What’s standing in the way of our green hydrogen ambitions? Last week’s Egypt-EU Investment Conference saw Egypt ink a long list of green hydrogen agreements with a number of EU and non-EU entities, once again opening the conversation around green hydrogen and Egypt’s ambitions to become a hub for green energy.

Our ambitions: The government aims to transform Egypt into a regional hub for green hydrogen production by 2026 and a global hub by 2030, 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.

That will require a whole lotta funds seeing as no matter where green hydrogen is being produced, it’s significantly more expensive than other kinds of fuel or feedstock, one industry insider said during the Green Hydrogen Bridge Conference hosted by the Dutch Embassy last month. The only way to address this is through carbon taxation or subsidized production as in the EU and US, they added.

Accessing finance is difficult without long-term offtake agreements: Even for buyers that are sufficiently incentivized to buy green hydrogen over other kinds of fuel, offtakers are hesitant to sign long-term offtake agreements when prices are expected to be much lower in seven to eight years, another industry insider said. This in turn makes accessing financing more costly, since shorter tenures mean that investors are taking on more risk investing in green hydrogen infrastructure.

High global interest rates and Egypt’s high country risk premium don’t help either: While interest rates should decline by the time many of the green hydrogen projects currently in development enter the final investment decision phase, countries like Egypt will still face a cost much higher than other potential producers, given high country risk premiums and recent credit downgrades, the insider added.

WHAT CAN BE DONE-

Further investment in the grid will help: While Egypt’s grid is well-developed relative to other markets, state investment in grid expansion would heighten the country's strategic advantage in the green hydrogen space, said Globeleq Business Development Manager Ahmed Hisham. More and better grid connections would allow producers to recoup costs by selling excess renewable energy back to the grid, added Scatec Egypt Business Development Head Mahmoud Shata.

Earlier this year, we welcomed green hydrogen incentives that included a series of taxbreaksand non-tax incentives to companies implementing green hydrogen projects within five years and deriving a certain percentage of their financing from foreign lenders.

More needs to be done: Although the government’s current incentives package lowers the cost of green hydrogen projects, given current conditions it may not be enough to make green hydrogen production financially feasible, one of the industry insiders said. Ideally, the government would be able to subsidize green hydrogen production itself — though, they added, that this may not be realistic at the present moment.

Int’l cooperation on green hydrogen is in everyone’s best interest: In lieu of direct subsidization, working closely with stakeholders in the EU and international financial institutions to incentivize offtake agreements and share existing expertise is critical to the industry’s success in Egypt. EU countries’ desire to secure energy independence from Russia and maintain green hydrogen’s reputation as a safe fuel means that European companies and state entities have an interest in working closely with potential producers, Port of Rotterdam Energy Transition Business Manager Erik van der Heijden noted.

The bigger picture: Given green hydrogen’s high price compared to carbon-producing energy sources, the key to developing green hydrogen production is a strong commitment by the EU and other advanced economies to carbon transition through regulations that incentivize offtakers in the EU, US, and elsewhere to buy green hydrogen. Regulations like the EU’s Carbon Border Adjustment Mechanism, which places taxes on imports that make up the difference between the local carbon price — if there is one — and the EU’s carbon price, are critical to narrowing the price gap between imports of green hydrogen and dirtier fuels.

It’s not all bad: Despite the challenges, we still have many reasons to get excited about green hydrogen. First, Egypt’s renewable mix makes it an excellent candidate for powering green hydrogen production — few potential producers have both ample wind and solar resources, which tend to produce energy at reciprocal times of day, one of the industry insiders said. Second, Egypt’s strategic location, existing port infrastructure, and expertise in ammonia production — a key green hydrogen derivative — also lend themselves well to securing offtake agreements and rapidly gaining global market share. Third, the government has made clear commitments to developing the sector, including the newly-approved incentives for green hydrogen producers. And finally, once offtake agreements are secured, financing issues should ease.

Your top green economy stories for the week:

  • Infinity is lining up USD 10.5 bn in investments in Egypt over the coming five years: USD 10 bn will go towards new investments in renewables, while the remaining USD 500 mn is earmarked for EV charging infrastructure.
  • The road to reach our renewables ambitions is rocky: While the government wants to ramp up the country’s renewables capacity, infrastructure remains underdeveloped.
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