The Africa Hydrogen Opportunity
The potential, practical challenges, and possible
unlocks
March 2024

Published in March 2024 by the Hydrogen Council. Copies of this document areavailable upon request or can be downloaded from our website:www.hydrogencouncil.com
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Executive summary
Africa enjoys world-class renewable resources, with capacity
factors up to 69% for wind power and 25% for solar power, as well as
excellent geothermal and hydro resources, coupled with abundant landarea. Consequently, the continent is strongly positioned to becomea renewable hydrogen and derivatives producer and exporter.
Using these renewable resources to produce hydrogen for both thedomestic market and export (either as pure hydrogen or as derivatives– ammonia, synfuel, hot briquetted iron, and others) could create a winwin opportunity for all stakeholders.
Europe and parts of Asia are expected to require significant
imports of renewable hydrogen and its derivatives by 2050.1 With
the right enabling conditions and if African countries can capture 15%of the expected globally traded hydrogen volume, renewable hydrogenproduction for export could grow from 1 million tonnes per annum(Mtpa) in 2030 to 11 Mtpa in 2050. Renewable hydrogen production
could mobilize a cumulative investment of USD 400 billion. This would
increase African export value by USD 15 billion in 2050 and create acumulative 13 million job-years by 2050, and could also enable thefaster deployment of renewable power for domestic use at lower
costs.

1

However, under current circumstances, Africa’s higher country-levelrisk and project execution risk are driving up financing costs, making
the expected hydrogen production cost of African countries
higher than those in the Middle East and Australia. Indeed, while
there are projects on the continent in the announced and planningstages that correspond to investments of USD 50+ billion by 2030, theAfrican hydrogen project pipeline is less mature than the global
average. In Africa, only about 5% of project investment volume isat the front-end engineering design and further (FEED+) stage,compared with 20% globally. What’s more, only 1% is past the final
investment decision (FID), compared with 7% globally.
There is therefore an opportunity for stakeholders to realize Africa’shydrogen potential for its citizens and for the world. Stakeholders could
consider taking one or multiple of several actions to reduce cost offinancing, leading to increased chance of project success. These
include securing off-take agreements, securing hardware supply,
putting in place shared infrastructure, identifying and working withcapable engineering, procurement, and construction (EPC) suppliers,
making use of political risk insurance, and structuring and making
available concessional finance.

Under a scenario of ambitious climate action, this would mean 7 Mtpa by 2032,
30 Mtpa by 2040, and 72 Mtpa by 2050

The Africa Hydrogen Opportunity March 2024
Hydrogen Council, McKinsey & Company

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Exhibit 1

Renewable energy potential map

Africa’s abundant renewable resources make itwell positioned for producing hydrogen

50
0Solar1 kWh/kWp
10+ Wind1 m/s

Capacity factors (%) for top-decile RES areas2
69

69

64

63

61

59

57

54

54

52

50
37

36
26

In locations where water is scarce, seawater can often bedesalinated as a supply for electrolysis. In such cases, the releaseof saline brine to the sea must be done with care to prevent
disturbance of the local environment.

22

Australia

1.
2.
3.

The Africa Hydrogen Opportunity March 2024
Hydrogen Council, McKinsey & Company

2500

Geothermal potential

26

IRENA, Renewable Energy Market Analysis: Africa and its regions, 2022. p. 41-43

2000

Hydroelectric power
expansion (not exhaustive)

The wind and solar capacity factors of selected African countries
could exceed those of many other aspiring producer regions
around the globe, with only selected areas in Australia, Chile andChina possessing higher wind and solar capacity factors. The
capacity factors of Mauritania, Namibia, and Morocco (among thebest African locations) are overall about 20% higher than thoseof Iberia, Canada, and the Middle East, which have establishedsignificant momentum in building hydrogen hubs.

2

150

0

Africa has strong comparative advantages in clean hydrogenproduction. It has world-class renewable energy sources(RES) for low-cost energy production, which are necessary forachieving competitive clean hydrogen production costs. Several
Northern and Southern Africa countries enjoy a favorable mixof both solar and wind resources. Other countries in Central
Africa have the potential for hydroelectric power expansion, andthe region of the East African Rift Valley has the potential for
geothermal development.

Additionally, the locations for low-cost RES in Africa often seeless competition for other uses, lowering implementation barriers
compared with some other geographies (e.g. Europe). As
Africa taps more local renewable energy sources for hydrogenproduction, the total will still represent only a small part of thecontinent’s renewable energy build-up potential. For example,
even at 1% of land utilization, the African potential in solar
power is approximately 8 terawatt (TW) and in wind 0.5TW.2
Consequently, building a hydrogen export project here would nothave an adverse impact on domestic energy supply. Furthermore,
it could have positive spill-over effect on domestic power supply.
Hydrogen production can act as a secure off-take of renewableenergy, and it facilitates additional and larger scale RES
deployment. Local players can gain experience supplying thehydrogen production industry and later utilize their skills in energy
production for domestic demand.

1000

Chile

China

Mauritania

25

Nambia22

22

Morocco South Africa

21

Iberia22

Algeria23
17

18

CanadaKenya3

Egypt

33
22

Middle East

Solar power potential (in kWh/kWp) and wind power potential at 100m height above ground (m/s)
Ranking of countries by 50:50 weighted average of capacity factors for the separate top 10% solar power and top 10% wind power location in the selected country
Has additional geothermal energy potential; capacity factor not statedSource: McKinsey Energy Solutions (2023), IHA (2023), ThinkGeoEnergy (2023)

5

Exhibit 2
Africa can serve part of the sizeable globalhydrogen demand

7 Mtpa by 2030

To Europe

32 Mtpa by 2040

Because hydrogen demand is projected to grow over time,3
several regions will likely be unable to produce enough hydrogento satisfy domestic demand and thus will require imports.
Globally, total required imports could expand from 7 Mtpa in
2030 to 72 Mtpa in 2050. Main importing regions are expected tobe Europe and parts of Asia. North America, Australia and Latin
America are expected to have hydrogen surplus and would notreceive imports from Africa.

72 Mtpa by 2050
expected imports to
Europe and Asia

It is essential to have a stable off-taker for the development of newhydrogen industries. An early focus on exports to European andAsian demand centers can provide a steady basis for Africa toinitiate hydrogen production.

To Asia

The geographical proximity of North African countries toEurope presents an opportunity for the direct piping of gaseoushydrogen. At scale, this is the lowest-cost form of hydrogentransport, significantly improving the landed costs of hydrogen
imports from Africa to the European continent. The build-up ofhydrogen pipeline infrastructure4 is essential for this purpose,and continued collaboration between infrastructure players andproducers is instrumental to make these projects materialize.

Pipe hydrogen to Europe
North African countries’ proximity toEurope allows transport of gaseoushydrogen through pipelines at low cost
Ship hydrogen derivatives
South and East African countries canship ammonia and other hydrogen
derivatives such as methanol, synfuel,or DRI1 to global markets

Southern and Eastern African countries could enter the hydrogen
export market through the local production of hydrogen
derivatives like ammonia, methanol, synfuels, and direct reducediron (DRI). Low-cost hydrogen and, when available, CO2 and ironore, could form a competitive basis compared with other global
producers (although CO2 and iron ore can also be imported).

Bunkering
Egypt and southern African countries
can serve major international shipping
routes with hydrogen-basedsustainable shipping fuelIn addition to these export opportunities, several African ports
could be well positioned to serve as bunkering locations forsustainable shipping fuels due to their presence along major
shipping routes, such as South-Asia to Europe through the Suez
Canal. Based on existing global shipping routes, an estimated
12% of global shipping traffic could bunker its sustainable marine
fuels in Africa.5

Domestic demandOver time, as African economies growand embark on decarbonization
journeys, there will also be domestic
demand for clean hydrogen

Over time, the domestic hydrogen consumption in Africa could
increase, leading to further scaling of production.

3

4

5

We are using the “further acceleration” scenario from Hydrogen Council,
McKinsey Global Hydrogen Flows Model. For scenario selection and discussion,please see Global Hydrogen Flows 2023 Update
Pipelines would likely be the most cost-effective mode of hydrogen transport
from Northern Africa to Europe. Africa serving European demand implies
interconnecting pipeline infrastructure across the Mediterranean
McKinsey DeepBlue

The Africa Hydrogen Opportunity March 2024
Hydrogen Council, McKinsey & Company

1.

Direct Reduced Iron

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Exhibit 3

Potential hydrogen production in Africa, Mtpa

If Africa supplies 15% of global hydrogen
exports, it could create about 13 million jobyears and USD 15 billion in annual export
revenue; investments through 2050 would total
over USD 400 billion

H2 derived fuels for bunkering

Piped H2 for export

Domestic H2 demand1

Derivative H2 for export

19

If Africa were to capture an estimated 15% of the trade volume6 ofclean global hydrogen and derivatives as a result of competitive
pricing and import diversification strategies in a global commodity
market, this would then translate into
1 Mtpa of hydrogen equivalents exported to Europe and Asia in
2030, which would grow to 5 Mtpa in 2040 and 11 Mtpa in 2050.
In addition, the bunkering of hydrogen-derived fuels on main
shipping routes could provide a 2 Mtpa opportunity in 2050.

>$400 billion
total cumulative investment into Africanhydrogen production by 2050

+14% p.a.

$15 billion p.a.
increase in African export value in 2050

7

To achieve an African hydrogen economy of this size, total
additional capital of over USD 400 billion would be required. The
industry could generate a total of 13 million new job-years7 by
2050, including jobs linked to both the construction and operationof renewables sites, hydrogen production facilities, conversion
plants, and export infrastructure. Combined, all hydrogenproduct exports could increase Africa’s export value by over
USD 15 billion annually by 2050.8 Investments in the sector are
expected to accelerate over time, resulting in over 90% of theinvestments occurring after 2030.

13 million job-years
1.5
2030

created by 2050, cumulative
2040

2050

2

2050 clean hydrogen domestic demand by segment
Mt of hydrogen equivalent

In terms of domestic demand, 75% of hydrogen consumptionin Africa could be in chemicals, refining, and transportation,
covering a total consumption of 6.5 Mtpa by 2050, bringing
further benefits to local economies.

0.2

0.1

0.8
Chemical & reﬁning
Road & aviation

2.8

0.9

Bunkering
Other industry3
Iron & steel
Power generation

1.7

Industry and building heating
2.0

6
7
8

Based on the Further Acceleration scenario and applying a constant African
market share for global hydrogen trade after 2040
‘Job-year’ stands for a full-time equivalent work done by one person over one
calendar year, includes both direct and indirect jobs
Based on total export volume multiplied by the levelized cost of hydrogen for thisproduct

The Africa Hydrogen Opportunity March 2024
Hydrogen Council, McKinsey & Company

1.
2.
3.

Includes ammonia, methanol, LOHC, DRI and liquefied hydrogen
Implies African market share of 15% of globally traded volume in 2050
Cement, non-ferrous metals, mining, manufacturing, construction, food and tobacco, agriculture/forestry, and other non-specified industry

Source: Global Hydrogen Flows Model (December 2023), McKinsey Global Energy Perspective (2023), McKinsey DeepBlue (2023), for job-years created McKinsey I3M model by Vivid
Economics

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Exhibit 4
Higher hydrogen production costs result fromthe increased cost of capital in developing
countries

Drivers for the cost of capital for hydrogen projects in developed vs. developing countries1

Cost of capital indeveloped markets

Hydrogen projects are very sensitive to financing cost sinceover 80% of the levelized cost of hydrogen (LCOH) comes fromannualized capital expenditures (capex), including renewables
and electrolyzers. Given the capital-intensive nature of hydrogenprojects, a 6 percentage point increase in the weighted average
cost of capital (WACC) could increase LCOH by 50% or more.
This is less pronounced for low-carbon hydrogen, where the
LCOH is dominated by natural gas prices and capex investments
often are limited to the carbon capture installation.

Country risk premium

Higher financing costs are often observed in developing markets
compared with developed markets. The higher costs of capitallead to increases in expected LCOH in developing markets,
resulting in their lower competitiveness on hydrogen production
costs.

Project execution risk
premium• Political instability• Legal uncertainty• Monetary instability• Currency risk1
• ...

~7%

2-7+%

2-5%

Higher financing costs often result from additional project risks indeveloping markets. These can be divided into country risk andproject execution risk.
Country-related risks. Risks include legal uncertainty andpolitical and monetary instability, which have the greatest
tendency to generate volatility. These are often hard-to-mitigate
risks, thought insurance and hedging can provide some relief.

Cost of capital indeveloping markets

Project execution risks. These risks often result from lessexperienced contractors, the limited reliability of surrounding
infrastructure, difficulty in securing the delivery of key hardware,and limited workforce experience in the hydrogen industry.

11+%• Inexperienced EPC
contractors• Difﬁculty in securing
hardware delivery• Limited reliability andavailability of surrounding
infrastructure• Difﬁculties with timely
permitting• Limited work-force
experience in hydrogen• ...

6pp increase in WACC can lead to50+% increase of LCOH

1.

Currency risk is limited to local operational costs when having international currency based off-take agreements

Source: Expert interviews, October 2022

The Africa Hydrogen Opportunity March 2024
Hydrogen Council, McKinsey & Company

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Exhibit 5
The African project pipeline has an estimated 5%
investment volume in FEED+ compared to about
20% globally

Announced direct investment volume into hydrogen projects through 2030 as of Oct 2023, B$
Project focus:

The African hydrogen project pipeline is less mature than the
global average. Projects beyond the planning stage accountfor only 5% of the total project pipeline, based on projected
investment volumes. For the world overall, projects at FEED+
stages exceed 20% of the total. This share is even higher inmature markets where, for example, North America reaches over
40% at FEED+, and even 15% at FID+ alone.

Production

Distribution

End Use

FEED+1

259
Globally

203

~20%

With FEED-stage projects making up just under 3% of Africa’s
total project pipeline compared with the global 12%, successful
unblocking actions at this project stage will be crucial to ensure amaturing of the African project pipeline. Looking at the structureof the pipeline, only Latin America is in a similar position. Almost
all other geographies have more mature project pipelines, withlarger shares of projects in the FEED+ stage. Oceania (including
Australia), which has ambitious plans to compete for the
global export market, already has over USD 7 billion in FEED+
investments.

71
39

Even though Latin America experiences similar projectprogression hurdles as Africa, the Latin American project pipeline
is significantly larger, with an additional USD 30 billion in preFEED stages.
As the African pipeline matures, it is crucial that more projects
pass the FEED-stage hurdle, and that this happens in a timely
fashion.

28.3
24.5
Africa~5%

Announced

1.
2.

Planning

1.7

0.6

FEED1

FID+2

Front-end engineering and design
Final investment decision

Source: Hydrogen Insights & Investment tracker, as of October 2023

The Africa Hydrogen Opportunity March 2024
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Exhibit 6

Example actions - not exhaustive

Given the challenges surrounding country
and project risk, close collaboration withlocal governments, importing countries andinternational development partners is required
For stakeholders exploring hydrogen opportunities, close
collaboration across the project timeline will help them overcome
the additional difficulties that they face to make hydrogenproduction in Africa at scale a reality. Working with project
developers, local governments, international development
partners and importing countries is even more critical for successin this region than in other geographies.
The governments exploring hydrogen investments can create afavorable investment climate by providing clarity on permitting,regulation and taxes, and by engaging local communities andauthorities early. Additionally, having a clear infrastructure plancreates planning transparency and allows stakeholders to
capture synergies like common-use infrastructure shared acrossdifferent projects. Investments in upskilling local workers will
enable them to participate in the new hydrogen economy to theirfullest potential.
Importing countries and development partners can provide
project de-risking through financial instruments and technicalassistance. For example, the European Bank for Reconstruction
and Development (EBRD) and the World Bank’s Multilateral
Investment Guarantee Agency (MIGA) have provided financial
instruments to de-risk large-scale projects in Africa throughbridge loans and insurances. In addition, development partners
can facilitate off-take agreements (e.g., H2Global and support
from GIZ).

Country risk

Project execution
risk

Local government

Importing countries anddevelopment partners

Improve investment climate

Provide de-risking instruments

Ensure regulatory clarity

Support ﬁt-for-purpose policy development

Consider establishing Special Economic
Zones

Facilitate off-take agreements

Engage local communities

Support local value-add

Create infrastructure masterplan and drivedeliveryCo-fund infrastructure projects

Ensure appropriate skilled labour supply

Set up partnerships for expertise and skill
transfer

Project developers can reduce risks by engaging local
governments and communities early. For successful project
execution, working with experienced, reliable EPC contractors isessential; securing key hardware early in the project is crucial toprevent delays.
Assuming close collaboration is realized and all involved parties
take the necessary steps, consequent risk mitigation andsuccessful project execution can position African producers
as important leaders in their respective domestic markets andstrong contenders for the international hydrogen trade.

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