By The Green Hydrogen Business Alliance (H2BA)
Namibia’s green hydrogen sector has world-class resources, real project pipelines, and a government that has spent years investing political capital in making the sector work.
What it still lacks is a credible mechanism to bridge the gap between production cost and market price, the gap that keeps projects from reaching financial close. A new financial instrument called a Contract for Difference, or CfD, has been circulating in European energy policy circles as a potential answer.
What is a CfD?
In simple terms, a CfD is a financial safety net. It guarantees that a green hydrogen producer will receive a minimum price for its product, known as a strike price, over a long contract period. If the market price falls short of that threshold, the difference is topped up by a fund backed by European governments and donors.
If the market price rises above it, the producer pays back the surplus. It is the same mechanism that helped make offshore wind commercially viable in Europe, and proponents argue it could do the same for green hydrogen imports from countries like Namibia.
Content Question and Cost of Fairness
One of the more consequential requirements is that 50% of the equipment and construction value of supported CfD projects come from European suppliers. Done well, this is an opportunity for both sides: Europe builds its clean-tech industrial base, Namibia gets access to a well-funded CfD.
The design question is how to ensure the cost of that requirement does not fall disproportionately on the producing country.
Engineering packages from European suppliers have been coming in at a significantly higher cost than equivalent bids from other markets. If European content is mandated without a proportionally larger European contribution to the CfD fund, the result is straightforward: Namibia’s green ammonia becomes more expensive to produce, moving it further from the price point at which demand exists in an already price-sensitive market.
Bridging that price gap is the function of the CfD. The end-product floor remains the grey reference plus ETS and CBAM.
If the European Commission and the Member States are contributing to a larger portion of the CfD fund, then they have every right to use local content, even at 50%. But if the EU is not contributing significantly, all it does is inflate prices and push Namibia further from being competitive. When those two things are properly aligned, the European industrial benefit matched by European financial commitment to the content requirement becomes something both sides can genuinely claim as a win.
The fiscal dimension follows the same logic, and it is worth being precise about what is being proposed. No Namibian contribution to the CfD fund is foreseen, and none has been requested. What the design question does require is an awareness of the asymmetry between the two partners: African economies are more exposed to shifts in currency, credit rating, and interest cost than European ones, and any future discussion of Namibian participation would need to reflect that reality honestly.
A well-designed CfD can accommodate this. By ensuring the instrument is sized and structured so that Namibia’s exposure remains proportionate to its fiscal capacity, both parties can enter the partnership on terms that are sustainable for each of them. That is not a concession from Europe, it is what makes Namibia a credible long-term partner rather than a fragile one.
What Needs to Happen Now
The CfD mechanism, if well designed and fairly negotiated, represents one of the most credible pathways available for unlocking green hydrogen at commercial scale. Namibia has real assets to bring, exceptional solar and wind resources, substantial land availability, and a government that has invested significant political and institutional capital in positioning the country as a serious player.
Where content requirements raise headline production costs, those costs must be carried inside the instrument’s strike-price design rather than passed through to Namibia’s competitive position. The fiscal weight stays with Brussels; the industrial dividend flows back to Europe; Namibia’s competitiveness is preserved.
There is also a wider European interest worth mentioning. The port, rail and power infrastructure that will carry Namibian green ammonia is the same infrastructure that will carry the country’s critical raw materials, such as uranium, copper, graphite, and rare earths including dysprosium and terbium from Lofdal, among the few non-Chinese sources of those minerals globally, and in due course, light crude and gas from the Venus, Mopane and Kudu developments approaching final investment decision.
The November 2022 EU–Namibia Memorandum of Understanding bundled hydrogen with critical raw materials by design. The contractors and standards established for the first wave of green hydrogen projects will, by scale and presence, shape the contracting environment for those further flows. A well-designed CfD is therefore a hydrogen instrument that also functions as the financial spine of a broader European strategic partnership.
Done well, this is a genuine win-win: Europe secures a credible, long-term supply of green hydrogen from a stable partner, and Namibia gains the financial architecture it needs to turn world-class resources into a world-class industry.
*The Green Hydrogen Business Alliance (H2BA) is a global network acting as a bridge between the private sector and government to promote the sustainable scale-up of green hydrogen. Implemented by GIZ on behalf of the German government, it supports infrastructure development, local industrialisation and policy frameworks across high potential partner countries like Namibia.
