Low carbon, high ambitions: 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 forth two scenarios and a pathway for the country to exploit the export market and our renewable energy capacity.

THE CURRENT STATE OF PLAY-

Ambitious targets: The government has harbored ambitions to transform Egypt into a center for green hydrogen production for some time now, with its sights set on becoming a regional hub by 2026 and a global hub by 2030. Its production targets have been similarly ambitious, with plans to produce 3.2 mn tons of green hydrogen a year by the end of the president’s third term and 9.2 mn tons a year by 2040. This most recent strategy revises the 9.2 mn figure down to just under 6.2 mn tons (5.9 mn tons) per year, or 8% of the expected tradable market for low carbon hydrogen, according to the report.

What’s our competitive advantage? Egypt’s significant experience in gray and green hydrogen production and ammonia production is an optimal 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, well-developed port infrastructure, and access to global maritime traffic through the Suez Canal.

Focusing on both blue and green: The country’s low carbon national hydrogen strategy focuses on scaling up the production of blue hydrogen, or hydrogen whose emissions are offset by carbon capture, and green hydrogen, which is produced via a zero-carbon process called electrolysis. Both are cleaner fuel sources than carbon-emitting gray hydrogen, which makes up the vast majority of hydrogen produced worldwide and is generally produced from natural gas.

REMEMBER- There are already offtake agreements lined up: 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 SCENARIOS-

The “central” scenario: In this less ambitious pathway, the country would produce 1.5 mn tons per annum of green hydrogen by 2030 with 1.4 mn tons pegged for export, and 5.8 mn tons per annum by 2040 with 3.75 mn tonnes pegged for export.

By the numbers: Reaching those goals will require 19 GW of additional renewables capacity by 2030 and 72 GW by 2040, as well as 13 GW of electrolyzer capacity by 2030 and 48 GW by 2040. The report estimates the investment ticket for this electrolyzer capacity at USD 10 bn by 2030 and USD 24 bn by 2040. If achieved, Egypt would capture 5% of the anticipated tradable market in low carbon hydrogen by 2040.

The “green” scenario: In this more ambitious scenario, the country would produce 3.2 mn metric tons of green hydrogen annually by 2030, with 2.8 mn metric tons marked for export, and 9.2 mn metric tons by 2040, with 5.6 mn metric tons pegged for export.

By the numbers: Reaching these goals will require an additional 41 GW of renewables capacity by 2030 and 114 GW by 2040, as well as 27 GW of electrolyzer capacity by 2030 and 76 GW by 2040. The estimated investment cost for the electrolyzer capacity needed is USD 22 bn by 2030 and USD 34 bn by 2040. If achieved, Egypt would capture 8% of the anticipated tradable market in low carbon hydrogen by 2040.

Both scenarios will work to decarbonize Egypt’s high-emitting sectors at different paces: Policy measures will also accelerate the shift from natural gas under both scenarios, with refineries, ammonia, and methanol production fully transitioning to green hydrogen and most steel plants adopting hydrogen-based direct reduced iron (DRI) processes in the green scenario. In the central scenario, green hydrogen will gradually replace gray hydrogen in industry as its pricing becomes more competitive, with demand expected to be blended into the gas grid to supply inland areas as well as in the heavy goods transport sector.

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 and 2040 focusing on lowering the cost of production to scale up to GW production capacity. The final full market implementation phase from the 2040s onward will maintain Egypt’s market position and make use of hydrogen locally to support decarbonisation.

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.

On the blue hydrogen side: Because blue hydrogen can be produced by retrofitting conventional gray hydrogen plants with carbon capture technology, scaling up its production should be relatively easy. However, it would take the country 5-10 years to develop the needed carbon storage capacity, making expanding blue hydrogen production only conceivable after 2030.

WHO WILL FINANCE THIS?

The strategy outlines a three-pronged approach, which includes accessing concessional finance provided by development banks and multilateral funds, attracting foreign investors, and offering government incentive packages.

Concessional finance: Below-market-rate financing offered by the EU and international institutions is among the key sources of potential financing for green fuel. The EU, for instance, will offer financing for its Mediterranean neighbors’ green transition initiatives through 2027 under 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 are also good sources of concessional financing.

Building partnerships: Financing could be mobilized through the proposed MediterraneanGreen Hydrogen Partnership, which is under development between the EU and Egypt to boost hydrogen trade between Europe, Africa, and the Gulf.

Multilateral development bank-friendly funds: The European Bank for Reconstruction and Development’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.

Foreign investment always plays a role: Egypt has signed 23 MoUs and nine partnership agreements with a range of low carbon hydrogen project developers and investors, which will pave the way for Egypt’s ramping up of the sector. In order to assure that Egypt reaps the benefits of 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 (build-operate-transfer, build-operate-own-transfer, or public-private partnerships) used to deliver the projects.

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 the impact of delivered MoUs, effectiveness of government incentives, and impact of R&D projects. The council will also propose updates to the strategy in line with global developments, approve necessary policies and plans, and review the green hydrogen sector’s rules and regulations.

Your top green economy stories for the week:

  • The Electricity Ministry is looking to solar to cut down on costs by aiming to install up to 30 GW of new renewable energy as it looks to save USD 4.1 bn in annual fuel costs, it said in a statement.
  • Greek logistics firm V Group has purchased units for marine waste collection for some EUR 4 mn that will be used to clean up the Suez Canal. (AlMal)
  • Waste-to-energy projects could soon play an important role in our energy mix, with the government set to sign contracts with eight local-foreign consortiums to produce a total of 1.7 bn Kw/h of electricity from municipal solid waste across a number of governorates.
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