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November 8, 2023

How green hydrogen is putting Namibia on the map

By Seth O'Farrell
Namibian dessert
Green hydrogen production allows countries like Namibia that possess high levels of sun radiation and high wind speeds but low electricity demand to build out their renewable capacity (Photo: Gapyearescape/Pixabay)

The world’s second most sparsely populated country is on track to become a green exporter

When the Namibian government sounded out market responses to the possibility of a green hydrogen project in mid-2021, it put a considered bet on its country’s future.

Later that year, Namibia-based Hyphen Hydrogen Energy, partly owned by German renewables company Enertrag, was announced as the preferred bidder to develop the country’s first large-scale green hydrogen project in the Tsau Khaeb national park. Worth a combined total of roughly $9.4bn once fully developed, the investment has been slated to transform the energy landscape of both the country and the region.

Green hydrogen front-runner

With a population of 2mn covering a largely uninhabited area, Namibia is one of the most sparsely populated countries on the planet, second only to Mongolia, according to the UN’s World Population Prospects 2022.

Since gaining independence from South Africa in 1990, the country has been a constitutional democracy with a stable political situation. It has a hybrid legal system based on UK, Dutch and pre-colonial legal systems. With the poverty rate still hovering at 18 per cent, according to the World Bank, the country’s economy is reliant on the agricultural, fishing and mining sectors. Its gross domestic product stands at roughly $12.7bn, according to the latest figures from the International Monetary Fund.

On paper, Namibia has abundant renewable energy resources, which includes the highest average practical PV power potential of all countries in the world. As of 2021, solar and wind energy contribute 30 per cent and 1 per cent of Namibia’s electricity generation, respectively, according to the International Energy Agency.

Though Hyphen Hydrogen Energy’s project has moved along more slowly than first anticipated — the company signed a feasibility and implementation agreement with the Namibian government only in May this year — the country has become internationally recognised as a leading future green hydrogen exporter.

Namibia has entered into a memoranda of understanding with Germany, the Netherlands and the EU for the export of green hydrogen.

On October 24, European Commission president Ursula von der Leyen met with Namibian president Hage Geingob to present a roadmap for the EU-Namibia strategic partnership on sustainable raw materials value chains and renewable hydrogen following an MoU signed last year.

“Namibia is becoming a front-runner in the green hydrogen space,” von der Leyen said in a statement.

Central to the southern African country’s success is its vision, which has seen the government outline a strategy, set up a green hydrogen council, seek advice from the likes of law firm Clifford Chance, hydrogen advisory company Hinicio and analyst McKinsey, and take equity in the multibillion-dollar hydrogen project.

“The way Namibia has developed the strategy has resulted in it receiving more international attention from [important international] players than ever before,” says Hyphen Hydrogen Energy chief executive Marco Raffinetti.

In its hydrogen strategy published in November 2022, Namibia describes itself as “one of Africa’s best-kept secrets”, with its vast swathes of land, political stability and high levels of investor protection.

Why Namibia?

Green hydrogen is produced through an electrolysis process (the splitting of water into hydrogen and oxygen) that is powered by wind and solar energy. Many developers then plan to convert into ammonia for export.

Green hydrogen production thus allows countries like Namibia that possess high levels of sun radiation and high wind speeds but low electricity demand to build out their renewable capacity without plugging the energy produced into the national grid.

On the African continent, several countries other than Namibia have stepped forward with large-scale green hydrogen production plans, including Egypt, Morocco and Mauritania.

The way Namibia has developed the strategy has resulted in it receiving more international attention from [important international] players than ever before

Marco Raffinetti, Hyphen Hydrogen Energy

 

Faced with the difficulty and uncertainty of pulling off a project of this magnitude, Raffinetti is confident that Namibia is the right place to build a large-scale hydrogen project. The project has targeted 5 gigawatts (GW) of installed wind and solar capacity and 3GW of electrolyser capacity.

According to model calculations from the Namibia Investment Promotion and Development Board, it is projected that it will be able to produce green hydrogen at the equivalent of around $1.5 a kg, which would place it among the cheapest producers globally. Latest estimates from the International Renewable Energy Agency put the current price of green hydrogen at between $4 and $6 a kg.

“This isn’t like oil and gas. Only a few people have oil. In [green] hydrogen, many have solar and wind. So, in hydrogen, the country’s risk profile plays a disproportionate role,” says Raffinetti. “In Namibia, there is a strong legal system and financial stability.”

Namibia’s sovereign credit rating is B1 from Moody’s and double B minus from Fitch, which is among the highest in sub-Saharan Africa and better than the continent’s biggest economies — Egypt and Nigeria.

Novel financing structure

One important reason for confidence in Hyphen’s green hydrogen project, versus other large-scale hydrogen investments in Africa, is its financing structure.

Green hydrogen projects on the continent, as in other developing markets, have typically looked to rely on export credit agencies and development finance institutions. However, Hyphen’s project benefits from a new funding vehicle spearheaded by Namibia’s government, which is backed by a combination of grants and institutional capital.

This year the government established SDG Namibia One, the country’s blended finance clean energy fund, which plans to raise €1bn in capital from local and international institutional investors to develop the green hydrogen sector through various partners. It will be managed by a new infrastructure asset manager, NH2 Fund Managers, which was also launched by the government.

NH2 Fund Managers is a partnership between the state-backed Namibia’s Environment Investment Fund and two Dutch organisations: for-profit Climate Fund Managers and development finance institution Invest International. The latter has provided the first €40m investment into SDG Namibia One, to leverage investment from private players.

The Namibian government will also take up to 24 per cent equity in Hyphen’s project, and on October 24 the Development Bank of Southern Africa announced it will provide funding towards the $9.4bn project.

Jonas Moberg, chief executive of advocacy group the Green Hydrogen Organisation, says this funding structure is an “innovative model” that other green hydrogen exporting countries should look to emulate.

Green hydrogen future

Still, as the green hydrogen market enters a more mature phase of its development globally, there are concerns over the gap between the proposed production of green hydrogen and the likely demand from off-takers for industrial use.

“Globally, we see an imbalance between the production of green hydrogen that has been proposed and the demand that has been considered feasible,” says Uwe Remme, head of the hydrogen and alternative fuels unit at the IEA.

Annual production of low-emission hydrogen could reach 38mn tonnes by 2030, if all announced projects are realised, according to the IEA’s Global Hydrogen Review published in September, despite potential demand for clean hydrogen only reaching up to 14mn tonnes.

Remme maintains, however, that despite the global challenges in the hydrogen sector, from a technical point of view, Namibia “looks very promising”.

Nangula Uaandja, chief executive of the Namibia Investment Promotion and Development Board, concedes that globally, very few off-take agreements for green hydrogen have been signed on account of pricing that is not yet determined.

“There’s interest, and once we complete the feasibility study to determine at which price we will be able to produce it, then the negotiations can start,” Uaandja says. “It’s a marathon not a sprint.”

This article first appeared in fDi Intelligence

A service from the Financial Times