Southern Africa benefits from inaugural green hydrogen fund

From the newsletter

South Africa and Namibia are the first beneficiaries of the inaugural Climate Investor Three (CI3) fund by Climate Fund Managers (CFM), aimed at supporting the global energy transition and advancing green hydrogen projects. Backed by a $160.5 million capital commitment, CI3 will channel investments into existing green hydrogen funds in both countries.

• South Africa and Namibia have vast green hydrogen potential, but limited domestic capital has stalled infrastructure growth. The CI3 fund claims to bridge this gap, attracting private investment to turn policy goals into reality and fast-track the region’s emergence as a green hydrogen hub.

• The blended finance model used by CI3 aims to reduce risk for private investors by using public and donor funds to absorb early-stage losses. This approach lowers financial barriers and should make large-scale infrastructure development easier in the face of high capital requirements.

More details

• Based in the Netherlands, CFM is a for-profit investment manager and uses blended finance to attract public and private capital for high-impact projects geared towards fostering climate change resilience in emerging economies in Africa, Asia, and Latin America.

• In Namibia, CI3 will support SDG Namibia One, a fund created in partnership with the Environmental Investment Fund of Namibia (EIF) and Invest International to drive the growth of Namibia’s energy transition and green hydrogen sectors. In neighboring South Africa, CI3 will invest in SA-H2 Fund, an energy transition and green hydrogen fund created in partnership with Sanlam Limited, the Development Bank of Southern Africa (DBSA), and the Industrial Development Corporation of South Africa (IDC).

• “Through Climate Investor Three, we leverage our expertise in climate-resilient infrastructure to accelerate the energy transition, unlocking private sector investment for a large range of green hydrogen technologies and associated infrastructure, advancing global climate goals and promoting economic development and energy security where it is most needed,” said Sebastiaan Surie, Head of Hydrogen at CFM.

• Blended finance pools funding from various sources, with public or donor capital absorbing early-stage risks. This reassures private investors, encouraging them to back high-impact projects that might otherwise seem too risky. For example, in the CI3 fund, European donor commitments act as a safety net, enabling the mobilisation of much larger private-sector investments.

• Traditionally, African energy projects have relied on direct investments from single companies or consortiums, which often lead to fragmented development and slower scaling due to national budget constraints. While direct investments can be quicker to deploy, they place all the risk on the private sector, limiting appetite for large, unproven markets like green hydrogen. Blended finance, in contrast, distributes risk and aligns public and private incentives, making it more suitable for pioneering industries with high initial costs and uncertain returns.

• While still relatively new, blended finance structures are gaining traction across the continent. According to Convergence, a global blended finance network, Sub-Saharan Africa has been the most frequently targeted region in blended finance transactions, the majority of them going into the energy transition. In the context of green hydrogen, Africa’s immense renewable potential is attracting global players, and blended finance provides the structure to turn this interest into action.

• The Nouakchott Message, announced at the Africa Green Hydrogen Finance Accelerator meeting in Mauritania in April 2023, emphasised the urgent need to 'massively scale up blended financing' to support the green energy transition in emerging and developing economies, particularly across Africa. This urgency is echoed by the Green Hydrogen Organisation, which views blended financing as essential to making green hydrogen projects “bankable and commercially viable.”

• Recognising this need for scalable solutions, the African Development Bank has established the Green Investment Programme for Africa (GIPA), an initiative that provides catalytic blended finance for green economy projects — particularly those initially funded through grants that need to transition toward financial sustainability, such as green hydrogen initiatives.

• Globally, green hydrogen investments through blended finance are ramping up, particularly in Latin America where Chile is funding its green hydrogen ambitions using blended financing from the World Bank, and in Southeast Asia, where similar funding models are helping kick-start infrastructure development. 

• Blended finance offers significant benefits for Africa’s green hydrogen sector. By mitigating risk through public capital absorbing early-stage losses, it makes projects more attractive to private investors who might otherwise be hesitant to engage in nascent, high-cost markets. Such de-risking encourages first movers, fosters market development and builds investor confidence. Additionally, blended finance enables scalability, unlocking larger pools of capital that can accelerate infrastructure development and push green hydrogen projects from concept to reality.

• However, the model isn’t without its challenges. Structuring blended finance deals can be complex and time-consuming, often involving multiple stakeholders with differing priorities. The reliance on public or concessional funds means that the overall pool of available capital can also be limited, potentially capping how much private investment can be mobilised.

• CFM says it sees investing in South Africa and Namibia’s green hydrogen sector as both strategic and impactful. As a for-profit entity, CFM stands to benefit from the high potential returns of the burgeoning green hydrogen market, while contributing to global climate goals and sustainable development. 

• CFM’s investment fits into a broader trend of international funds targeting Africa’s green hydrogen potential, recognising the continent’s capacity to become a pivotal player in the global energy transition. Public-Private Partnerships (PPPs) are becoming the standard model for financing large-scale energy projects, bringing together governments, development banks and private investors to share risk and amplify impact.

Our take

• Blended finance is not a silver bullet, but it provides a viable pathway to fast-track Africa’s green hydrogen revolution. By reducing investment risks and attracting patient capital, this model can help transform Africa into a global green hydrogen powerhouse.

• CI3’s investment in Africa is welcome, but far more capital is needed to meet the growing number of green hydrogen projects under development and in the pipeline. Policymakers must streamline regulatory processes, while multilateral institutions and development banks should expand concessional financing to de-risk even more private capital. 

• Despite the promising model, the $160.5 million in the current levels of CI3 funding still falls short of Africa’s green hydrogen potential. For instance, Namibia’s largest green hydrogen project — the Hyphen Hydrogen Project — requires $10 billion. With South Africa and Namibia targeting 13 and 12 mtpa of green hydrogen respectively by 2050, more investment is urgently needed.