In the global race to decarbonize energy and industrial sectors, green hydrogen has emerged as a promising candidate to replace fossil fuels, especially in heavy industries like steel manufacturing. Defined by its production through electrolysis powered exclusively by renewable energy sources, green hydrogen offers a clean alternative for energy storage and transportation. However, Europe, despite its aggressive climate goals, faces significant challenges in locally meeting its demand for green hydrogen. Consequently, attention has increasingly focused on Africa, endowed with vast solar and wind potentials, as a promising production hub intended to serve European markets. Yet, new comprehensive research led by the Technical University of Munich (TUM), in collaboration with the University of Oxford and ETH Zurich, reveals that the financial and political realities in Africa complicate this vision more than previously anticipated.
For years, optimistic cost estimates for green hydrogen production in Africa assumed relatively uniform and low financing costs, often comparable to those of established renewable projects in Europe. However, these models overlooked the inherent socio-political and economic risks tied to investment environments across diverse African countries. Florian Egli, who steers the Public Policy for the Green Transition at TUM, highlights that most existing models simplify financing costs without accounting for country-specific variables such as political stability, infrastructure readiness, regulatory frameworks, and security conditions. This oversight, as the recent study demonstrates, significantly underestimates the actual financing expenses investors would encounter.
To address these gaps, the researchers developed a novel methodological framework to calculate the financing costs specific to green hydrogen production facilities across 31 African nations. This approach integrates multi-faceted risk assessments, including macroeconomic factors, transport and storage logistics, and the degree of legal and political certainty. The study models production facilities operational by 2030, envisaging the conversion of hydrogen into ammonia for shipping to Rotterdam, a strategic European hydrogen import hub. This timeline aligns with ambitious European climate targets and industrial decarbonization strategies, yet the findings underscore profound financial challenges that could reshape investment decisions.
The study presents a stark contrast between financing costs traditionally assumed and those more realistic under current market conditions. While conventional models operate under an interest rate band of approximately 4% to 8%, the research reveals that African facility operators would likely face borrowing costs ranging from 8% up to an extraordinary 27%, dependent on the scenario and country-specific risks. This spread indicates that without significant risk mitigation or financial guarantees, the economics of green hydrogen production in Africa are far less attractive, potentially deterring critical capital flows needed for project development.
Delving deeper into cost implications, the team models four scenarios reflecting variable global interest rates and risk allocation structures. In scenarios where plant operators shoulder all investment risks amid high current interest rates, the price floor for green hydrogen production in Africa would hover just below €5 per kilogram. This price point is markedly above the competitive threshold for the European market, given that recent auction bids for green hydrogen subsidies within Europe have set prices under €3 per kilogram. Conversely, when European governments intervene with price and offtake guarantees and global interest rates decline, production costs in Africa could be driven down to approximately €3 per kilogram, nudging African green hydrogen toward competitiveness.
However, even under these highly advantageous assumptions, the competitive landscape remains challenging. European green hydrogen projects benefit from mature infrastructure, stronger institutional frameworks, and significantly lower financing costs, intensifying pressure on African exporters. The study identifies only about 2% of over 10,000 analyzed locations across Africa that might achieve competitive pricing around €3/kg by 2030—roughly 200 locations—situated in countries such as Algeria, Kenya, Mauritania, Morocco, Namibia, and Sudan. Notably, the research underscores that given the study’s limitations to national-level security metrics, many otherwise promising sites could be undermined by regional instability, further narrowing the viable geography for export-focused hydrogen production.
This intricate web of risks emphasizes that the successful establishment of African green hydrogen production serving Europe hinges not merely on natural resource availability but critically on the creation of robust policy instruments. European governments’ provision of price and offtake guarantees emerges as a crucial enabler to de-risk investments, stimulate capital deployment, and foster stable trade relations. Additionally, international loan default guarantees, such as those offered by multilateral development banks like the World Bank, could further catalyze investor confidence, reducing financing costs and allowing project developers to bridge the cost gap.
Beyond economic and financial considerations, the study stresses the fundamental importance of political stability and sound governance in realizing the green hydrogen export vision. Stephanie Hirmer, a climate economics professor at Oxford, cautions that without meaningful and durable political agreements, the current enthusiasm carries the risk of generating projects that fail to deliver economic value or sustainable development benefits locally. Addressing socio-political risks is paramount not only for cost reduction but also for ensuring fair and equitable growth where green hydrogen projects can become pillars of long-term economic transformation for African communities.
The implications of these findings ripple across the broader global decarbonization agenda. As Europe grapples with energy security and industry electrification, the allure of cheap African renewable energy has been a cornerstone narrative. Yet, this new evidence compels stakeholders to recalibrate expectations, focusing on integrated risk management, policy coordination, and cross-continental collaboration. The economic viability of green hydrogen trade between Africa and Europe depends on nuanced financial engineering, geopolitical stability, and trust-building mechanisms that transcend pure resource availability.
Technically, this study also offers a significant advancement in modeling techniques for energy project finance in emerging markets. By intertwining granular socio-economic risk indicators with technical production and logistics parameters, the research establishes a more realistic foundation for cost projections. This approach could be transformative for other renewable energy ventures in developing economies, where underestimation of financing risks frequently hinders investment and policy planning.
In summary, while Africa’s abundant solar and wind resources undoubtedly position it as a critical player in future green hydrogen supply chains, realizing this potential involves navigating a labyrinth of financial, political, and infrastructural complexities. The study calls for a concerted effort from European policymakers, financial institutions, and private sector players to implement binding guarantees and institutional innovations—without which green hydrogen production in Africa may remain a costly and speculative endeavor.
The road to green hydrogen-powered industrial transformation is paved not only with sunlight and wind but with stable governance, strategic financial instruments, and international cooperation. Only by aligning these elements can Africa truly become a competitive and sustainable exporter of clean energy to Europe, fulfilling climate promises while catalyzing inclusive economic development.
Subject of Research: Not applicable
Article Title: Mapping the cost competitiveness of African green hydrogen imports to Europe
News Publication Date: 2-Jun-2025
Web References:
http://dx.doi.org/10.1038/s41560-025-01768-y
References:
The high cost of importing green hydrogen from Africa to Europe. Nature research briefing. DOI: 10.1038/s41560-025-01775-z
Image Credits: Not provided
Keywords: green hydrogen, Africa, Europe, financing costs, renewable energy, electrolysis, ammonia export, risk assessment, political stability, investment guarantees, cost competitiveness, industrial decarbonization
