, freight and rail network as well as trucks. However, we highlight several key downside risks, particularly for Country Risks. Regulatory delays as well as political tensions might deter more risk-averse investors.
Nigeria: Over the next decade, Nigeria will climb 18 spots in the global rankings. Our 2020 estimate for Nigeria’s suitability for green hydrogen production stands at 90th globally and fifth regionally, which we forecast to increase to 72nd globally and 2nd regionally. Future demand variables are the key factors feeding into our Hydrogen Suitability Index score for Nigeria. Among these indicators are Nigeria leading the region in road freight capacity and dry natural gas consumption, while being second in the region (behind only South Africa) in terms of crude steel production. However, the most prominent factor is Nigeria having the largest gas-fired power generation capacity in SSA, which points to the potential for blending hydrogen with the gas to reduce emissions from the power sector going forward.
At the start of 2020, the Nigerian government signed an agreement with the German government to help put together a roadmap for 15 countries in the Economic Community of West African States (ECOWAS) countries to develop a roadmap for hydrogen development. We remain cautious in our outlook for hydrogen production in Nigeria being realised, given the scope political, economic and industry risks present in the country. Furthermore, the development of non-hydropower renewables capacity in the country has been limited due to continued project delays, regulatory hurdles and lack of agreements on tariff structures. However, the potential for green hydrogen development in Nigeria, especially if intended for export, will open up opportunities for new investment into renewable power projects.
Ghana: Within the ECOWAS region itself, we also highlight Ghana as a regional bright spot for green hydrogen development. This is particularly pertinent given the market reaching a state of electricity overcapacity that has resulted in stalled planned non-hydropower renewables projects. If green hydrogen development goes ahead, this will reopen opportunities for renewable power investors as we see green hydrogen production as a capacity growth enabler. One such example is Swiss firm, NEK, which has indicated that it intends to install green hydrogen production factories near its planned wind power sites provided they receive government approval. However, production capacity will most likely remain minimal at first, with Ghana’s ranking in the region dropping from fourth to seventh from 2020 to 2030.
Kenya: In the East Africa subregion, we highlight Kenya as another market that stands out for potential green hydrogen development. This is due to the country’s geothermal potential along the East Africa Rift Valley, while we also expect that Kenya will have the second-largest installed renewables capacity base in SSA during our 10-year forecast period. We forecast geothermal electricity to account for an annual average of over 50% of Kenya’s total electricity generation, and over 80% of non-hydropower renewables generation over the next decade. This indicates a strong base of non-intermittent renewables supply from which to develop green hydrogen.
Botswana: Climbing 27 spots globally, Botswana will be the highest-climbing market in the SSA region over our 10-year forecast period. This is mostly due to the market’s non-hydropower renewables growth rate which we forecast will be an annual average of 45.3% from 2021 to 2030. However, this growth rate will be from a very low base and we forecast Botswana’s total non-hydroelectric renewables capacity will grow from 5 MW to 110 MW over this time period. Plans to jointly develop 5GW of solar capacity with Namibia does pose an upside to our bearish outlook.
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