Hydrogen-Council-Africa-Hydrogen-Opportunity 氫能委員會非洲氫能機會

TheAfricaHydrogenOpportunity

Thepotential,practicalchallenges,andpossibleunlocks

March2024

PublishedinMarch2024bytheHydrogenCouncil.Copiesofthisdocumentareavailableuponrequestorcanbedownloadedfromourwebsite:

ThisreportwasauthoredbytheHydrogenCouncilincollaborationwithMcKinsey&Company.Theauthorsofthereportconfirmthat:

Therearenorecommendationsand/oranymeasuresand/ortrajectorieswithinthereportthatcouldbeinterpretedasstandardsorasanyotherformof(suggested)coordinationbetweentheparticipantsofthestudyreferredtowithinthereportthatwouldinfringetheEUcompetitionlaw;and,

itisnottheirintentionthatanysuchformofcoordinationwillbeadopted.

Whilstthecontentsofthereportanditsabstractimplicationsfortheindustrygenerallycanbediscussedoncetheyhavebeenprepared,individualstrategiesremainproprietary,confidential,andtheresponsibilityofeachparticipant.

Participantsareremindedthat,aspartoftheinvariablepracticeoftheHydrogenCouncilandtheEUcompetitionlawobligationstowhichmembershipactivitiesaresubject,suchstrategicandconfidentialinformationmustnotbesharedorcoordinated–includingaspartofthisreport.

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TheAfricaHydrogenOpportunityMarch2024

HydrogenCouncil,McKinsey&Company

TheHydrogenCouncilisaglobalCEO-ledinitiativethatbringstogetherleadingcompanieswith

aunitedvisionandambitionforhydrogentoacceleratethecleanenergytransition.TheCouncil

iscommittedtounlockingthesustainabilitypotentialofhydrogenthroughcoalitionsforaction,boostingsustainableeconomicgrowth,creatingqualityjobs,anddeliveringsocialvalue.

TheHydrogenCouncilbringstogetheradiversegroupof140companiesfromNorthAmericatoAsia-Pacific,Europe,AfricaandMENAregion,acrosstheentirehydrogenvaluechain,includinglargemultinationals,innovativeSMEs,andinvestors.Today,theCouncilrepresents$9trillioninmarketcapitalization,6.8millionFTEsand$6.4trillioninrevenues.

Steeringmembers

Supportingmembers

Investors

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TheAfricaHydrogenOpportunityMarch2024

HydrogenCouncil,McKinsey&Company

Executivesummary

Africaenjoysworld-classrenewableresources,withcapacityfactorsupto69%forwindpowerand25%forsolarpower,aswellasexcellentgeothermalandhydroresources,coupledwithabundantlandarea.Consequently,thecontinentisstronglypositionedtobecomearenewablehydrogenandderivativesproducerandexporter.

Usingtheserenewableresourcestoproducehydrogenforboththedomesticmarketandexport(eitheraspurehydrogenorasderivatives–ammonia,synfuel,hotbriquettediron,andothers)couldcreateawin-winopportunityforallstakeholders.

EuropeandpartsofAsiaareexpectedtorequiresignificantimportsofrenewablehydrogenanditsderivativesby2050.1WiththerightenablingconditionsandifAfricancountriescancapture15%oftheexpectedgloballytradedhydrogenvolume,renewablehydrogenproductionforexportcouldgrowfrom1milliontonnesperannum(Mtpa)in2030to11Mtpain2050.RenewablehydrogenproductioncouldmobilizeacumulativeinvestmentofUSD400billion.ThiswouldincreaseAfricanexportvaluebyUSD15billionin2050andcreateacumulative13millionjob-yearsby2050,andcouldalsoenablethefasterdeploymentofrenewablepowerfordomesticuseatlowercosts.

However,undercurrentcircumstances,Africa’shighercountry-levelriskandprojectexecutionriskaredrivingupfinancingcosts,makingtheexpectedhydrogenproductioncostofAfricancountrieshigherthanthoseintheMiddleEastandAustralia.Indeed,whilethereareprojectsonthecontinentintheannouncedandplanningstagesthatcorrespondtoinvestmentsofUSD50+billionby2030,theAfricanhydrogenprojectpipelineislessmaturethantheglobalaverage.InAfrica,onlyabout5%ofprojectinvestmentvolumeis

atthefront-endengineeringdesignandfurther(FEED+)stage,comparedwith20%globally.What’smore,only1%ispastthefinalinvestmentdecision(FID),comparedwith7%globally.

ThereisthereforeanopportunityforstakeholderstorealizeAfrica’shydrogenpotentialforitscitizensandfortheworld.Stakeholderscouldconsidertakingoneormultipleofseveralactionstoreducecostoffinancing,leadingtoincreasedchanceofprojectsuccess.Theseincludesecuringoff-takeagreements,securinghardwaresupply,puttinginplacesharedinfrastructure,identifyingandworkingwithcapableengineering,procurement,andconstruction(EPC)suppliers,makinguseofpoliticalriskinsurance,andstructuringandmakingavailableconcessionalfinance.

Underascenarioofambitiousclimateaction,thiswouldmean7Mtpaby2032,30Mtpaby2040,and72Mtpaby2050

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TheAfricaHydrogenOpportunityMarch2024

HydrogenCouncil,McKinsey&Company

TheAfricaHydrogenOpportunityMarch2024

HydrogenCouncil,McKinsey&Company

PAGE

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Exhibit1

Africa’sabundantrenewableresourcesmakeitwellpositionedforproducinghydrogen

Africahasstrongcomparativeadvantagesincleanhydrogenproduction.Ithasworld-classrenewableenergysources(RES)forlow-costenergyproduction,whicharenecessaryfor

achievingcompetitivecleanhydrogenproductioncosts.SeveralNorthernandSouthernAfricacountriesenjoyafavorablemix

ofbothsolarandwindresources.OthercountriesinCentralAfricahavethepotentialforhydroelectricpowerexpansion,andtheregionoftheEastAfricanRiftValleyhasthepotentialforgeothermaldevelopment.

ThewindandsolarcapacityfactorsofselectedAfricancountriescouldexceedthoseofmanyotheraspiringproducerregionsaroundtheglobe,withonlyselectedareasinAustralia,ChileandChinapossessinghigherwindandsolarcapacityfactors.ThecapacityfactorsofMauritania,Namibia,andMorocco(amongthebestAfricanlocations)areoverallabout20%higherthanthose

ofIberia,Canada,andtheMiddleEast,whichhaveestablishedsignificantmomentuminbuildinghydrogenhubs.

Additionally,thelocationsforlow-costRESinAfricaoftenseelesscompetitionforotheruses,loweringimplementationbarrierscomparedwithsomeothergeographies(e.g.Europe).As

Africatapsmorelocalrenewableenergysourcesforhydrogenproduction,thetotalwillstillrepresentonlyasmallpartofthecontinent’srenewableenergybuild-uppotential.Forexample,evenat1%oflandutilization,theAfricanpotentialinsolarpowerisapproximately8terawatt(TW)andinwind0.5TW.2

Consequently,buildingahydrogenexportprojectherewouldnothaveanadverseimpactondomesticenergysupply.Furthermore,itcouldhavepositivespill-overeffectondomesticpowersupply.Hydrogenproductioncanactasasecureoff-takeofrenewableenergy,anditfacilitatesadditionalandlargerscaleRESdeployment.Localplayerscangainexperiencesupplyingthehydrogenproductionindustryandlaterutilizetheirskillsinenergyproductionfordomesticdemand.

Inlocationswherewaterisscarce,seawatercanoftenbedesalinatedasasupplyforelectrolysis.Insuchcases,thereleaseofsalinebrinetotheseamustbedonewithcaretopreventdisturbanceofthelocalenvironment.

Renewableenergypotentialmap

69

63

57

54

22

25

22

22

Mauritania Nambia MoroccoSouthAfrica

50 1000150 20002500

0

0

10+

Hydroelectricpower

expansion(notexhaustive)

Geothermalpotential

Capacityfactors(%)fortop-decileRESareas2

69

64

61

59

54

37

26

26

21

17

Australia Chile

China

Iberia

Canada

50

22

Algeria

Solar1kWh/kWp

Wind1m/s

36

23

18

Kenya3 Egypt

52

22

33

MiddleEast

Solarpowerpotential(inkWh/kWp)andwindpowerpotentialat100mheightaboveground(m/s)

Rankingofcountriesby50:50weightedaverageofcapacityfactorsfortheseparatetop10%solarpowerandtop10%windpowerlocationintheselectedcountry

Hasadditionalgeothermalenergypotential;capacityfactornotstated

IRENA,RenewableEnergyMarketAnalysis:Africaanditsregions,2022.p.41-43

Source:McKinseyEnergySolutions(2023),IHA(2023),ThinkGeoEnergy(2023)

Exhibit2

Africacanservepartofthesizeableglobalhydrogendemand

Becausehydrogendemandisprojectedtogrowovertime,3severalregionswilllikelybeunabletoproduceenoughhydrogentosatisfydomesticdemandandthuswillrequireimports.

Globally,totalrequiredimportscouldexpandfrom7Mtpain2030to72Mtpain2050.MainimportingregionsareexpectedtobeEuropeandpartsofAsia.NorthAmerica,AustraliaandLatinAmericaareexpectedtohavehydrogensurplusandwouldnotreceiveimportsfromAfrica.

Itisessentialtohaveastableoff-takerforthedevelopmentofnewhydrogenindustries.AnearlyfocusonexportstoEuropeanandAsiandemandcenterscanprovideasteadybasisforAfricatoinitiatehydrogenproduction.

ThegeographicalproximityofNorthAfricancountriestoEuropepresentsanopportunityforthedirectpipingofgaseoushydrogen.Atscale,thisisthelowest-costformofhydrogentransport,significantlyimprovingthelandedcostsofhydrogenimportsfromAfricatotheEuropeancontinent.Thebuild-upofhydrogenpipelineinfrastructure4isessentialforthispurpose,andcontinuedcollaborationbetweeninfrastructureplayersandproducersisinstrumentaltomaketheseprojectsmaterialize.

SouthernandEasternAfricancountriescouldenterthehydrogenexportmarketthroughthelocalproductionofhydrogenderivativeslikeammonia,methanol,synfuels,anddirectreducediron(DRI).Low-costhydrogenand,whenavailable,CO2andironore,couldformacompetitivebasiscomparedwithotherglobalproducers(althoughCO2andironorecanalsobeimported).

Inadditiontotheseexportopportunities,severalAfricanportscouldbewellpositionedtoserveasbunkeringlocationsforsustainableshippingfuelsduetotheirpresencealongmajorshippingroutes,suchasSouth-AsiatoEuropethroughtheSuezCanal.Basedonexistingglobalshippingroutes,anestimated12%ofglobalshippingtrafficcouldbunkeritssustainablemarinefuelsinAfrica.5

Overtime,thedomestichydrogenconsumptioninAfricacouldincrease,leadingtofurtherscalingofproduction.

Weareusingthe“furtheracceleration”scenariofromHydrogenCouncil,McKinseyGlobalHydrogenFlowsModel.Forscenarioselectionanddiscussion,pleasesee

GlobalHydrogenFlows2023Update

Pipelineswouldlikelybethemostcost-effectivemodeofhydrogentransportfromNorthernAfricatoEurope.AfricaservingEuropeandemandimpliesinterconnectingpipelineinfrastructureacrosstheMediterranean

McKinseyDeepBlue

1.DirectReducedIron

ToEurope

7Mtpaby2030

32Mtpaby2040

72Mtpaby2050

expectedimportstoEuropeandAsia

ToAsia

PipehydrogentoEurope

NorthAfricancountries’proximitytoEuropeallowstransportofgaseoushydrogenthroughpipelinesatlowcost

Shiphydrogenderivatives

SouthandEastAfricancountriescanshipammoniaandotherhydrogenderivativessuchasmethanol,synfuel,orDRI1toglobalmarkets

Bunkering

EgyptandsouthernAfricancountriescanservemajorinternationalshippingrouteswithhydrogen-basedsustainableshippingfuel

Domesticdemand

Overtime,asAfricaneconomiesgrow

andembarkondecarbonizationjourneys,therewillalsobedomesticdemandforcleanhydrogen

Exhibit3 PotentialhydrogenproductioninAfrica,Mtpa

IfAfricasupplies15%ofglobalhydrogenexports,itcouldcreateabout13millionjob-

PipedH2forexport

H2derivedfuelsforbunkering

yearsandUSD15billioninannualexportrevenue;investmentsthrough2050wouldtotaloverUSD400billion

IfAfricaweretocaptureanestimated15%ofthetradevolume6ofcleanglobalhydrogenandderivativesasaresultofcompetitivepricingandimportdiversificationstrategiesinaglobalcommoditymarket,thiswouldthentranslateinto

1MtpaofhydrogenequivalentsexportedtoEuropeandAsiain2030,whichwouldgrowto5Mtpain2040and11Mtpain2050.Inaddition,thebunkeringofhydrogen-derivedfuelsonmainshippingroutescouldprovidea2Mtpaopportunityin2050.

ToachieveanAfricanhydrogeneconomyofthissize,totaladditionalcapitalofoverUSD400billionwouldberequired.Theindustrycouldgenerateatotalof13millionnewjob-years7by2050,includingjobslinkedtoboththeconstructionandoperationofrenewablessites,hydrogenproductionfacilities,conversionplants,andexportinfrastructure.Combined,allhydrogenproductexportscouldincreaseAfrica’sexportvaluebyover

USD15billionannuallyby2050.8Investmentsinthesectorareexpectedtoaccelerateovertime,resultinginover90%oftheinvestmentsoccurringafter2030.

Intermsofdomesticdemand,75%ofhydrogenconsumptioninAfricacouldbeinchemicals,refining,andtransportation,coveringatotalconsumptionof6.5Mtpaby2050,bringingfurtherbenefitstolocaleconomies.

DerivativeH2

forexport1

DomesticH2

demand

19

>$400billion

totalcumulativeinvestmentintoAfricanhydrogenproductionby2050

+14%p.a.

7

$15billionp.a.

increaseinAfricanexportvaluein2050

1.5

13millionjob-years

createdby2050,cumulative

2030

2040

20502

2050cleanhydrogendomesticdemandbysegment

Mtofhydrogenequivalent

0.20.1

0.8

Chemical&refining

Road&aviationBunkeringOtherindustry3Iron&steel

Powergeneration

Industryandbuildingheating

0.9

2.8

1.7

2.0

BasedontheFurtherAccelerationscenarioandapplyingaconstantAfricanmarketshareforglobalhydrogentradeafter2040

‘Job-year’standsforafull-timeequivalentworkdonebyonepersonoveronecalendaryear,includesbothdirectandindirectjobs

Basedontotalexportvolumemultipliedbythelevelizedcostofhydrogenforthisproduct

Includesammonia,methanol,LOHC,DRIandliquefiedhydrogen

ImpliesAfricanmarketshareof15%ofgloballytradedvolumein2050

Cement,non-ferrousmetals,mining,manufacturing,construction,foodandtobacco,agriculture/forestry,andothernon-specifiedindustry

Source:GlobalHydrogenFlowsModel(December2023),McKinseyGlobalEnergyPerspective(2023),McKinseyDeepBlue(2023),forjob-yearscreatedMcKinseyI3MmodelbyVividEconomics

Exhibit4

Higherhydrogenproductioncostsresultfromtheincreasedcostofcapitalindevelopingcountries

Hydrogenprojectsareverysensitivetofinancingcostsinceover80%ofthelevelizedcostofhydrogen(LCOH)comesfromannualizedcapitalexpenditures(capex),includingrenewablesandelectrolyzers.Giventhecapital-intensivenatureofhydrogenprojects,a6percentagepointincreaseintheweightedaveragecostofcapital(WACC)couldincreaseLCOHby50%ormore.Thisislesspronouncedforlow-carbonhydrogen,wherethe

LCOHisdominatedbynaturalgaspricesandcapexinvestmentsoftenarelimitedtothecarboncaptureinstallation.

Higherfinancingcostsareoftenobservedindevelopingmarketscomparedwithdevelopedmarkets.ThehighercostsofcapitalleadtoincreasesinexpectedLCOHindevelopingmarkets,resultingintheirlowercompetitivenessonhydrogenproductioncosts.

Higherfinancingcostsoftenresultfromadditionalprojectrisksindevelopingmarkets.Thesecanbedividedintocountryriskandprojectexecutionrisk.

Country-relatedrisks.Risksincludelegaluncertaintyandpoliticalandmonetaryinstability,whichhavethegreatesttendencytogeneratevolatility.Theseareoftenhard-to-mitigaterisks,thoughtinsuranceandhedgingcanprovidesomerelief.

Projectexecutionrisks.Theserisksoftenresultfromlessexperiencedcontractors,thelimitedreliabilityofsurroundinginfrastructure,difficultyinsecuringthedeliveryofkeyhardware,

Driversforthecostofcapitalforhydrogenprojectsindevelopedvs.developingcountries1

~7%

11+%

2-5%

InexperiencedEPCcontractors

Difficultyinsecuringhardwaredelivery

Limitedreliabilityandavailabilityofsurroundinginfrastructure

Difficultieswithtimelypermitting

Limitedwork-forceexperienceinhydrogen

...

2-7+%

Politicalinstability

Legaluncertainty

Monetaryinstability

Currencyrisk1

...

Costofcapitalindevelopedmarkets

Countryriskpremium

Projectexecutionriskpremium

Costofcapitalindevelopingmarkets

andlimitedworkforceexperienceinthehydrogenindustry. 6ppincreaseinWACCcanleadto

50+%increaseofLCOH

1.Currencyriskislimitedtolocaloperationalcostswhenhavinginternationalcurrencybasedoff-takeagreementsSource:Expertinterviews,October2022

Exhibit5

TheAfricanprojectpipelinehasanestimated5%investmentvolumeinFEED+comparedtoabout20%globally

Announceddirectinvestmentvolumeintohydrogenprojectsthrough2030asofOct2023,B$

Projectfocus: Production Distribution EndUse

Globally

TheAfricanhydrogenprojectpipelineislessmaturethantheglobalaverage.Projectsbeyondtheplanningstageaccountforonly5%ofthetotalprojectpipeline,basedonprojectedinvestmentvolumes.Fortheworldoverall,projectsatFEED+stagesexceed20%ofthetotal.Thisshareisevenhigherin

maturemarketswhere,forexample,NorthAmericareachesover40%atFEED+,andeven15%atFID+alone.

WithFEED-stageprojectsmakingupjustunder3%ofAfrica’stotalprojectpipelinecomparedwiththeglobal12%,successfulunblockingactionsatthisprojectstagewillbecrucialtoensureamaturingoftheAfricanprojectpipeline.Lookingatthestructureofthepipeline,onlyLatinAmericaisinasimilarposition.Almostallothergeographieshavemorematureprojectpipelines,withlargersharesofprojectsintheFEED+stage.Oceania(includingAustralia),whichhasambitiousplanstocompeteforthe

globalexportmarket,alreadyhasoverUSD7billioninFEED+investments.

EventhoughLatinAmericaexperiencessimilarprojectprogressionhurdlesasAfrica,theLatinAmericanprojectpipelineissignificantlylarger,withanadditionalUSD30billioninpre-FEEDstages.

AstheAfricanpipelinematures,itiscrucialthatmoreprojectspasstheFEED-stagehurdle,andthatthishappensinatimelyfashion.

259

24.5

203

FEED+1

~20%

71

39

~5%

1.7

0.6

FEED1

FID+2

28.3

Africa

Announced Planning

Front-endengineeringanddesign

Finalinvestmentdecision

Source:HydrogenInsights&Investmenttracker,asofOctober2023

Exhibit6

Giventhechallengessurroundingcountryandprojectrisk,closecollaborationwithlocalgovernments,importingcountriesand

internationaldevelopmentpartnersisrequired

Forstakeholdersexploringhydrogenopportunities,closecollaborationacrosstheprojecttimelinewillhelpthemovercometheadditionaldifficultiesthattheyfacetomakehydrogenproductioninAfricaatscaleareality.Workingwithprojectdevelopers,localgovernments,internationaldevelopmentpartnersandimportingcountriesisevenmorecriticalforsuccess

Exampleactions-notexhaustive

Localgovernment Imp