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It’s finally here: After years of anticipation, Egypt launched its National Low Carbon Hydrogen Strategy (pdf) last Thursday mapping out how the country can achieve ambitious goals to potentially capture between 5-8% of the global hydrogen market by 2040. The strategy puts forward two scenarios and a pathway for the country to exploit the export market and renewable energy capacity. It sees Egypt producing up to 5.8 metric tons per annum (MTPA) of green hydrogen, which will require up to USD 60 bn in investments.
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FIRST, WHAT DOES THIS MEAN FOR EGYPT?
If the strategy is implemented, Egypt could increase its GDP by USD 10-18 bn by 2040 and enhance its energy security by reducing reliance on gas imports. The country could also boost benefits even more by expanding its role in the hydrogen value chain and introducing local assembly and manufacturing of hydrogen-related products, including electrolyzers. This would place Egypt as a leading international export hub for hydrogen and its derivatives.
THE STATE OF PLAY–
Grey, blue, green: The country’s low carbon national hydrogen strategy focuses on blue and green hydrogen production with the most potential to be produced at scale. Blue hydrogen has great potential due to Egypt’s existing grey hydrogen plants that can be retrofitted with carbon capture technology to produce blue hydrogen, however, it would take the country 5-10 years to develop the needed carbon storage capacity. The country also plans to produce bio hydrogen — which requires gasification of biomass or waste — but feedstock availability in the country will limit production to only 1.3 mn tons annually.
Egypt has the potential to exploit its experience in grey and electrolytic hydrogen production along with ammonia production as a starting point to establish a thriving low-carbon hydrogen economy. The country also has substantial renewable energy capacity, a strategic geographic location in terms of proximity to Europe and access to global maritime traffic through the Suez Canal, and experience in exporting goods due to its existing port infrastructure.
BACKGROUND– There’s already activity in the pipeline: UAE-based urea and ammonia exporter Fertiglobe secured a EUR 397 mn offtake agreement from the German government’s H2Global program last month to supply green ammonia to the EU from its Egyptian facilities between 2027 and 2033, securing 10% of Germany’s annual ammonia needs. The firm also sent the world’s first ISCC PLUS-certified (International Sustainability and Carbon Certification) green ammonia shipment to India from its electrolyzer facility in Egypt’s Suez Canal Economic Zone last December.
THE SCENARIOS–
The “central” scenario: In this less ambitious pathway, the country would produce 1.5 mn tons of green hydrogen annually by 2030, with 1.4 mn tons pegged for export, and 5.8 mn tons by 2040 with 3.75 mn tons pegged for export.
By the numbers: The capacity needed to reach those goals will require 19 GW of installed renewables capacity by 2030 and 72 GW by 2040, as well as 13 GW of electrolyzer capacity by 2030 and 48 GW by 2040. If achieved, Egypt would capture 5% of the anticipated tradable market in low carbon hydrogen by 2040. The investment ticket for the electrolyzer capacity needed is USD 10 bn by 2030 and USD 24 bn by 2040.
The “green” scenario: In this more ambitious scenario, the country would produce 3.2 mn tons of green hydrogen annually by 2030, with 2.8 mn tons marked for export, and 9.2 mn tons by 2040, with 5.6 mn tons pegged for export.
By the numbers: The capacity needed to reach those goals will require 41 GW of installed renewables capacity by 2030 and 114 GW by 2040, as well as 27 GW of electrolyzer capacity by 2030 and 76 GW by 2040. If achieved, Egypt would capture 8% of the anticipated tradable market in low carbon hydrogen by 2040. The investment ticket for the electrolyzer capacity needed is USD 22 bn by 2030 and USD 34 bn by 2040.
Each scenario would help decarbonize Egypt’s high-emitting sectors at a different pace: Policy measures including carbon pricing also accelerate the shift from natural gas whereby refineries, ammonia, and methanol production fully transition to green hydrogen with most steel plants adopting hydrogen-based direct-reduced iron processes. In the central scenario hydrogen blending into the gas grid will supply inland industries only, while in the green scenario it will meet most industrial needs, with half of heavy-duty transport shifting to hydrogen fuel.
THE PATHWAY-
The strategy suggests a three-phase plan to develop the country’s hydrogen economy. The pilot phase, which will last until 2030, will see the government offer close support for initial projects and establish a fit-for-purpose governance structure. A scale up phase will be implemented between 2030 to 2040 focusing on lowering the cost of production to scale up to GW production capacity. The final full market implementation phase from the 2040s onwards will maintain Egypt’s market position and make use of hydrogen locally to support decarbonisation.
A number of actions are advised for implementation in the pilot stage:
- The government is advised to create thematic working groups for governance development within the technical secretariat to work on future frameworks for MoUs.
- Developing market incentives within the next 1-2 years to deliver pilot projects, finalizing new agreements, and conducting studies and assessments. The reviews should include laws and regulations, existing infrastructure, carbon pricing / tax implementation, financial assistance for pilot projects, and a roadmap for research and development.
- Supporting hydrogen deployment and expansion within 3-5 years by issuing regulations to incentivize investments, developing a strategy for state support, reviewing investments in nat gas infrastructure, running feasibility studies on 100% hydrogen blending into the gas grid in industrial areas, and the development of a strategy for low carbon hydrogen integration and grey hydrogen phase-out.
There are some extra kinks to work out: Green hydrogen production is water-intensive and Egypt will likely require water desalination due to water scarcity. The electrolysis process also generates brine which poses disposal issues and can cause severe marine ecosystem damage if not managed well. Additionally, new renewable energy sources must be dedicated to hydrogen production — similar to the “additionality” requirement in the EU — to prevent the country’s existing renewable energy production from being diverted away from the power grid.
IN CONTEXT- Egypt said it was investing some EGP 134.2 bn through 2050 to build seawater desalination plants to provide 6.4 mn cbm/d of potable water back in 2020. The plan spans over six five-year phases, the first of which will see the government investing EGP 45 bn to build 47 desalination plants by 2025. Sovereign Fund of Egypt CEO Ayman Soliman said last year Egypt intends to sign contracts to build 21 desalination plants as part of the first phase of the large-scale desalination program.
WHO WILL FINANCE ALL THIS?
The strategy outlined a three-pronged approach which includes concessional finance provided by development banks and multilateral funds; attracting foreign investors; and the offering of incentive packages from the Egyptian government.
Concessional finance: Assistant schemes offered by EU institutions are among the potential donors and international financial institutions that could offer concessional finance channeled within the framework of the Economic Investment Plan for the Southern Neighbours (pdf). Dedicated funds such as the Green Climate Fund, the Green for Growth Fund, and the Global Environment Facility could offer concessional finance.
Building partnerships: Financing could be mobilized through the proposed Mediterranean Green Hydrogen Partnership which is under development between the EU and Egypt to boost hydrogen trade between Europe, Africa and the Gulf.
MDB-friendly funds: The European Bank for Reconstruction & Development (EBRD)’s loans and assistance for the energy sector constitutes another potential source of funding, as well as the European Investment Bank, the IMF and World Bank. The EBRD is among the largest foreign investors in Egypt.
Foreign investment always plays a role: Egypt has signed 23 MoUs — including seven earlier this year — and nine partnership agreements with a range of low carbon hydrogen project developers and investors to pave the way for Egypt’s launch into the sector. To reap the benefits of the promising signal established from the signed MoUs, the National Council for Green Hydrogen and its Derivatives (NCGH) — formed a year ago — should ensure that the actual impact of the first hydrogen initiatives on the local economy are assessed, including the benefits of different business models (BOT, BOOT, or PPP) used to deliver the agreements.
WHAT HAPPENS NOW?
A supportive regulatory environment is crucial to fully capitalize on the potential of the strategy, including streamlined decision-making processes, simplifying access to land and utilities, and creating a clear framework for investors. Stakeholders will also have to explore diverse financing options to reduce project risks and boost returns, as well as partner with international bodies to ensure that production adheres to the stringent global low-carbon standards, including issuing transparent origin guarantees.
The NCGH will monitor and assess progress based on the targets laid out in the central and green scenarios, and other metrics such as impact of delivering MoUs, effectiveness of government incentives, and impact of R&D projects. The Council will also propose updates to the strategy inline with global developments, approve necessary policies and plans, and review the green hydrogen sector’s rules and regulations.
