Policy

Egypt considers kick-starting domestic green hydrogen industry with Carbon Contracts for Difference

Official website releases details of possible policies to drive offtake and create more certainty for final investment decisions

The sun shines through a wind turbine at the Zaafarana wind farm on Egypt's Red Sea coast.
The sun shines through a wind turbine at the Zaafarana wind farm on Egypt's Red Sea coast.Photo: AFP/Getty
  • Polly Martin

Carbon Contracts for Difference, carbon taxes, and government purchasing schemes have all been raised by Egypt’s government-affiliated think tank, the Information and Decision Support Center (IDSC), as possible policy routes to reduce the cost of renewable hydrogen and encourage offtake within the domestic industry.

Hydrogen: hype, hope and the hard truths around its role in the energy transition

Will hydrogen be the skeleton key to unlock a carbon-neutral world? Subscribe to the weekly Hydrogen Insight newsletter and get the evidence-based market insight you need for this rapidly evolving global market
Sign up now

While the Egyptian government signed eight framework agreements for large-scale green hydrogen projects at last year’s COP27 conference in Egypt, progress has been slow.

At the end of last year, the government granted so-called “golden licences”, a combination of land leasing, construction permitting and operating rights to two projects, including the 100MW Egypt Green plant, which is set to displace grey H2 in fertiliser firm Fertiglobe’s Egyptian subsidiary operations.

However, while the project has already secured a $80m loan from the European Bank for Reconstruction and Development, a final investment decision (FID) has not yet been taken.

The IDSC notes that a major hurdle to pilot projects taking FID is that few industrial users are willing to switch away from hydrogen derived from fossil gas, which despite a price spike in 2022 is still a far cheaper option.

The report suggests reducing the cost of renewable electricity and electrolysers through tax exemptions, grants, soft loans and obtaining financial support from potential import nations.

This would track with a draft tax credit of up to 55% on hydrogen revenues tabled by the Egyptian government, which would require projects to have 70% foreign financing.

And in order to drive demand from domestic industries in the short term, the IDSC suggests that Egypt could implement Carbon Contracts for Difference, in which the government signs a long-term contract with industrial emitters to pay the difference between a set carbon price and the cost of cutting emissions. In practice, this would cover the cost gap between grey and green hydrogen.

The think tank also calls for a wider carbon tax, as well as targets for the use of renewable H2 in heavy industries such as steel, fertilisers and chemicals.

In addition, the IDSC suggests state purchasing of green hydrogen in the medium term, by setting minimum procurement requirements for green products in government and public agencies.

The report — which was highlighted by Egypt’s State Information Service yesterday (Monday) — further recommends driving the uptake of hydrogen-fuelled heavy-duty vehicles by leveraging public-private partnerships and setting either a fossil-fuel heavy-duty vehicle phaseout date, carbon reduction standards or a sales target share for zero-emissions vehicles.
Additionally, the IDSC calls for the government to set clear definitions for the carbon intensity of hydrogen and its derivatives, while ensuring that any rules are harmonised with potential importers’ standards. And it adds that governance of hydrogen transport networks will need to be clarified (even if H2 is blended into existing pipelines), while a minimum level of infrastructure to support future demand must be identified.
(Copyright)
EgyptSubsidiesGreen H2Middle EastAfrica
Published 13 June 2023, 08:00Updated 13 June 2023, 08:00