Namibian President Nangolo Mbumba recently cut the ribbon on a new meteorological mast designed to gauge wind and solar energy yields at the site of the $10b Hyphen green hydrogen project.

Hyphen, located in the Tsau Khaeb National Park in southwestern Namibia, is sub-Saharan Africa’s largest and only fully vertically integrated green hydrogen project. It aims to reach its first-phase capacity of 1mt/yr by 2027, with plans eventually to scale up to 2mt/yr. The project is expected to deploy 3GW of electrolyser capacity powered by 7GW of renewables.

"Namibia has made great strides to become the frontrunner in green hydrogen and ammonia production. The inauguration of Hyphen's MetMasts signifies the next and essential phase to develop this green hydrogen project for and in Namibia," said Mbumba.

The president’s public backing of Hyphen is significant. The project’s shareholders are German renewables company Enertrag and Africa-focused investment firm Nicholas Holdings. The Namibian government is also taking a 24% stake in the project by exercising an option granted to it under the terms of feasibility and implementation agreement (FIA), finalised in May. The FIA also entitles the government to 5% of the project’s gross revenues, as well as land rent and taxes.

$10b – Hyphen project cost

The government’s stake in the project, and its receipt of royalties and taxes, has helped to de-risk the development, keeping down the cost of financing, according to Hyphen Hydrogen Energy’s CEO, Marco Raffinetti.

The project has letters of intent from buyers for 100% of its first-phase capacity, with further negotiations under way, reducing investment risk significantly.

From an investor’s perspective, levels of country risk vary significantly across sub-Saharan Africa, with Namibia less of a gamble than many other jurisdictions. But Hyphen’s model could provide a template for other projects across the region, which has the wind and solar potential to be a low-cost green hydrogen and ammonia production powerhouse and a major exporter to Europe.

Country risk

However, the inflow of capital to African hydrogen projects remains constrained in sub-Saharan countries, contrasting with North Africa, where Morocco and Egypt have grabbed the attention of dozens of international hydrogen project developers and investors.

“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 land area,” global CEO-led initiative the Hydrogen Council and consultancy McKinsey said in a recent report, titled The African Hydrogen Opportunity.

“However, under current circumstances, Africa’s higher country-level risk 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.”

Across the entire continent, there are projects announced and in planning that correspond to investments of $50b by 2030, according to the report.

However, the African hydrogen project pipeline is less mature than the global average. In Africa, only about 5% of project investment volume is at the FEED stage, compared with 20% globally. And only 1% has reached FID, compared with 7% globally, it added.

To unlock Africa’s hydrogen potential, investors should look to a range of measures to reduce the cost of financing, according to the Hydrogen Council and McKinsey. Recommended measures include securing offtake agreements and hardware supply, putting in place shared infrastructure, using political risk insurance and making available concessional finance.

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Author: Stuart Penson