Q&A: Hydrogen banks could improve project viability

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As Africa expands its green hydrogen sector, Wilson Ngunjiri, CEO of Africa Renewables Advancement, a clean hydrogen solutions provider, says a continental hydrogen bank could make investments more viable. By using contracts for difference, governments could reduce investor risk and attract capital into emerging projects.

• According to Mr Ngunjiri, a hydrogen bank would enhance investment viability by narrowing the price gap between green and conventional hydrogen, stimulating local demand and unlocking private and donor funding across Africa. 

• In an interview, the renewable energy engineer and green hydrogen developer suggests that pairing a hydrogen bank with a globally recognised certification scheme could strengthen Africa’s access to low-carbon export markets.

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What is a hydrogen bank, and why is it important for Africa’s green hydrogen sector?

Wilson Ngunjiri: A hydrogen bank is basically a financial tool designed to accelerate green hydrogen projects. It is similar to the European Hydrogen Bank launched in 2022/23 as a dedicated financial instrument to accelerate hydrogen deployment in the EU. In Africa, we’re embracing green industrialization as a pathway from fossil fuels towards clean energy. Globally, regions like Europe are also turning to hydrogen to decarbonize heavy industries. However, green hydrogen is expensive compared to the 95% of other forms of hydrogen currently in use, which are cheaper. These other forms cost less than $3 per kilogram, while green hydrogen costs more than $6 per kilogram due to the higher energy input required for its production.

This cost creates the price gap challenge. At the end of the day, regardless of the colour, people will naturally go for the cheaper option. A hydrogen bank is meant to bridge this gap by helping lower the cost of green hydrogen so it can compete with grey. It can also stimulate local demand, which reduces production costs, while unlocking private investment and pooling donor resources. 

How would a hydrogen bank address the price gap? 

Wilson Ngunjiri: Governments would play a key role through a mechanism called contracts for difference. Here is how it works: the cost of green hydrogen is expected to come down over time.  So, if an investor invests now, and then the cost of green hydrogen goes down by about $2, they bear that risk. To mitigate this, the government sets a specific cost of hydrogen to protect investors from price fluctuations in the market. If the market price falls below that level, the government pays the difference to the investor. If it rises above, the investor pays the difference back to the government.

Once established, how would projects or countries actually access financing from the bank? 

Wilson Ngunjiri: The most effective method would be through grants awarded via competitive bidding, similar to what the EU has been doing for hydrogen projects.  So, maybe blended finance would make sense in such a case. In practice, the African hydrogen bank could announce funding windows for hydrogen projects with a specific budget, invite proposals from interested projects and award financing to the ones that best meet the set criteria. 

What policy and regulatory frameworks are needed to make a hydrogen bank effective across borders? 

Wilson Ngunjiri: This really comes down to carbon pricing. You see, take the Carbon Border Adjustment Mechanism (CBAM) in Europe, it puts a penalty on products entering Europe if their production involves high carbon emissions. So, we can adopt such a policy. However, the challenge to that is on our priorities. Many of our countries are still industrializing, and right now it’s cheaper to run industries on coal, despite the emissions, than on green hydrogen. Thus, while such a policy may be good, unless it's able to address our local demand, our local needs, or our local priorities, then it can have a negative impact on ourselves. 

But all is not lost. A policy like CBAM could be a valuable opportunity for Africa. Exporters to Europe must comply, meaning buyers will look for suppliers with lower emissions, meaning they will look for alternative suppliers who have a few carbon emissions in their production. And that gives Africa a chance to become a net exporter of low-carbon products. 

What platforms and initiatives are driving the establishment of a hydrogen bank in Africa?

Wilson Ngunjiri: Well, that's what we are hoping to achieve once we set our foot on the Global Africa Hydrogen Summit taking place in Namibia on 9th to 11th of September. It's a platform that is going to bring together investors, financiers, and developers, which makes it an ideal platform to push this discussion forward. And it's a topic I would want to be tabled for a discussion with the financiers and organizations like the African Development Bank, global Green Generation Initiative, who have the experience, networks, and resources to support such a project across Africa. The African hydrogen bank, if spearheaded correctly, could gain significant momentum. 

In your view, what would success look like for Africa’s hydrogen bank in 10 years?

Wilson Ngunjiri: Success would be measured by how much climate finance is actually flowing into Africa. Right now, we contribute the least to global emissions, yet we also receive the least in climate finance, despite all the conversations and announcements made. So, for me, real success would be seeing a significant increase in climate and green finance directed specifically toward Africa’s green hydrogen economy. That would mean the bank is working, channelling resources where they are most needed and enabling real transformation across the continent.  

And if you had one message maybe for policy makers and investors and other players in the green hydrogen sector in Africa about the urgency of a hydrogen bank for the continent, what message would it be?

Wilson Ngunjiri: I would say the biggest priority is establishing a certification scheme in Africa that is globally recognized. Without it, our green hydrogen will struggle to access key markets like Europe, where verification and transparency on emissions are essential. Such a scheme is needed to run hand in hand with the support of the hydrogen bank. Even when the hydrogen bank is looking at pillars like stimulating hydrogen demand or opening new markets, we can also provide proof that our hydrogen is green and has zero emissions.