Green hydrogen projects in Egypt could be eligible for a generous tax credit of up to 55% under a new draft bill approved by the country’s government yesterday, as it sought to cement its status as one of the world’s leading locations for H2 production.
The draft law envisages a tax credit of 33-55% on revenues made from production of green hydrogen and it derivatives, according to Egypt’s Cabinet, although it is not yet clear how the level of tax incentives will be set from project to project.
The tax credit would also apply to desalination plants providing an as-yet-undisclosed percentage of water to green hydrogen projects, and renewable energy installations delivering green H2 schemes at least 95% of their power.
But the cabinet, which approved the bill at a meeting chaired by Egypt’s prime minister Mustafa Madbouli, also laid down strict eligibility criteria for the proposed financial incentives, most significantly that projects must secure at least 70% of their project financing from foreign investors, as well as using at least 20% domestically-produced components.
And projects must be operational within five years of the bill passing into law — which could be some months as it must now pass through both houses of Egypt’s bicameral legislative system.
The tax break comes amid a swathe of the bill’s other financial incentives for Egypt’s nascent green hydrogen industry, including exemption from value-added tax (VAT) on equipment and materials purchase by the project, and a waiver on taxes and fees related to company and land registration, as well as those due on setting up credit facilities and mortgages.
Projects producing green hydrogen and its derivatives — such as green ammonia or methanol — would also benefit from a customs tax exception on goods imported for the project, apart from passenger vehicles.
Wind- and sun-rich Egypt is seeking to position itself as a major hub for green hydrogen development and ammonia export, and the bill is likely to be the government's response to green hydrogen subsidies announced by a host of other countries in recent months.
The 55% tax credit will have to compete with subsidies from the US, which has a maximum tax credit of $3/kg, and Canada, which has introduced a tax credit of 40%. The EU is set to launch a price premium auction in December.
Egypt has also gone out of its way to court foreign investors with the establishment of a free trade zone in the busy Suez Canal region — the Suez Canal Economic Zone (SCZONE).
Last year, international project developers and private equity firms pledged to invest a combined $42bn in green hydrogen and ammonia projects in SCZONE.
Outside of the free trade zone, Egypt’s state-owned oil refiner, the Alexandria National Refining and Petrochemicals Company, last week scooped a joint development agreement with Norwegian renewables producer Scatec to build a $450m green methanol plant in Damietta port that is slated to produce around 40,000 tonnes of the hydrogen derivative per year.
And iron-ore billionaire Andrew Forrest said in 2022 that his green hydrogen company Fortescue Future Industries (FFI) will build a 9.2GW renewables project to make green hydrogen and ammonia in Egypt — although the company may now be scaling back its grandest green hydrogen ambitions since the appointment of chief executive officer Mark Hutchinson last year.