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Africa Focus: Summer 2022

Sustainably powering Africa’s development

As the world in early 2022 seeks to balance multiple, vital and competing priorities, our eighth edition of Africa Focus focuses on issues related to sustainable development, infrastructure and international investment on the continent. 

Africa has endless opportunities to implement policies and attract foreign direct investment into low-carbon energy, digital infrastructure and other projects that could also create jobs and stimulate the local use of renewable technologies.

The first article of this edition of Africa Focus covers "Transitioning from coal to renewables in Africa." Looking at options for development across the continent, it considers the role of gas in Africa's energy transition.

In "Energy transition, funding African infrastructure and sustainable finance," Sibusiso Zungu, a partner in our Johannesburg office, discusses South Africa's energy transition, current trends in African finance and challenges to achieving South Africa's sustainable development goals. His views are relevant as Southern Africa debates how to balance short-term economic growth with long-term climate change needs while developing major infrastructure projects.

“Our eighth edition of Africa Focus focuses on issues related to sustainable development, infrastructure and international investment on the continent.”

Increased internet access and related infrastructure in Africa could also have a profound impact across the continent on individual and national growth. Africa's demand for internet access, data center processing capabilities and related infrastructure means that the digital infrastructure is growing at a rapid rate, creating many opportunities for the continent. "Africa's digital infrastructure transformation" discusses the challenges, drivers and investment trends in aiming for universal, affordable digital infrastructure in Africa.

The People's Republic of China’s relationship with Africa is well established, deep and thriving on many fronts. "China's pivotal role in supporting post-COVID growth in Africa" highlights how the historical context affects the current China-Africa relationship in Africa, as well as China's long-term plans for engagement with African nations

Finally, "Is 'low-carbon' hydrogen a useful option for Africa's energy needs?" explains how African policies can encourage hydrogen production through low-carbon processes. 

As always, we welcome your thoughts and comments on these topics.

Transitioning from coal to renewables in Africa

Blocking funding for gas energy projects in Africa may seem like sensible climate policy. But is it?

Transitioning from coal to renewables in Africa

Energy transition, funding African infrastructure and sustainable finance

A conversation with White & Case partner Sibusiso Zungu

Energy transition, funding African infrastructure and sustainable finance

Africa's digital infrastructure transformation

Affordable, universal digital access is key to Africa's growth and development

Transitioning from coal to renewables in Africa

China's pivotal role in supporting post-COVID growth in Africa

China's relationship with Africa is well established, deep and thriving on many fronts

China's pivotal role in supporting post-COVID growth in Africa

Is "low-carbon" hydrogen a useful option for Africa's energy needs?

African policies can encourage low-carbon hydrogen production processes

Is "low-carbon" hydrogen a useful option for Africa's energy needs?
Is "low-carbon" hydrogen a useful option for Africa's energy needs?

Is "low-carbon" hydrogen a useful option for Africa's energy needs?

African policies can encourage low-carbon hydrogen production processes

Insight
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14 min read

Hydrogen—abundant in water, biomass and other natural sources—is an important fuel in the global quest to reduce and eliminate greenhouse gas (GHG) emissions. Burning hydrogen produces only water vapor, without GHG emissions. This makes hydrogen an especially useful fuel in cases where GHG emissions are otherwise difficult to reduce, such as in the shipping, aviation and road transport sectors.

Vast swaths of Africa are well suited to green and low-carbon processes that could produce hydrogen fuel for use, storage and sale to others.

Hydrogen fuel can be produced through processes that are:

  1. Green—these use only renewable energy sources (water, solar, etc.), nuclear and certain biological processes such as anaerobic digestion,1 and thus emit no GHGs
  2. Carbon-intensive—these use energy sources that emit GHGs (fossil fuels such as coal, gas, diesel, etc.)
  3. Low-carbon—these are powered by carbon-intensive sources where carbon capture is employed, or by a mix of carbon emitting and non-carbon emitting sources, and generate GHG emissions that fall within stipulated standards2

Low-carbon hydrogen production processes can be a valuable option in areas of the world that lack widespread, consistent renewable power sources but still aim to reduce their GHG emissions when they produce hydrogen fuel for storage, use and sale to others. Several African countries have already begun producing hydrogen and/or establishing hydrogen-related projects.

Africa has an opportunity now to implement national hydrogen policies that could attract more foreign direct investment into low-carbon hydrogen production projects, generate foreign exchange through hydrogen exports, create jobs and stimulate the local use of hydrogen-fueled technologies, all while contributing toward a global reduction in GHG emissions.3

 

Low-carbon hydrogen production opportunities

As a fuel source, hydrogen is not a new idea. The first internal combustion engine, invented in 1806 by Francois Isaac de Rivaz, was powered by hydrogen gas.4

As the world seeks to mitigate global warming, producing hydrogen at scale for the energy sector has emerged as a promising component of pathways to "net-zero" GHG emissions.5

Key requirements for green hydrogen production processes include high levels of renewable energy sources (solar radiation, wind, etc.), a ready supply of water (including seawater), space for necessary infrastructure and logistical access to markets (see infographic).

Low-carbon hydrogen production processes work by pairing lower levels of renewable energy sources (for example, in regions where sun and wind are not always reliable) with nuclear electricity or fossil fuels (see infographic). This makes vast swaths of Africa well suited to green and low-carbon processes that could produce hydrogen fuel for use, storage and sale to others.

Led primarily by the private sector, a number of pilot hydrogen production projects are already proposed or under development in Africa.6 However, most African countries have not yet adopted legislation and incentives to promote green or low-carbon hydrogen processes. This is an opportunity lost.

 

Essential factors for hydrogen production policies

According to the International Energy Agency (IEA), the long-term use of hydrogen in the world's transition to clean energy requires national policies that support implementation, including strong demand-side measures to create clearly identifiable markets.7 To unlock private sector investment into green hydrogen, government policies should include:

  1. Hydrogen targets and strategies: Provide short, medium and long-term targets for hydrogen as a means to achieve decarbonization targets, linked to strategies to implement hydrogen as a fully scaled-up energy source.
  2. Hydrogen demand creation: Establish a local market for the hydrogen, to create demand to meet the supply contemplated. For instance:
    • Offer subsidies to encourage the purchase of hydrogen-powered vehicles
    • Provide incentives such as reduced taxes to encourage green hydrogen in energy production and manufacturing
    • Impose mandatory minimum quotas for hydrogen use in high-potential sectors such as oil desulphurization and fertilizer production
  3. Investment risk mitigation: Introduce regulatory mechanisms to help mitigate risks, such as demand uncertainty and value chain complexity.
  4. Research and development, innovation, strategic demonstration projects and knowledge-sharing: Promote research into reducing costs of producing and deploying hydrogen fuels in order to enhance economic competitiveness with fossil fuels.
  5. Harmonized standards and fewer barriers: Standardize definitions of and parameters for purposes of trading hydrogen and certifying credentials, to ensure green hydrogen can be legitimately accounted for in net-zero initiatives.

 

Some African "Nationally Defined Contributions" include hydrogen

Each country that is a party to the Paris Agreement on Climate Change8 sets out how it intends to reduce its national GHG emissions and adapt to the impacts of climate change through national plans called Nationally Defined Contributions (NDCs).9

In the most recent NDCs, submitted in 2021, only five African countries (out of the 54 on the continent)—South Africa, Namibia, Mauritania, Tunisia and Cameroon—mention hydrogen as a potential energy source.

South Africa's NDC states that it requires concessional finance, debt restructuring and support from the international climate and development and finance community in order to develop infrastructure for "green hydrogen in support of electric vehicles and public transport."10 Cameroon's NDC goes further, stating that while it will continue to exploit on-shore and off-shore oil & gas resources, it plans to attract investors to develop projects relating to clean energies, such as hydrogen and ammonia.11 Tunisia's NDC similarly states that technology transfer programs are needed for hydrogen in the power and mobility sectors.12

The Mauritanian and Namibian NDCs provide detailed visions of using hydrogen to fulfill their net-zero GHG emission goals, more closely aligned with the IEA's requirements.

Mauritania's NDC notes that:

  • Steps must be taken to attract private sector investment, such as funding and tax incentives
  • Markets already price carbon and trade carbon credits, and that carbon credits could finance investment in green hydrogen
  • Renewable energy (including hydrogen) must account for at least half of energy generation by 203013
  • A national roadmap is being prepared on achieving low-hydrogen carbon, including potential demand-side uses of the hydrogen in industry, mining, transportation, agriculture (fertilizer), trawlers and international (exports of ammonia)14

Namibia plans to replace hydrocarbons with hydrogen for electricity generation.15 Its NDC specifically states that "green hydrogen will play a crucial role in reaching the emissions neutrality goal" for Namibia. To give effect to this:

  • Opportunities are being explored for green hydrogen pilot projects for low-emission transport solutions and fuel cells for remote power
  • Pilot projects are underway for fuel cell systems for residential and tourism consumers
  • A feasibility study is investigating the costs to produce, process and transport hydrogen for export and position Namibia as a global leader in green hydrogen supply16

 

Hydrogen policies and practices in Africa

While many African countries did not explicitly mention hydrogen in their NDCs, a significant number have nonetheless adopted policies and/or implemented hydrogen-related projects that at least partly align with the IEA's factors. (See Figure 1.)

These include:

  • Morocco: In 2020, Morocco signed a memorandum of understanding with Germany to build an industrial green hydrogen plant.17 Morocco has also signed a strategic partnership with the International Renewable Energy Agency (IRENA) to undertake green hydrogen studies and develop policies aimed at engaging the private sector18
  • Egypt: Egypt has concluded an agreement of intentions with Siemens AG to commence discussions and studies to implement a pilot project for green hydrogen production, as a first step toward Egypt potentially exporting it19
  • Uganda: In 2018, a Belgian energy company signed an agreement to power 3,000 households and businesses with back-up electricity in Uganda through hydrogen and battery storage20
  • Namibia: Namibia has announced preferred bidders for a US$9.4 billion green hydrogen project to produce green hydrogen and green ammonia for export by 202621
  • South Africa: In probably the most developed hydrogen program on the continent, the South African government and several private sector participants published the "South Africa's Hydrogen Valley" report in October 2021 declaring hydrogen fuel cells to be a national priority.22 Catalytic green hydrogen hubs in Johannesburg, Mogalakwena and Durban will host pilot projects to launch the hydrogen economy. The report also envisages creating an integrated hydrogen ecosystem as an important part of South Africa's Economic Reconstruction and Recovery Plan, with nine identified pilot projects that include adopting hydrogen fuel cell vehicles (mining trucks, buses), industrial (ammonia/chemicals) and building (fuel cell power) sectors.

These projects highlight how the private sector is a primary driver behind hydrogen production in Africa. For hydrogen to achieve its full potential in supporting these NDC objectives, African governments must implement regulatory reforms.

 

The private sector: Jump or get pushed

Private sector pioneers that are blazing the hydrogen trail will bring along others in their supply chains. Their supplier contracts will likely evolve to include provisions relevant to climate change mitigation. For instance, the Chancery Lane Project,23 a collaborative effort to create contractual clauses that compel contracting parties to reduce their GHG emissions, proposes adding contractual rights to:

  • Cancel supply contracts in order to pursue more climate-friendly services or goods (for instance, to allow a customer to notify a supplier of equivalent products/services with better GHG credentials and allow the supplier to match or improve within a reasonable time, after which the supplier can terminate the agreement) without facing penalties. For suppliers, the risk of a customer consistently requesting higher GHG emission compliance in order to exit agreements can be mitigated by (for example) limiting how frequently the customer can invoke this contractual right24
  • Terminate an agreement when a supplier's GHG emissions present a material risk to the customer's reputation or net-zero commitments25
  • Terminate an agreement when a supplier fails to supply the customer with information to audit the customer's compliance with ESG commitments in the agreement
  • Impose liquidated damages for contractual breaches
  • Obligate a supplier to impose similar obligations on its own suppliers
  • Comply with specific GHG standards, collect data and report compliance to a customer and allow for such information to be audited and verified26

Private sector entities can also add individuals onto their boards who are responsible for integrating net-zero GHG emission goals into the corporate strategy and achieving those goals.27

At the 2021 COP26 UN Conference on Climate Change, private sector participants called upon politicians to take the lead on developing and implementing metrics, guidelines and strategies to evaluate measures to reduce GHG emissions and achieve net-zero.28 The IEA Standards to Develop and Promote Energy Efficiency and Renewable Energy Sources29 are a good example of such guidelines.

Countries in Africa that succeed in developing such measures will be the most likely to benefit from private sector investments into hydrogen production for export and the development of local hydrogen markets, which in turn will support their own net-zero GHG emissions goals. At the same time, businesses will likely increase pressure on suppliers in their value chains, including those in Africa, to reduce their GHG emissions and hence their own indirect ("Scope 3") emissions30

If current global warming trends continue and the resulting consequences become more directly observable, the pressures on both governments and the private sector will likely increase.

For countries that are fortunate enough to have the natural resources required to produce hydrogen at industrial scale—which includes many in Africa—this offers an opportunity to be seized.

1 https://royalsociety.org/topics-policy/projects/low-carbon-energy-programme/hydrogen-production/
2 https://www.gov.uk/government/consultations/designing-a-uk-low-carbon-hydrogen-standard
3 International Energy Agency, Global Hydrogen Review 2021, at https://iea.blob.core.windows.net/assets/5bd46d7b-906a-4429-abda-e9c507a62341/GlobalHydrogenReview2021.pdf
4 https://group.mercedes-benz.com/company/tradition/company-history/forerunners-to-the-automobile.html
5 IEA, Cumulative emissions reduction by mitigation measure in the Net Zero Scenario, 2021-2050, IEA, Paris https://www.iea.org/data-and-statistics/charts/cumulative-emissions-reduction-by-mitigation-measure-in-the-net-zero-scenario-2021-2050
6 https://energycapitalpower.com/top-5-hydrogen-projects-in-africa/
7 Global Hydrogen Review 2021 at 47
8 https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement
9 Article 4, paragraph (2) of the Paris Agreement
10 South Africa First Nationally Determined Contribution under the Paris Agreement (Updated September 2021) at page 29
11 Republique du Cameroun Paix-Travail-Patrie Constribution Determinee au Niveau National-Actualisee (CDN) Nationally Determined Constribution – Updated NDC, at page 7
12 Tunisia Contribution Déterminée au niveau National (CDN) actualisée at pages 15 – 16
13 République Islamique de Mauritanie Ministére de lÉnvironnement et du Développement Durable Contribution Determinee National Actualisee CDN 2021 – 2030 (September 2021) at 14
14 République Islamique de Mauritanie Ministére de lÉnvironnement et du Développement Durable Contribution Determinee National Actualisee CDN 2021 – 2030 (September 2021) at 54 – 55
15 Namibia's Updated Nationally Determined Contribution (2021) at page 15
16 Namibia's Updated Nationally Determined Contribution (2021) at page 19
17 https://idw-online.de/de/news751895
18 https://www.irena.org/newsroom/pressreleases/2021/Jun/Morocco-and-IRENA-Partner-to-Boost-Renewables-and-Green-Hydrogen-Development
19 http://renewafrica.biz/green-hydrogen/siemens-signs-agreement-to-produce-green-hydrogen-in-egypt/
20 https://www.ruralelec.org/news-from-are/are-member-tiger-power-seals-deal-run-worlds-first-solar-hydrogen-powered-mini-grids
21 https://newsdirect.com/news/namibia-announces-hyphen-as-preferred-bidder-to-implement-us-9-4bn-green-hydrogen-project-810038629
22 https://www.dst.gov.za/images/2021/Hydrogen_Valley_Feasibility_Study_Report_Final_Version.pdf
23 https://chancerylaneproject.org/
24 The Chancery Lane Climate Contract Playbook 3rd Edition at 17
25 Id. at 20
26 Id. at 33
27 Moral Money Forum, Navigating the bumpy road to net zero 2050.
28 https://ukcop26.org/research-and-knowledge-to-advance-glasgow-commitments/
29 https://www.iea.org/reports/international-standards-to-develop-and-promote-energy-efficiency-and-renewable-energy-sources
30 https://ghgprotocol.org/sites/default/files/standards_supporting/FAQ.pdf

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