Position Paper on Opportunities in the Hydrogen Value Chain in Nigeria

Introduction

What exactly is the scope of Nigeria’s energy problem? Nigeria generates between 3,500 megawatts
(MW) and 5,000 MW of electricity, while it has a generating capacity of 22,000 MW and a demand of
200,000 MW. But even if the generating capacity were improved, Nigeria’s transmission capacity hovers
between 7,500 MW and 8,000 MW. And so, more than 85 million people in Nigeria (43% of the
country’s population) do not have access to the national electricity grid. And even for those on the grid,
power outages are all too common. In 2020, the World Bank’s Ease of Doing Business report ranked
Nigeria 171 out of 190 countries in electricity access.

Hydrogen (H2) is a versatile energy carrier with the potential for extensive use in electricity generation
for the industrial, commercial, residential, institutional, agricultural, and transportation sectors.
Hydrogen contains almost three times the energy contained in natural gas and produces benign
emissions on combustion (Amoo & Fagbenle, 2014).

Reports estimate the global hydrogen market to reach a staggering $2.5 trillion by 2050, creating
immense economic opportunities for nations investing in this clean energy transition. Nigeria’s Green
Hydrogen Atlas underscores the country’s suitability for green hydrogen export, projecting a potential to
generate 15,510.08 TWh/yr of green hydrogen by 2050 (Dokso, 2023). While green hydrogen production
and export present an opportunity for foreign exchange earnings, it’s crucial to strike a balance that
ensures it doesn’t compromise domestic energy access and affordability. Nigeria, grappling with energy
demand challenges, can integrate green hydrogen production with local energy needs. The synergy
between renewable energy sources for hydrogen production and meeting domestic energy demand can
bolster the national grid and contribute to ongoing efforts to expand energy access

As countries undergo a transition to clean, low-carbon sources of energy at a record rate and scale, new
technologies are required to replace fossil fuels and shift in the direction of a carbon-neutral economy at
the earliest. Being ahead of this transition is a matter of strategic importance for all countries, especially
Nigeria, which is one of Africa’s largest economies and is anticipated to rank among the top ten
economies of the world by 2050. Besides, it is not in doubt that energy resources are among the most
important assets of any nation. It is recognized that a high rate of industrial growth is a function of the
amount of energy available and the extent to which it is utilized. In total, Africa’s electricity consumption
grew on average by 3.1% per year from 1980 to 2001, while the continent’s per capita demand for
electricity has declined in comparison to North America and the Middle East. This has made Africa have
the smallest per capita consumption of electricity in the world. Considering these, Nigeria is pursuing an
energy transition plan to promote economic growth and encourage investments in renewable energy to
reduce carbon emissions while utilizing hydrocarbon resources such as natural gas as the transition fuel
(Aminu, 2022)
Green hydrogen offers an opportunity to develop clean, energy-intensive industries that are competitive
in overseas markets, particularly those with high carbon prices. Breakeven of hydrogen technology with
incumbent technology would happen in several key applications in the next decade, even without
regulatory intervention, and in some instances would provide a clear economic rationale for
decarbonization. Nigeria’s economy, the largest in Africa, has vast and numerous benefits from
harnessing the various opportunities in the hydrogen value chain. For example, the adoption of
hydrogen-powered mining trucks would reduce the carbon footprint of minerals and thus keep these
minerals competitive in the global market, which increasingly prizes carbon content alongside costs
(Africa’s Green Hydrogen Potential, 2022). Nigeria's domestic demand is likely to be driven largely by
transportation and other industries, which include cement, nonferrous metals, materials, mining,
manufacturing, construction, food and tobacco, and agriculture and forestry. Hydrogen and ammonia
are likely to be the major end products—accounting for roughly 85 percent of domestic ambition—with
methanol, synthetic kerosene, and direct reduced iron playing smaller but still significant roles.

Green Hydrogen

Understanding the Hydrogen Value Chain

The global hydrogen market is experiencing significant change as green carbon is introduced to a market
long dominated by high-carbon hydrogen for industrial applications. Predictions for green hydrogen
growth are astronomical. Just how much growth depends on whom you ask. There’s not going to be as
much growth as others have predicted, but I see >50% CAGR. That rapid growth is expected to occur as
customers and shareholders pressure companies to lower their carbon footprints, clean air zones are
introduced into cities, and companies consuming large volumes of high-carbon hydrogen consider the
possibility of countries decommissioning their natural gas networks (Hyde, 2022)

There are two sources of hydrogen in the hydrogen value chain: high-carbon and low-carbon hydrogen.
Currently, ~99.9% of all hydrogen produced annually is high-carbon hydrogen for the industrial sector. It
is a well-established market, totaling ~77 million tons a year, using this hydrogen primarily for the
refining and ammonia industries. In the medium term, a new market for green hydrogen for transport is
developing, and in the long term, there may be other applications, such as the hydrogen gas grid.
The Colours of Hydrogen

Unlocking green hydrogen potential to solve Nigeria’s energy crisis

Nigeria’s potential for green hydrogen offers a way to solve its perennial energy crisis while creating jobs
and reducing greenhouse gas emissions. Green hydrogen production could help decarbonize the
economy and secure future growth, but coordinated investment is needed to get the new venture on
track. Green hydrogen, which is created by splitting water molecules into hydrogen and oxygen using
electricity generated from renewable sources, has the potential to significantly reduce greenhouse gas
emissions while supplying energy (Ajala, 2023)
Estimates suggest a global hydrogen transition is predicted to require $15 trillion in investment overall.
A significant increase in renewable energy production is required for the transition; this accounts for
85% of the total investment required.
By 2050, the demand for hydrogen is projected to increase to 500–680 million metric tons (MT), from an
anticipated 87 million MT in 2020. The market for hydrogen production is expected to expand by up to
9.2% annually until 2030. Today, hydrogen production uses 6% of global natural gas and 2% of global
coal (Ajala, 2023)

Challenges, risks, and threats green hydrogen production poses in Nigeria?

 A major challenge in the short-to-medium term is that green hydrogen is still more expensive
than blue hydrogen. According to the H2-Atlas, the levelized cost of green hydrogen is between
$4/kg and $17.4/kg in Nigeria, compared with between $2.8 and $3.5 per kg for blue hydrogen.
It, therefore, appears to be uncompetitive to deploy green hydrogen at the moment, which may
be the reason why the Nigerian Energy Transition Plan sees it playing a role only after 2030 (Ebii,
2023)
 Besides this challenge, there are social and environmental risks that need to be considered.
Green hydrogen production requires vast areas of land for the wind and solar farms that feed
hydrogen plants with green electricity. This increases the risk of land grabs ("green grabbing")
and conflicts over clashes with other livelihood activities, such as farming, especially given land
tenure insecurity and other structural flaws prevalent in Nigeria.
  There is also a real risk of foreign exploitation. In a situation where there is no strong domestic
advocacy and strategy for the domestic use of green hydrogen, foreign interests become the
determinant of the direction of national policy and interventions. Nigerian water and renewable
energy resources should not be exploited for the sole purpose of exporting energy for use in
Europe. Domestic industries must be developed and helped to become hydrogen-ready. This
implies that an industrial policy element is necessary for Nigeria's hydrogen strategy.

Economic and developmental opportunities that exist in the green hydrogen value chain for Nigeria.
 Green hydrogen opportunities and job creation:
The hydrogen market value supply chain could offer more growth potential than oil markets.
Green hydrogen considers water access, safety, sustainability, and value-added hydrogen-based
solutions, amongst others. In the next decade, business development across the value chain will
expand. For example, H2 is extremely volatile; the concept of hydrogen safety brings parameters
within production, storage, and transportation.” Hydrogen requires a massive scale-up of
renewable energy capacity, adding that major West African countries could use solar and
hydroelectric dams, which, in turn, could boost employment.
The jobs are vast overproduction of renewable facilities on one side, and then maintenance and
operations on the other. The latter needs further capacity development ahead of the hydrogen
future. To top it up here, there are also hydrogen standards and certification opportunities.
Other jobs could be created in upholding standards and verification in the hydrogen supply
chain. Due to the varied metrics for many European countries, for example, hoping to import
hydrogen, the task and opportunities for jobs could be around upskilling for standards and
verification within the hydrogen supply chain (Ajala, 2023)

 Green hydrogen production in Nigeria could bring support the growth of the country's utility-
scale renewable energy sector. It has been difficult for large-scale solar power plants, for
example, 50 megawatts and above, to be established in Nigeria and connected to the national
grid. The government's fiscal limitations make providing 'risk guarantees' quite challenging,
while battles over tariffs persist. Green hydrogen production represents a major opportunity for
large-scale renewable energy investments and could catalyze investment and project
development in the wider sector. In light of the nation's dwindling foreign exchange earnings,
investing in green hydrogen will buoy up the country's reserves and contribute positively to the
nation's GDP.
 Green nitrogen fertilizers: a specific Nigerian opportunity?
sAround 60% of the industrially produced (“grey”) hydrogen worldwide is used to make
ammonia (NH3), 70% of which in turn is used to produce nitrogen fertilizers. This makes
ammonia production the largest carbon-emitting chemical industry process by far, contributing
to 1.4% of all greenhouse gas emissions. Nitrogen accounts for more than half of the total
weight of the major fertilizer nutrients (the others being phosphorus and potassium). Its reliance
on natural gas makes the nitrogen industry not only very carbon-intensive but also subject to
high price volatility. The Russian invasion of Ukraine in 2022 in particular caused a significant
price spike in global fertilizer prices, as Russia was not only a major supplier of natural gas to
Europe’s fertilizer industry but, together with Belarus, also a major fertilizer exporter.
Green ammonia uses renewably produced hydrogen and cuts out natural gas entirely. While
nitrogen fertilizers will still emit potent greenhouse gases after field application, green ammonia
can dramatically lower emissions from nitrogen fertilizer production and shield producers from
fossil fuel price volatility. Nigeria could hit two birds with one stone: use their unique renewable
energy potential to produce low-carbon fertilizers and tap into a potential growth market for
 hydrogen exports. Multiple African countries are exploring green ammonia production for
fertilizers, both for exports and domestic markets. Part of the reasoning is that most African
agricultural systems severely underapply fertilizers and also import most of those that they do
use. This could then make for a potentially significant growth market for (green) African
fertilizers (Medinilla & Dekeyser, 2024)

 Green hydrogen's potential for diversifying Nigeria's exports, which are dominated by oil
exports, the revenues from which are likely to diminish over time as a result of the global energy
transition. This is one of the rationales given by the German government for assisting Nigeria in
developing green hydrogen export potential. Since many European nations and others, such as
Japan and South Korea, lack sufficient green hydrogen production capacity and will be major
importers of the energy carrier and its derivatives, such as green methanol, green ammonia, and
Power-to-X products, there indeed seems to be a potential market opportunity. Besides
generating export revenue and increasing investment flows, green hydrogen production has the
potential to spur economic growth because it may improve the transfer of technology and
human capital from foreign to domestic firms. Green hydrogen has a great deal of potential to
address the world's energy needs.

International partnerships and collaborations Nigeria should engage in to leverage knowledge,

expertise, and funding for the successful development and deployment of green hydrogen
technologies.

 The first is to develop a national green hydrogen roadmap that builds on or indeed surpasses,
the vision for green hydrogen embedded in the Nigerian Energy Transition Plan (ETP).
International partnerships would be valuable in creating such a roadmap, including with
agencies such as the International Renewable Energy Agency (IRENA).
 In addition, Nigeria needs to develop a portfolio of project proposals that show what business
models could work and how commercially feasible green hydrogen production is in the country.
Partnerships with organizations like the Renewable Energy and Energy Efficiency Partnership
(REEEP) that provide policy formulation, capacity building, and project finance assistance will be
necessary.
 Nigeria should form bilateral alliances with countries that have advanced expertise and
experience in green hydrogen technology and an interest in seeing to its greater production.
Aside from Germany, countries like Australia, Denmark, and Japan are making tremendous
strides in creating their green hydrogen ecosystems. When Nigeria reaches a more advanced
stage, it should seek to be part of multilateral alliances such as the African Green Hydrogen
Alliance (AGHA) to benefit from collective efforts.
 Nigeria also has the opportunity to work with foreign technology providers and suppliers of
green hydrogen equipment, electrolyzers, and other infrastructure. Collaborations with
established corporations and academic institutes can help with technology transfer, research
collaborations, and project development. This can assist Nigeria in gaining access to cutting-edge
technologies as well as leveraging knowledge for the successful deployment of green hydrogen.

Ways Nigeria Can Advance its Hydrogen Market

1. Development of a Comprehensive Hydrogen Strategy;

The development of a comprehensive hydrogen strategy would provide Nigeria with the
regulatory certainty that investors and project developers require to make informed decisions
 on the market. While burgeoning hydrogen markets such as Namibia, South Africa, Mauritania,
and Egypt have begun putting in place hydrogen strategies and policies, Nigeria lags behind
those of its resource-rich neighbors. To be able to position itself as a global supplier, Nigeria
needs to develop a rigorous strategy comprising the country’s production targets, infrastructure
development roadmap, monetization plans, and measures to incorporate the industry into the
local economy and energy market. The strategy should outline issues such as licensing and
stakeholder participation across the entire value chain while outlining relevant laws and fiscal
terms. At a time when the energy transition is taking center stage and the demand for low-
carbon energy is increasing, a Nigerian hydrogen strategy would serve to accelerate the growth
of the domestic low-carbon market.
2. Prioritize and fast-track infrastructure build-up;
Notwithstanding resource wealth, focusing investment on the construction of relevant
infrastructure will not only advance the domestic hydrogen market in Nigeria but also allow the
country to connect to both regional and global supply chains. Nigeria has the opportunity to
become a major supplier by fast-tracking the construction of renewable energy systems,
electrolyzer production, storage and transportation assets, and related infrastructure. To
address its current infrastructure deficit, it is key for Nigeria to incentivize foreign investment,
establish attractive fiscal terms for private investors, and boost collaboration with global parties
and local energy players to establish local hydrogen chains. While the country has existing
natural gas and oil transmission pipelines and storage networks, repurposing these assets will
improve value addition throughout the energy transition while consolidating the country’s
position as a global hotspot for low-carbon hydrogen.
3. Create and support local demand;
Currently, the demand for low-carbon hydrogen in Africa remains low owing to a lack of
infrastructure, cost considerations, and lack of awareness and capacity. However, this can all be
addressed by diversifying the energy mix, integrating hydrogen with current power systems, and
creating hydrogen-powered industrial clusters, power generation assets, and mobility and
residential consumers. By establishing an energy mix that incorporates hydrogen into the value
chain, Nigeria can increase local demand while advancing energy affordability and reliability. In
this regard, the government needs to create incentives and initiatives aimed at stimulating low-
carbon hydrogen production and consumption.
4. Establish globally competitive low-carbon hydrogen standards;
Implementing global hydrogen standards is a crucial step to attracting global investors into a
market and ensuring the production of quality and globally competitive low-carbon hydrogen.
To date, Nigeria does not have local certification schemes or technical standards defining the
production, storage, distribution, and monetization of low-carbon hydrogen. As such, the
creation of transparent and internationally recognizable certification schemes for low-carbon
hydrogen is essential to establishing a resilient hydrogen industry in the West African country.
5. Workforce Development and Technology Innovation;
Boosting investments in local workforce training and enhancing the research and development
of low-carbon hydrogen technologies in partnership with global tertiary institutions and project
developers will help advance Nigeria’s low-carbon hydrogen market. According to the African
Energy Council, local content funding mechanisms such as the Petroleum Technology
Development Fund and the Tertiary Education Training Fund could be useful in advancing
partnerships between local institutions and key industry players across the globe, thereby
enhancing Nigeria’s workforce development while strengthening innovation across the low-
carbon hydrogen market.
Conclusion
In conclusion, green hydrogen has the potential to significantly reduce greenhouse gas emissions while
helping to meet the world’s energy needs. With its abundant potential for renewable energy sources,
Nigeria can play a significant role in producing and using green hydrogen, especially as the country
pursues an energy transition to support economic growth and reduce carbon emissions. However, given
the scale of the investment and infrastructure overhaul needed, the potential for this new energy source
remains long-term. To realize Nigeria’s hydrogen value chain potential, there needs to be a concerted
push to embark on this road to future growth.

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