Governments and the private sector have turned their attention to Africa to meet Europe’s pressing demand for green hydrogen, envisioning a continent with solar and wind energy potential. However, a new study led by the Technical University of Munich (TUM), in collaboration with the University of Oxford and ETH Zurich, casts doubt on these optimistic projections. The study’s findings reveal that financing costs for green hydrogen production facilities in African countries are significantly higher than previously believed. In fact, of the 10,000 locations examined, only 2 per cent could be deemed competitive for exporting hydrogen to Europe. This revelation underscores the need for European governments to step in with price and offtake guarantees if these ventures have any chance of becoming viable.

Green hydrogen, produced through electrolysis powered by renewable energy, is seen as a linchpin in Europe’s efforts to decarbonise industries such as steel and cement. With domestic production falling short, Africa’s coastal nations have been hailed as promising partners in this transition, given their favourable climatic conditions and abundant land. Yet, despite the enthusiasm and early-stage project planning, the study warns that reality is far more complicated. The promise of Africa as Europe’s green hydrogen powerhouse collides with the continent’s complex financial and political realities.

A key insight from the research is that most existing cost models have relied on overly simplified assumptions, treating financing costs as uniform across all regions. According to Florian Egli, who leads the Professorship for Public Policy for the Green Transition at TUM, this approach overlooks the significant differences in investment environments between African nations. Many countries face high political and legal risks, making investors wary and consequently driving up the cost of capital. These risks cannot be ignored, as they substantially influence the final price of African hydrogen produced.

To capture these nuances, the research team developed a new methodology for calculating financing costs tailored to the specific conditions of 31 African countries. The model considers various factors, including transportation and storage infrastructure, political stability, and legal certainty. It assumes that the production plants will be operational by 2030 and that the hydrogen will be converted into ammonia for shipment to Rotterdam, a major European port. By analysing different scenarios—varying both interest rates and the extent of government guarantees—the team was able to provide a more accurate picture of the potential costs involved.

Under the current high-interest-rate environment, the cost of financing in Africa could range from 8 to 27 per cent, starkly contrasting the previously assumed rates of 4 to 8 per cent. These higher costs translate directly into elevated hydrogen production prices. If African operators must bear the full investment risks alone, the price of green hydrogen would be just under €5 per kilogram. In contrast, with European government guarantees and lower interest rates, the lowest possible price would decrease to around €3 per kilogram. Nevertheless, even at this reduced price point, African producers would face stiff competition from other regions, including European initiatives that have already secured hydrogen production at prices below €3 per kilogram.

Stephanie Hirmer, a professor of climate-compatible growth at the University of Oxford, stresses that these revised calculations highlight a fundamental problem: previous estimates have failed to account for the socio-political risks that are inextricably linked to African projects. This oversight means that many planned investments may be based on unrealistic expectations, potentially leading to costly missteps and project failures. To avoid these pitfalls, policymakers and investors must recognise the unique challenges of working in African countries and tailor their strategies accordingly.

The study identifies around 200 locations across six African nations—Algeria, Kenya, Mauritania, Morocco, Namibia, and Sudan—that could achieve competitive hydrogen prices by 2030, provided European guarantees are in place. However, this projection does not fully consider localised security risks, which could further diminish the number of viable sites. Florian Egli concludes that European governments must play a decisive role by offering fixed-price guarantees and leveraging international instruments like World Bank loan default guarantees. These measures are crucial for creating a stable environment for Africa to emerge as a serious player in the green hydrogen market. Without such political support, the lofty ambitions for African green hydrogen will likely remain unrealised, leaving the climate and African communities short-changed.

More information: Florian Egli et al, Mapping the cost competitiveness of African green hydrogen imports to Europe, Nature Energy. DOI: 10.1038/s41560-025-01768-y

Journal information: Nature Energy Provided by Technical University of Munich (TUM)