Cairo’s aspirations to become a leading international player in the green hydrogen industry received twin fillips in mid-May. On the investment side, Norwegian clean energy company Scatec announced plans for its second hydrogen derivatives plant, this one producing methanol, while in the regulatory arena the cabinet approved a draft law enshrining tax incentives for such projects.

However, a comprehensive strategy for the sector remains pending despite repeated pledges of its imminent publication, worsening a sense of drift in the hydrogen push.

Oslo-based Scatec, a longstanding investor in Egypt’s renewables buildout, signed a memorandum of understanding (MoU) back in October 2021 with fertiliser producer Fertiglobe and Egypt's sovereign wealth fund to develop a 100MW plant at Ain Sokhna on the Gulf of Suez, output from which would be used to produce green ammonia in the former’s nearby fertiliser plant.

The pact was one of those firmed up into a framework agreement during the Cop27 climate change summit, held at the Egyptian resort of Sharm el-Sheikh in November, a month after the project company secured an $80m loan from the European Bank for Reconstruction and Development (EBRD)—an institution deeply involved in the country’s hydrogen plans.

60MW – planned capacity of second Scatec project

An FID is taking longer than originally envisaged and is now due later this year. But Egypt featured in Scatec’s corporate strategy announced last September, the only Middle Eastern state to do so. The company has abandoned renewables and hydrogen projects in Iraq and Oman.

However, Scatec’s confidence in the nation’s prospects as a green hydrogen producer was affirmed in mid-May by signature of an MoU to develop a second green hydrogen project.

The provisional agreement with the local firm Alexandria National Refining and Petrochemicals Company and Egyptian Bioethanol Company covers a 60MW plant at Damietta on the Mediterranean coast, producing an initial 40,000t/yr of green methanol, potentially rising to 200,000 t/yr, aimed at the bunker fuels market.

Rapid progress on paper in the lead-up to and during Cop27, which saw eight MoUs upgraded to more-concrete ‘framework agreements’, has slowed in its aftermath. However, executives from SCZone, the government agency in charge of the Suez Canal Economic Zone and one of the state partners in the multiple green hydrogen schemes planned there, have been active over the past month in concretising other plans. Meetings with China Energy Engineering Corporation in late May yielded a pledge to firm up within two months an MoU inked in November on the two-phase development of a 140,000t/yr green hydrogen plant at the zone, at an estimated cost of some $5.1bn.

The wealthy Mideast Gulf states have likewise seized the opportunity to cement political relations with an important player on the regional diplomatic stage as part of their spiralling international investment activity.

Egypt’s minister of international cooperation, Rania Mashat, and SCZone officials met representatives of Saudi Arabia’s Acwa Power, the Kingdom’s clean energy champion, and affiliate of its sovereign wealth fund, on the sidelines of the EBRD summit in Uzbekistan in mid-May for talks that covered upgrading an MoU signed in November to develop a green hydrogen facility at the industrial hub. The scope was unspecified, but the Saudi firm has indicated hydrogen schemes abroad would likely replicate its flagship domestic project—which aims to produce 650t/d of hydrogen and 1.2mn t/yr of green ammonia. Abu Dhabi state-owned Masdar was among those to have signed framework agreements in November for a 2GW plant in the same location.

Hydrogen strategy

An important factor in persuading provisional investors to enter more binding commitments would be publication of the government’s long-awaited hydrogen strategy, being drafted with EBRD assistance for well over a year—which would provide regulatory and fiscal clarity, and hence improve projects’ bankability. Ministers promised its release during Cop27 and claimed again in March that finalisation was imminent, saying representatives of relevant authorities had been tasked with drafting the system of incentives to be granted to such schemes, suggesting the blueprint may have become mired in the country’s labyrinthine bureaucracy.

However, in advance of the overarching strategy, the cabinet in mid-May approved a law enshrining tax credits of 35–55pc on revenues from green hydrogen and related downstream schemes—on condition that 70pc of the project’s investment comes from abroad and 20pc of requisite components are sourced locally.

In April 2022, the production, storage and export of green hydrogen and its derivatives were designated as part of the government’s economic development strategy, which means they fall under the terms of the Investment Law offering various tax, customs and land-related incentives.

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Author: Clare Dunkley