Renewable energy remained the top sector for drawing foreign capital investment in 2023, with companies announcing an estimated $348bn in related projects globally. While sub-industries, such as solar energy and biomass power, attracted their highest-ever capital investment flows in 2023, the outstanding driver for sectoral capital investment was green hydrogen — an area earmarked by major investments. 

These major projects involve immense figures, with questions being raised over their cost and the available support provided, as well as the actual benefits going to developing countries that are hosting production.

Green hydrogen is a clean energy source, produced by electrolysis of water. The end product has a range of application areas, including fertiliser manufacturing and transportation.

Major green hydrogen investments, involving minimum capital investments of $500m, were dispersed globally in 2023, but stand out for prominence in various world regions, including Africa.

One of the forefront African nations in this respect during 2023 was Egypt, which garnered three major green hydrogen projects across the year, representing a cumulative investment of $17.4bn. These projects are a microcosm for the wider flood of green hydrogen investment announced for Egypt since 2021, as tracked by fDi Markets, with an estimated $215.5bn of sectoral projects recorded. 

Several of the developments are destined for the Suez Canal Economic Zone, created in 2015 as part of Egypt Vision 2030 and spanning an area of 460.6 sq km.

Another African country courting attention is Mauritania, located in the north-west of the continent. Infinity Power, a joint venture between UAE-based Masdar and Egypt-based Infinity, announced in March 2023 a memorandum of understanding with the country’s government and Germany-based Conjuncta to develop a $34bn green hydrogen site near the capital of Nouakchott, with the investment set to create 1000 operational jobs.

The Infinity Power announcement follows on from the Aman project, representing an investment of $40bn and being developed by CP Power of Australia. The project, located in the Dakhlet Nouadhibou and Inchiri regions, will produce green hydrogen through a 30 gigawatt hybrid of solar and wind energy, with the investment originally formulated at COP26 in Glasgow back in 2021.

Fast forward to 2023, and a spate of green hydrogen resolutions were adopted at the COP28 conference in Dubai. Masdar, involved in the major Infinity Power project in Mauritania, announced a €15bn partnership with Spanish renewables firm Iberdrola, with the two companies set to evaluate the prospect of green hydrogen and other investments in Germany, the UK and the US.

The state-owned firm signed a separate agreement with Hy24 to install green hydrogen projects on a large scale globally, while a trilateral agreement was forged with agencies in Abu Dhabi to support the local hydrogen economy and forward the UAE as one of the key destinations for hydrogen production and export.

Feasibility doubts

As demonstrated, hydrogen investment is being conducted on a huge scale and set up for future investment opportunities. These facts do not mask question marks over the industry, with cost representing one of the chief areas of concern.

Speaking at the Investing in Green Hydrogen conference in London in September 2023, business development and commercial director at Masdar, Andreas Bieringer, said that the “costs are rather getting up.”

More recently, in March 2024, various sceptical voices were raised on cost at the CERAWeek energy conference held in Houston, Texas. The CEO of Exxon, Darren Woods, suggested “nobody wants to pay” to reduce emissions. Amin Nasser, CEO of Saudi Aramco, focused on the cost comparison between green hydrogen and oil, stating that “the fantasy of phasing out oil and gas” needs to be dropped and that green hydrogen can only be genuinely affordable if the sector receives a “significant amount of government incentives and offtake agreements of at least 15 years”.

Policy support is seen elsewhere as a prerequisite for success. Lord Adair Turner, chair of the UK-based Energy Transitions Commission think tank, remarked that green hydrogen is essential as means of activating net zero but, without “strong policy support, it will not scale up in the timescale required.”

A report by Wood MacKenzie also mulls over the issue of major projects going into countries like Mauritania, claiming that “very large announcements in less developed markets should be treated with caution”. The report emphasises how these markets, with an export focus, act as hosts for a small number of large investments, “inflating the total announced capacity of the region.” These countries will face myriad other issues getting projects off the ground, “due to issues securing financing, a lack of policy support [mentioned by Lord Adair Turner], challenges in securing offtakers and underdeveloped supporting infrastructure.”

Jean-Paul Adam, director of technology, climate change and natural resource management at the UN Economic Commission for Africa says that “members of the Green Hydrogen Alliance,” which includes Mauritania and Egypt, are “actually quite far” into their advancements when it comes to regulatory frameworks. Yet he adds the following caveat: “Renewable energy is Africa’s superpower, financing is not.”

Social risks

The EU and Germany are acting contributors to Africa initiatives, pledging billions of euros to various schemes and projects, including developments in Kenya. Namibia is also emerging as an early African success story for green hydrogen. Locally based Hyphen Hydrogen Energy, partly owned by Germany-based Enertrag, was announced in 2021 as the successful bidder of the country’s first major-scale green hydrogen development. This development is worth an estimated $9.4bn and acts as the linchpin for a wider market in development, as memorandums of understanding have been signed with Germany, the Netherlands and EU for exporting green hydrogen. Despite contributions from and relations with Europe, more needs to be done to ensure development is not limited to just projects, but development also creates lasting benefits for local people.

As African countries attempt to become hydrogen-exporting nations, all competing over the same product and creating that product at the lowest cost, a fear arises that this competition will result in a ‘disastrous race to the bottom,’ according to Bitsat Yohannes-Kassahun, cluster lead for energy and climate at the UN Office of the Special Adviser on Africa. This fear is only exacerbated when considering the plethora of other countries also staking bets in green hydrogen, such as Chile.

Since the end of 2022, fDi Markets has noted four major green hydrogen investments into Chile, a country that aims to be carbon-neutral by 2050 and aims to close or repurpose all coal-fired power plants by 2040. A national strategy for green hydrogen was outlined in November 2020 and while there is no green hydrogen produced yet domestically on an industrial scale, the promise is indicated by foreign investment activity there and the support of the government.

The article first appeared in 'The FDI Report 2024'. You can download the full report at this link.  

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