This article was first published in Oil and Gas Middle East, February 2024
Across the world, countless steps are being taken to develop a robust and successful hydrogen economy, one that can spur on technological developments and scale up the production and use of this vital fuel.
Egypt is among the countries at the forefront of this developing market and is quickly emerging as a leader in the field, with a particular interest in green hydrogen.
As part of its global green hydrogen outlook, published last year, professional services organization Deloitte found that by 2050, North Africa has the potential to be the world’s top exporter of green hydrogen compared to domestic demand, alongside Australia1.
Geography likely plays an important part in this forecast, given much of the world’s trade flows through Egypt’s Suez Canal. But it is not the sole reason for it and the country also has the technology and natural resources, namely wind and solar power, required to produce green hydrogen in vast quantities.
Capitalizing on this, the Egyptian government established the National Green Hydrogen Council in 2023, which approved a new national green hydrogen strategy late that same year. It set out an ambitious target for reaching 5-8% of the global hydrogen market by 2040. This strategy commenced with a series of deals to start production of close to 5 gigawatts (GW) of green hydrogen, followed by the passing of a new piece of subsidy legislation in January 2024, which is now with the country’s president for approval.
The bill offers a 33-55% reduction on the tax paid on green hydrogen projects, alongside a VAT exemption for machinery, raw materials, transport and export costs, plus a relief from other levies and reduced fees for documentation and registration. However, to reap the benefits of this legislation, green hydrogen developers must secure 70% of a project’s investment from backers outside of Egypt, begin the project within five years of the bill coming into force, and commit to a 20% local content requirement.
Egypt’s strategy will ultimately strengthen existing efforts to establish the Middle East as a green hydrogen production hub and other countries in the region are also investing huge sums in this market, with some very interesting projects likely to bear fruit soon.
One notable example is the NEOM Green Hydrogen Company’s (NGHC) efforts to develop the world’s largest green hydrogen plant, which will be powered entirely by renewable electricity in Saudi Arabia. The project, which is currently under construction, could produce up to 600 tonnes of green hydrogen per day once it begins operation, slated for 20262.
In recent years, DNV has also become more involved in green hydrogen production, in Egypt and more widely. DNV signed a memorandum of understanding (MoU) with PETROJET, a leading regional engineering procurement construction (EPC) contractor, to strengthen collaborative efforts for Egypt’s energy transition, through the development of green hydrogen and its derivatives3. The MoU, which was signed at the 2023 Egypt Petroleum Show, is aimed at finding areas in which DNV can support PETROJET with its technical expertise in design verification and project assurance.
With the 2024 iteration of the Egypt Petroleum Show only a short time away, it is interesting to reflect on how far Egypt has come in the past year, with the country taking some significant steps towards its target for 42% of domestic energy demand to come from renewables by 2030.
But that is not to say that the scaling up of green hydrogen generation won’t come without its challenges, both in the Middle East and around the world.
Cost efficiency remains a key concern. Green hydrogen can be expensive when compared with direct electrification and there is also the associated energy loss to consider. But in some sectors hydrogen will be a necessity, particularly those that are hard-to-abate and cannot be electrified, like aviation, shipping, and high-heat industrial processes.
However, the fact remains that very few projects reach a final investment decision, often stumbling before they can come to fruition. As hydrogen becomes more widely used across the globe, sectors with a more complex decarbonization journey will inevitably begin to look to alternative fuels and more of these stalled hydrogen projects will get fresh momentum.
The best way to attract further investment into a particular region’s green hydrogen efforts is to underline previous successes and the ability to produce fuel at a low cost. For this reason, Morocco is fast becoming a country of interest to many investors, with data from the International Renewable Energy Agency suggesting that the country could be the third lowest-cost producer of hydrogen by 20504.
While hydrogen is set to play an important role in the evolving energy mix, it will have to compete in just that - a mix of the other energy sources. DNV’s Energy Transition Outlook 2023 predicts that, even though hydrogen will spur industry transformations, it may only make up 0.5% of the global energy mix by 2030 and 5% by 2050, falling short of the 15% requirement set out by the Paris Agreement5. Developers will likely have to showcase the capabilities and economic viability of green hydrogen over other sources when looking to attract investors.
Further to this, boosting the market confidence in green hydrogen will be essential to growing the wider hydrogen economy. To this end, DNV launched a Joint Industry Project (JIP) with 18 industry partners in 2022 to enhance the standardization for reliable, safe, and cost-efficient green hydrogen production systems with a new certification scheme. The JIP “Certification of Hydrogen Production Systems by Electrolysis” delivers the first global and industry originated set of knowledge required for the certification of hydrogen production equipment, designed to reduce uncertainties and risks6.
As confidence in green hydrogen grows and it demonstrates its viability, it is a safe bet that we will see more, and bigger, projects enter development.
It is clear that green hydrogen will have a role to play in our global energy future - with Bill Gates even dubbing it the “Swiss army knife of decarbonization” - but to what extent remains to be seen. Despite this uncertainty Egypt isn’t hanging about and is already becoming an interesting case study in the production and export of green hydrogen. With investments coming in and new projects launching across the country, the future truly could be looking greener every day.
[1] https://www.deloitte.com/za/en/issues/climate/green-hydrogen.html
[2] https://nghc.com/
[3] https://www.dnv.com/news/dnv-and-petrojet-sign-mou-to-support-green-hydrogen-projects-in-egypt-241311
[4] https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2022/May/IRENA_Global_Hydrogen_Trade_Costs_2022.pdf
[5] https://www.dnv.com/energy-transition-outlook/download.html
[6] https://www.dnv.com/Publications/reliable-production-systems-for-the-growth-of-clean-hydrogen-245817
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