African Green Hydrogen Exports: What are the risks?

Following Europe’s recent scramble for Africa’s natural gas resources due to the Russian invasion of Ukraine, Europe is now increasingly investing in the development of green hydrogen projects on the continent. Given Africa’s significant renewable energy potential, driven by its substantial solar photovoltaic power potential, the continent is well equipped to develop large-scale green hydrogen projects to supply European demand. Whilst there may be significant economic pay-offs for African countries exporting hydrogen to Europe, with an estimated €1 trillion green hydrogen potential, there are also many risks in the development of the nascent industry which may inhibit long-term growth.

Source: International Renewable Energy Agency

European hydrogen plans 

Hydrogen has become a key part of Europe’s decarbonisation plans in its net-zero goals. Despite currently accounting for less than 2% of Europe’s energy consumption, the EU is aiming to ramp up production over the next decade. With the introduction of the REPowerEU plan in May 2022, the European Commission (EC) clearly stated its intention to utilise renewable hydrogen as an important energy carrier in its attempt to reduce its reliance upon Russia's fossil fuel imports. The EU plans to produce 10 million tonnes and import 10 million tonnes of renewable hydrogen by 2030. 

The EU has planned to secure strategic partnerships with developing African nations such as Namibia and Egypt to ensure that they have a secure supply of renewable hydrogen. The incentives built into the EU regulations, enticing African nations to develop green hydrogen export facilities to Europe, could come at the expense of local populations. The energy poverty of many African nations, particularly in sub-Saharan Africa, has led many to argue that their domestic energy needs should be prioritised over helping the EU deliver its climate strategy. 

The EU and individual European nations have already begun making huge commitments to green hydrogen in Africa, including provisions for exports from the continent to serve Europe’s domestic needs. The recent signing of a $34 billion agreement for a giant green hydrogen project in Mauritania is just one of those developments. Similarly, some European nations are working on hydrogen pipeline projects in Africa to meet their climate targets and to provide more secure energy supplies in future. Such projects include the “SoutH2 Corridor” pipeline project connecting North Africa with Italy, Austria, and Germany. The energy ministries in the respective countries have all signed a joint letter of political support for developing the 3,300-kilometre-long hydrogen pipeline corridor. 

Source: Offshore Energy

Risk to African nations

1. Economic feasibility

Whilst many European nations emphasise Africa’s huge renewable energy to create green hydrogen, there are also significant economic risks that remain in its development. According to a study by the European Investment Bank, International Solar Alliance and the African Union, large-scale green hydrogen generation can enable African nations to supply 25 million tons of green hydrogen to global energy markets, equal to 15% of the current amount of gas used in the EU. The study also reported that green hydrogen is economically viable at €2/kg, due to the abundant availability of solar energy, enabling the possibility of low-carbon economic growth across the continent and reducing emissions by 40%. With more than 52 green hydrogen projects in Africa having been already announced, and production set to reach 7.2 million tonnes by the end of 2035, African nations look set to have massive increases in GDP, whilst also benefitting from the many new permanent and skilled jobs generated across the continent.

However, policymakers must be cautious to fully weigh up the economic feasibility of such projects. Limited transportation infrastructure makes transporting hydrogen which costly and hardly economically competitive. Even maritime shipping, the most cost-effective method for distances over 3,000km, would cost an estimated additional$1 to $2.75/kg. For shorter distances, the cost of pipeline transport could be significantly lower, estimated at$0.18/kg per 1,000km for new hydrogen pipelines and $0.08/kg for retrofitted gas pipelines. Given its economic competitiveness, hydrogen pipelines are the preferred choice of transportation for European nations, with the EU set to provide huge subsidies for a proposed hydrogen pipeline, named the“South Corridor”,  stretching from North Africa to Bavaria. Nevertheless, as the green hydrogen industry is at a very early stage of development, it is very difficult to predict how the market will grow in the long term and accurately predict the economic payoffs of hydrogen pipelines for African nations. The demand for hydrogen could vary from150 to 500 million metric tonnes/year by 2050 due to the level of worldwide climate goals, specific actions taken within various sectors, efforts to enhance energy efficiency, direct electrification, and the adoption of carbon capture technologies. Therefore, if the European market does not develop at the speed and scale expected, African nations investing in green hydrogen will be left with huge debts to be paid for by their populations.

Source: IEA

2. Energy poverty 

The potential development of green hydrogen exports to Europe should also not overshadow Africa’s broader energy landscape. At present, 600 million people, primarily located in sub-Saharan Africa and equivalent to 43% of the total African population, lack access to electricity. Sub-Saharan Africa (excluding South Africa) consumes approximately 180 kWh of energy per capita, compared to 13,000 kWh per capita in the U.S. and 6,500 kWh in Europe. Renewables also remain in their infancy in Africa, with approximately 180 TWh of renewable power generated in Africa in 2018, equivalent to approximately less than 0.02% of its estimated potential. African nations must be cautious to ensure that they choose the correct trade-off between utilising hydrogen for exports to Europe and their own domestic needs. Should African nations divert their resources toward hydrogen production for exports, some fear that green hydrogen may become another “neo-colonial resource grab” and starve African nations of their resources. 

Therefore, African nations must ensure that all the benefits of green hydrogen exports are not extracted for European gain. The agreements between the EU and African nations such as Egypt, Morocco and Namibia already show worrying signs of resource exploitation. Despite these deals being presented as a win-win scenario, the rules allow hydrogen projects to “cannibalise” the local infrastructure for exports. Namibia is a prime example as it is racing to become Africa’s first green hydrogen exporting hub despite only 56% of its citizens having access to electricity in 2022 and relying upon imports to meet its electricity demand. The Namibian government hopes to develop 10 hydrogen export projects with European nations. However, there are concerns over potential misuse of climate finance, which should focus on aiding local development, rather than export projects.

Outlook

With increasing interest and investment from European nations into green hydrogen projects in Africa, countries on the continent must remain cautious of the huge benefits promised by their European counterparts. Despite the continent's unparalleled potential for producing low-cost green hydrogen in the future, producing green hydrogen at economically competitive prices remains elusive given the high costs of production and transportation. However, should these costs be brought down by increased European investment, African nations may well prioritise meeting their own domestic energy demands and accelerating domestic renewable energy deployment before considering exporting green hydrogen to Europe in large-scale quantities.

Ghanaian electricity: the triumph of competitive politics over good governance

On 26th May, Ghana’s government tried to propose a restructuring of the US$1.58 billion of debt owed to various private power producers. The producers have rejected this proposal and threatened to cut off the power supply, which could cause a third power crisis within the last decade. These power crises are part of a larger consistent failure to provide basic electricity to the citizens of Ghana; It exemplifies the failure of the International Monetary Fund’s (IMF) Structural Adjustment Programmes (SAP) and the Good Governance Agenda of the 1980s. This article will explore how commercialisation can fail in a culture of competitive politics. 

Electricity has been a front-running issue in Ghanaian politics since its founding President Kwame Nkrumah’s belief that building the Akosombo Dam, the third biggest dam in the world in terms of water capacity,  would bring developmental leaps. The succeeding presidents including President Jerry Rawlings, the first democratically elected President, used the extension of the electric grid to draw votes, making electricity a critical measure of political success and developing a norm that electricity provision is a core responsibility of the government. This has led leaders to intervene frequently in the privatised energy sector to increase electric grid sizes (making it one of the biggest in West Africa). The political structure also allows the president to have a say in the decisions of the supposedly ‘independent’ Public Utilities Regulatory Commission (PURC) since he has the power to appoint board members. Ghana adopted the IMF’s SAP in 1995 when its inflation rates were over 100%. Under the Standard Reform Model, Ghana allowed private management of their electrical facilities.  

Fast forward to August 2012, the anchor of a pirate ship ruptured on the West African Pipeline, inflicting a GDP loss of US$320-924 million. This external element is only the tip of the iceberg. The underlying issue for such a large GDP loss (an estimated 4%) was that the remaining power generation capacity required crude oil, which was more expensive than pipeline gas. This led to high debts within the producing companies; the Volta River Authority (VRA) and the Electricity Company of Ghana (ECG). Furthermore, Government subsidies and financial support were insufficient for these companies to continue ordering fuel, despite multiple requests. For example, The VRA requested amelioration for six cargoes of light crude but was only provided with finance for three. As such, the government played a significant role in the elongation of the crisis.  A central problem can be traced back to the inefficiency of Ghana’s large electricity grid. Incumbents often expanded the grid in hopes of demonstrating their continued dedication to providing electricity, but large parts of these grids are unmonitored and suffer from severe reliability issues. This can be traced back to show how competitive politics has compounded the severity of the crisis.. With the 2012 General Elections scheduled for December of the same year,, there was a further electorally motivated intervention to prevent tariff rises, increasing profit and allowing the companies to order more fuel. This resulted in the inability of the VRA to pay the fuel suppliers, thus further elongating the crisis. 

Without sufficient investigation into the underlying issues of the price of fuel and the lack of capital to invest in them, the government signed 43 new contracts for primarily thermal power plants taking the total electricity capacity (assuming sufficient fuel is provided) from 1GW to 5GW.. The then President John Mahama did little due diligence and circumvented officials in the Energy Commission who had predicted energy demand of 3,000 to 4,000MW by 2020. The simplest way to mitigate this oversupply would be for Ghana to become an electricity exporter in the region; however, this did not materialise due to high tariffs, poor infrastructure, and neighbouring countries wanting to be self-reliant after previous experiences of shortage. This overabundance has driven government debt to US$1.4 billion, which is approximately 4% of GDP. Furthermore, these contracts were used to create thermal power plants instead of implementing the planned hydropower plants including Micro-Hydro Western Rivers Scheme and the Juale Dam. Focusing on increasing electricity capacity instead of the fundamental cash flow and reliability issues can be best explained as an electorally driven solution which demonstrates the incumbent’s continued dedication to providing electricity by investing in tangible infrastructure instead of actually solving the electricity crisis in the long run.

These two crises show the failure of the Standard Reform Model in a highly competitive political situation. The market mechanism, commercialisation and separation had no effect in a country where governments continue to intervene to meet short-term political objectives. Since tariff increases meant a loss of power, it was impossible for leaders to divert resources to achieve long-term stability and instead focus on unsustainable practices like low tariffs. 

Today, Ghana is set to default on loans by the IMF and has been in talks with the G20 to restructure its external debts. While the IMF is imposing more stringent conditions on loans, its leaders have also been cosying up to the Chinese to help solve their debt crisis, leading to increasing tensions with the United States. If this gridlock continues, the Ghanaian people would either be buried in further debt or have to face another electricity shortage crisis.

Cover image: “Ghana Akosombo Dam” by Mark Morgan Trinidad A

A Second Scramble for Africa?: U.S.- China Competition for Rare Earth Minerals

The global demand for rare earth minerals has been on the rise in recent years, driven by the growth of high-tech industries such as electronics, renewable energy, and aerospace. These minerals are a group of 17 elements that are essential to the manufacture of these products, due to their unique magnetic, optical, and catalytic properties. However, these minerals are found in small concentrations and are difficult to extract, making them a strategic commodity that is vital to the functioning of modern societies.

China is the world's largest producer of rare earth minerals, accounting for more than 80 per-cent of the global supply. This gives China significant geopolitical leverage, as it is able to control the supply and pricing of these critical minerals. In recent years, China has been using its dominant position to assert its influence in global affairs, including trade negotiations and technology transfer agreements. The United States is heavily dependent on China's rare earth minerals, importing nearly 80 per-cent of its total rare earth minerals.  This has become a concern for the US government, fearing that China may use its control over rare earths as a tool of economic and political coercion. This fear has only been exacerbated due to the effect the Russo-Ukrainian war has had on crucial commodities and rising tensions surrounding Taiwan. To reduce its dependence on China, the United States has been seeking alternative sources of rare earth minerals, and it has turned its attention to Africa too. Although many African countries already have long-standing mining agreements with China, there has been a recent push to break free from deals some see as not mutually beneficial. 

Several African countries, including South Africa, Namibia, and Tanzania, have significant deposits of rare earth minerals. However, the development of Africa's rare earth industry has been hampered by a lack of investment, technical expertise, and infrastructure making it heavily reliant on foreign investment mainly from China. This has left African countries vulnerable to exploitation by foreign companies, who have been accused of prioritising profit over environmental and social concerns.   

China has been actively investing in Africa's rare earth industry, seeking to secure its own supply chain and gain a strategic advantage over other countries. As of 2021, Chinese banks made up 20 per-cent of all lending to Africa and in recent years China has been providing African countries with significant technical assistance, including building infrastructure and providing equipment and training for rare earth mining and processing. This investment has given China a foothold in Africa's rare earth industry and has raised concerns about the potential for environmental and social exploitation. During the World Economic Forum at Davos, the President of the Democratic Republic of Congo (DRC), where 70 per-cent of the world’s cobalt comes from, complained that a $6 billion infrastructure for minerals was heavily one sided, with a majority of the cobalt being processed in China. 

These recent signals at a move away from China to potentially better alternatives have not gone unheard by the emerging superpower’s primary rival, the United States. Indeed, the DRC was one of many nations in attendance at the Minerals Security Partnership setup by President Joe Biden and also signed a memorandum with the US in December 2022 to develop supply chains for electric vehicles. In 2019, the US government announced plans to invest in Africa's rare earth industry, with the aim of establishing a reliable supply chain of these critical minerals. These recent acts are just the beginning of what the US government hopes will be a new leaf in their relationship with African countries to develop their rare earth industries and build infrastructure while promoting sustainable mining practices.

The competition for rare earth minerals highlights the need for a global approach to resource management. As the demand for high-tech products continues to grow, the pressure on rare earth minerals will only increase. While some are looking to our solar system’s mineral rich asteroid belt as a way of obtaining these resources, we are most likely decades away from developing the necessary technology and, in the meanwhile, the resources needed to develop said technologies will continue to be fought over. It will take some time before the US is able to really rival China in Africa’s debt markets, but US policy makers are hoping to have made a significant enough dent in China’s hold over the industry before tensions rise any higher between the two world powers.