Q&A: Financing and partnerships key for sector’s growth

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Green hydrogen’s growth hinges on innovative financing and collaboration, says Mphokolo Makara, Head of Energy and Infrastructure East Africa at Stanbic Bank. She emphasizes the need to align policy, market demand, and technology to unlock investment opportunities and scale this emerging clean energy sector across East Africa.

• With a new market, financial institutions such as Stanbic are focused first of all on understanding the technology, while also drawing on experience in renewables and product financing to eventually develop tailored instruments for green hydrogen.

• Ms Makara underscores the importance of collaboration among policy makers, industrial users and financiers to build a viable market and accelerate green hydrogen deployment in the region.

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Green hydrogen is capital-intensive and still relatively new in many markets. From a banking perspective, where do you see Stanbic playing a role in the financing value chain?

Mphokolo Makara: Typically as a bank, we provide senior debt and that's likely where we would play in the finance value chain. That would mean that we are supporting partners and entities and industrial users who of course have got the experience technically to make sure that the technology is viable and is successful. 

But we are also supporting industry players who also have strong balance sheets such that if there's any risk in market uptake or risk in the technology from pilot plants not coming through, then we're not investing funds, which are depositor funds to be quite honest, into sunk projects, which then would place it difficult for us to recover the senior debt. 

So it's really about understanding within the senior debt appetite that we have as a bank where we can play, supporting partners who understand the technology but also partners who are also able to absorb the debt on their respective balance sheets.

Collaboration is essential to grow the green hydrogen sector. How is Stanbic engaging with stakeholders to help shape and support the green hydrogen ecosystem in East Africa?

Mphokolo Makara: One of the key ways we engage is through public-private partnerships (PPPs). We are engaging ministries of energy and industry organizations. We are also engaging our clients who are the industrial users as well as possibly the derivatives producers of green hydrogen to understand their strategies, priorities, and planning. . So we align with the  frameworks which are set by the government to develop the industry but also  to understand what the market drivers are for derivatives and our industrial users. This helps us support our industrial clients in understanding how they can contribute to and benefit from the green hydrogen value chain. 

Q: From your position at the bank, what do you see as the key gaps in scaling up green hydrogen investment, and how can financial institutions like Stanbic help address these challenges?

Mphokolo Makara: As things currently stand today, the key gaps are certainly  the technology, the pilot projects and how they are scaled up as well as market acceptance. You may have heard over the past few days (at the Eastern Africa Green Hydrogen Symposium) the notion of off-take agreements was mentioned. Also mentioned was the notion that if you look at the green hydrogen value chain, you've got to look at the infrastructure which in my view and just based on our experience, those are likely going to be funded through PPPs or through ministries or government just by virtue of what the capital costs are to create the infrastructure. That infrastructure will then be needed to create the market as well as to supply the distribution end of the value chain to the end user.

So for us as a financial institution, addressing the gap means asking: how do you create a market? How do we understand the market? And how do we evaluate off-take agreements in relation to the market size, to give us a sense of potential pricing, volumes, and discovery mechanisms? This understanding helps us determine whether aggregated financing models are feasible or if support through long-term off-take agreements will be necessary.

As a financial institution, how do you currently assess the risks associated with green hydrogen projects? 

Mphokolo Makara: Green hydrogen is still an emerging technology so we are at very early stages and haven’t yet assessed any specific projects.  The reason why we are engaging so early is to understand the components of green hydrogen, as well as to learn from our experience in financing renewables—which is a significant feedstock for green hydrogen production. This helps us see how we can apply those principles alongside those of product financing to develop the right financing mechanisms and fund projects in the green hydrogen sector and its derivatives once the market begins to pick up at a commercially viable and scalable rate.

Looking ahead five to ten years, what are your hopes for the green hydrogen industry in East Africa?

Mphokolo Makara: In East Africa, I think the conversations are being had which is good because it means there's a level of interest but what from my perspective what is really spurring the demand and interest for green hydrogen is because of the EU policies where they've made a decision that by 2030, they want a significant amount of their energy mix coming from green hydrogen. Now that sort of policy support and underpinning means that part of the demand will need to be imported. So I think it's really for East Africa and other African countries to see how they can take advantage of that demand that's created from the likes of the EU. 

So markets which have frameworks and policies to include green hydrogen in their energy mix but who are also very much aware that they will need to import but how we can then build our value chain, our export facilities in our industries to support exports which are destined towards markets like the EU, which have identified the need to import green hydrogen or derivative products from green hydrogen. 

Any final thoughts you would like to share?

Mphokolo Makara: Climate change is a reality we all face and green hydrogen is emerging as a solution which can facilitate the significant reduction of carbon emissions. So let us all work together and see how as industries, across finance, across technology, and across industry, we can collaborate to make this potential a reality and effectively tackle climate change.