Egypt has recently announced a partnership with the European Bank for Reconstruction and Development (EBRD) for the development of a hydrogen strategy as part of the government’s ambitious energy transition plans. It was reported that Egypt would allocate $40 billion to fund the implementation of the strategy, with the aim of achieving a production capacity of 1.4GW by 2030. This could be used to meet local demand and for exports to Europe, which envisages 40GW of imports from neighbouring countries (including North African countries) by 2030.
The EBRD will assist Egypt with the development of a framework for establishing a green hydrogen industry, including:
- mapping international supply and demand;
- analysing existing and potential hydrogen production;
- advising on the development of supply chains including storage, transportation and export opportunities; and
- advising on reforms required to the regulatory and fiscal regimes.
The partnership was announced against the backdrop of the government’s 2035 Integrated Sustainable Energy Strategy, as part of which the country will seek to drastically increase the share of renewables in its energy mix.
EGYPT’S POTENTIAL AS A HYDROGEN HUB
Renewable Generation Capacity – Egypt has significant resources to generate input electricity for green hydrogen. It has an abundance of land, consistently high wind speeds and high levels of solar radiation. This promises to reduce the most significant input cost for green hydrogen production.
Connecting Infrastructure – Egypt’s proximity to Europe and the Middle East is also an advantage. It has in place connecting infrastructure which could be utilised for the transportation and/or storage of hydrogen or other products which utilise hydrogen as feedstock (such as ammonia). Key transport routes with the Mediterranean and the Middle East include the Suez Canal, the SUMED pipeline and the Arab Gas Pipeline.
Economic environment – Egypt is also party to a variety of investment treaties and a member of free trade organisations including the WTO and GATT. It has strengthened investor protections with the introduction in 2017 of a new Investment Law. The IMF is predicting sustained growth in FDI inflows into Egypt until 2025.
Sources of funding – In addition to the traditional sources of finance, other potential sources are emerging. For example, Egypt’s largest private bank (the Commercial International Bank) has raised $100 million by issuing green bonds and intends to use 80% of the proceeds to finance its green loan portfolio. Support could also become available from EU institutions as part of the implementation of the EU Hydrogen Strategy or from individual member states under bilateral agreements with Egypt.
CURRENT HYDROGEN PROJECTS
Several hydrogen projects are currently under development in Egypt, including:
- H2 Industries’ 1GW Waste-to-Hydrogen hub located at the Mediterranean entrance to the Suez Canal, which has secured preliminary approval.
- A 100MW green hydrogen facility to service a green ammonia plant operated by Scatec in partnership with OCI NV, Fertiglobe, The Sovereign Fund of Egypt and Orascom Construction. The electrolyser is being supplied by Plug Power. The facility is likely to be the first electrolyser in Egypt, placing it at the forefront of the country’s future green hydrogen evolution;
- Green hydrogen projects to be developed by Masdar and Hassan Allam Utilities, targeting a production capacity of 4GW by 2030.
- A green hydrogen facility to be developed by AMEA Power which will produce green hydrogen for use as a feedstock for ammonia production at a nearby plant. The facility will produce up to 390,000 tonnes of green ammonia per year, to be exported by ships via the port of Ain Sokhna.
- A USD 3 billion green hydrogen project to be developed by EDF Renewables, again to produce green fuel for export via Ain Sokhna.
The General Authority of Suez Canal Economic Zone also signed an MoU with Maersk relating to low-emission transport of green fuels.
Additional projects could emerge from ongoing feasibility studies being carried out by Siemens, Eni, Dredging Environmental and Marine Engineering NV (DEME) and CWP Global.
KEY ISSUES FOR THE HYDROGEN STRATEGY
In the near-term, thanks to the relatively low cost of renewable generation, there is significant potential for small-scale green hydrogen production with secure offtake arrangements.
In order to achieve rapid growth in the medium and long-term, the hydrogen strategy will need to provide a roadmap for several key areas, including:
- the eventual location and shape of the hydrogen network, initially driven by the location of supply and demand clusters;
- the market framework and its interaction with any government incentive mechanisms; and
- the regulatory framework, initially focussed on removing barriers to entry posed by existing planning and permitting regimes and eventually providing for the appointment of a new regulatory body and the gradual formulation of a holistic regulatory framework.
For more information, please contact Sharif Abousaada or your usual Herbert Smith Freehills contact: