Egypt celebrated the signing of a clutch of memorandums of understanding (MOUs) in late February with international and local investors to establish green hydrogen production plants along the banks of the Nile. The MOUs represent a total potential investment of $41b. Separately, the government let it be known that a European steelmaking giant is honing a proposal to develop a $4bn green steel complex in the North African state.

However, with some 30 similarly provisional agreements now signed since the government launched its drive into the sector around the turn of the decade, the failure of any significant schemes to progress to FID is striking, as project developers struggle with demand and financing uncertainty.

The evolution of Egypt’s nascent green hydrogen industry has followed an unusual trajectory from the outset. Keen to move swiftly to snag investors, the authorities provisionally signed up developers for numerous projects well before the requisite fiscal and regulatory legislation completed its slow journey through the state’s infamously sclerotic bureaucracy.

Funding costs have risen because of Egypt’s high levels of political and economic risk, and associated junk credit ratings

By end-2023, schemes notionally worth more than $80bn had been outlined in MOUs, with the first-movers progressing to moderately firmer ‘framework agreements’. However, the only development to start up is a 15MW pilot plant developed by a consortium of the UAE’s Fertiglobe, Norway’s Scatec and the local sovereign wealth fund—crucially receiving funding from the European Bank for Reconstruction and Development and with the Abu Dhabi-owned fertiliser company committed to purchasing the output.

Vanishingly few of the other announced projects have lined up specific offtakers—a necessity for raising commercial finance—while funding costs have risen because of Egypt’s high levels of political and economic risk, and associated junk credit ratings.

Policy progress

Nonetheless, the government has made considerable strides in providing greater policy and legal certainty over the past six months. The latest seven MOUs come almost exactly a month after promulgation of a long-awaited decree laying out the financial incentives to be offered to green hydrogen investors—including tax and customs relief and a streamlined route through typically stifling red tape—on condition 70% of project finance is derived from overseas and 20% of equipment and services are sourced locally.

All the new projects envisage location in the embryonic hydrogen hub in the Suez Canal area, ideal both for exports and for the supply of hydrogen-based bunkering fuel. The project outlines imply a combined $12b of investment during the pilot phases and another $29b to achieve the first phase of commercial production.

Chinese interest

Chinese firms characteristically feature strongly in the line-up, consistent with Cairo’s increasingly close political and economic ties to Beijing.  

A consortium of China State Construction Engineering Company and South Korea’s SK Ecoplant entered a deal with the normal state counterparties to such agreements—the New and Renewable Energy Authority, the Egyptian Electricity Transmission Company, the Sovereign Fund of Egypt and the General Authority for Suez Canal Economic Zone—calling for a $2b plant producing 50,000t/yr of hydrogen and 250,000t/yr of ammonia, starting up from 2029.

Hong Kong-based oil and gas company United Energy Group, which agreed to develop a renewables-powered potassium chloride plant in Suez in October, also signed up to a hydrogen scheme, of undisclosed size.

And state-owned China Energy Engineering Corporation concluded a framework agreement in late 2023 to develop a 140,000t/yr clean hydrogen plant, stating intent to break ground in May—presumably with funding from Beijing.

Developers from Europe, the main intended market for most projects, are likewise again well-represented—reflecting the opportunities created by the EU’s plan to import 10mt/r of green hydrogen by end-decade and North Africa’s ideal location for its supply.

Switzerland-based Smartenergy signed an MOU to consider developing an 830,000t/yr green ammonia plant, while London-headquartered Pash Global will study a 1.5GW facility producing green ammonia at the Ain Sokhna port.

Hearteningly for the government, local companies are also involved in two of the deals. France’s Meridian teamed up with the local firm Gama Construction on an MOU to develop a plant of undisclosed scope while Cairo-based Gila Al Tawakol Electric, an electrical equipment supplier turned renewables developer, intends to develop a 416,000t/yr green ammonia facility.

Local demand

Another of Egypt’s major appeals for prospective green hydrogen producers is the potential size of domestic demand—as carbon border taxes scheduled for phased imposition in the EU from 2026 necessitate decarbonisation of its substantial industrial sector to ensure it remains competitive.

The country is the world’s sixth-largest exporter of ammonia-based fertilisers, Africa’s leading steel manufacturer, and produces sizeable volumes of aluminium, chemicals and refined fuels. Debates are ongoing locally and in Europe over whether EU-backed green hydrogen development overseas should be geared towards exports of the raw fuel or its carriers to assist directly in reducing the continent’s emissions or towards decarbonising the host country’s manufacturing base to exempt its industrial goods from the levies—thereby maximising the domestic economic and job-creation payoff but incurring higher funding costs.

The government claimed in late February that Italy’s Danieli was considering the latter approach and was working to firm up a proposal to develop a $4b green iron and steel complex supplied by a $2–3b green hydrogen plant. The steelmaking giant, in partnership with compatriot Tenova, owns a co-developed technology, called Energiron, that would allow direct reduction iron plants to run on up to 100% hydrogen.

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Author: Clare Dunkley