Legal Framework of Hydrogen Energy in Egypt – Opportunities and Challenges
Introduction
Egypt adopted an ambitious energy diversification strategy. The strategy aims at ensuring the continuous security and stability of power supply, the diversification of energy resources and the optimum exploitation of the country’s resources.[1] The strategy has set a plan to achieve 20% renewable energy of total national generation capacities by 2022. This share will increase to 37% in 2030 and to 42% in 2035.[2]
Egypt is considered a “sun belt” country with 2,000 to 3,200 kWh/m2 of direct solar radiation.[3] The sun shines 9-11 hours a day with few cloudy days. In Egypt also there are land areas with high and steady wind speeds suitable for the economics of wind energy.
The country has reliable natural gas infrastructure, liquefaction facilities, bunkering market, construction expertise, and marine ports. Egypt locates between three continents and with the Suez Canal carrying approximately 12% of all the sea freight in the world, it can accordingly supply renewable energy near and far, specially to markets like the European Union and the Middle East – regions set to see a huge demand for hydrogen in the coming years.
During 2016-2018, several natural gas discoveries were announced in Egypt that might shift the country’s vision towards a more dependence on the natural gas. This also turned Egypt from a net gas importer to exporter in late 2018.
Egypt has a network of gas pipelines, the most significant of which is the Arab Gas Pipeline which extends across northern Sinai via Al-Arish to Jordan and on to Syria and Lebanon. A first new pipeline to connect Egypt and Europe could also be realized. In December 2018, an agreement was entered into between Egypt and Cyprus to establish a direct natural gas subsea pipeline between the two countries. This pipeline can connect Egypt to Greece to the main European gas grid in Italy.
Egypt on the Hydrogen Production and Export Side
Egypt is a signatory of the UN Framework Convention on Climate Change (UNFCCC) which aims to limit global temperature increase to a level that is not dangerous.
During Paris Agreement, Egypt, as one of the signatory countries, committed to limiting global warming well below 2°C above pre-industrial levels, and pursuing efforts to limit it to 1.5 °C by 2100. Egypt submitted its Nationally Determined Contributions (NDCs) in 2017 to be activated in 2020. Ahead of COP27, Egypt is will be declaring its revised NDCs within weeks.
Egypt’s NDCs are however general and do not provide quantified targets. They do not set a specific target for future emission reductions, but mentioned the possibility of creating a domestic emissions market to help drive greenhouse gas (GHG) cuts.
Egypt contribution to the global GHG emissions is relatively insignificant (0.6% of world total). Egypt however is highly vulnerable to climate change. Rising seas in the Nile Delta, changing weather patterns and declining precipitation levels are steadily affecting the natural balance of the ecosystems in Egypt.
The Egyptian government formed in 2015 the National Council on Climate Change to be led by the Minister of Environment. The council will be responsible for drawing and updating a comprehensive national strategy for climate change and national sustainable development strategy.[4]
With the world increasingly focusing on emissions and carbonization, pressure is expected to be put on governments to effectively fight climate change. Hydrogen frontrunner governments with strong climate policies such as Australia, China, the EU and Japan are intensifying public efforts to allow a quick development of hydrogen economy.
It is expected that hydrogen can replace conventional fuels such as coal, oil and natural gas in all sectors of the economy including transport, industry and electricity generation. The emergence of hydrogen economy will ultimately lead to a significant reduction in global demand for conventional fuels and a much broader demand spectrum on hydrogen.
Although this can be a risk for Egypt as a natural gas exporting country, Egypt might also have a strategic chance to benefit economically and serve this future demand. Given its renewable energy resources as well as proximity to key markets such as the EU, Egypt has outstanding opportunities to tap into new energy export market segments.
Fossil based hydrogen
For countries with a large natural gas portfolio like Egypt, investing in hydrogen offers an additional benefit of providing a long-term future for their assets. Egypt has the opportunity to start producing hydrogen by converting part of its ample natural gas resources to hydrogen, notwithstanding using carbon-capture technology
Green hydrogen
Hydrogen can also be produced from water by electrolysis using electricity. Egypt is bordered by coastal sea 2450 km, while having 1530 km of the Nile River which gives it a competitive edge in producing green hydrogen at scale and at low cost.
Water electrolysis can be implemented using electricity produced by renewable energy (e.g. solar, wind or hydro) and in this case the hydrogen can be considered as an entirely renewable and clean energy carrier (Green Hydrogen).
With the expected declining cost of renewable electricity and electrolyzers, Egypt can use renewable energy to power the electrolysers and produce green hydrogen.
Challenges for Hydrogen
One of the main challenges facing hydrogen energy is cost and the lack of infrastructure for distribution and storage. Producing, storing and transporting hydrogen as well as building the necessary infrastructure are expensive and are likely to involve substantial capital expenditure compared to other renewable energy resources. Other challenges include the demand uncertainty, and the lack of regulatory and policy framework.
Banks and financial institutions are expected to support stakeholders investing in new, low carbon technologies, such as hydrogen projects. The European Bank for Reconstruction and Development (EBRD) signed a memorandum of understanding (MoU) with Egypt’s Ministry of Electricity and Renewable Energy and Ministry of Petroleum and Mineral Resources to establish a framework for assessing the potential of low-carbon hydrogen supply chains.
EBRD’s assessment covers:
- Mapping the current and future expected international supply and demand of the hydrogen market.
- Analyzing existing and potential hydrogen production in Egypt.
- Valuing the storage, conversion and transportation of hydrogen and its derivatives.
Providing guidelines for the country’s low-carbon hydrogen strategy.
Italy’s Eni signed an agreement in mid-2021 with EETC and the Egyptian Natural Gas Holding Company (EGAS) to assess the technical and commercial feasibility of projects to produce blue and green hydrogen in the country as published in a press release by Eni. The study will also analyze the potential local market consumption of hydrogen and export opportunities. In addition, possible development and business schemes will be evaluated to implement the selected projects.
Egypt’s Hydrogen Planned Projects
The Egyptian Government plans to announce a $40 bn national hydrogen strategy this year, which will include a production capacity of 1,400 MW by 2035 through water electrolysis.
Several green hydrogen projects are being planned in the country, highlighting the country’s potential, and came as the country gears up to host COP27 in 2022.
These projects include:
- A consortium of French EDF and Zero Waste, a UAE-based company, signed an MoU with the Egyptian Electricity Transmission Company (EETC)and the New and Renewable Energy Authority (NREA), and the Sovereign Fund of Egypt (TSFE) to develop a green ammonia mega-project to be located in the Suez Canal Economic Zone (SCZone). The green fuel is planned to offer zero-carbon fuel to the maritime industry crossing the Suez Canal by 2026 according to an announcement by EDF.
- Scatec inked an MoU with SCZone, the TSFE, EETC, and NREA announcing the plan to develop a green hydrogen and ammonia facility to be located in the SCzone. According to an announcement by Scatec , the plant will be producing 1 million tonne of green ammonia annually, and could potential expand to 3 million tonnes green ammonia. The facility will be powered by renewable energy plants to be built in close proximity on an area of land allocated by NREA.
- AMEA Power, a subsidiary of Al Nowais Group, inked an MoU with SCZone to produce 390,000 tonnes of green ammonia per year in Ain Sokhna for export purposes. The energy company will use large-scale electrolysers to produce green hydrogen which will serve as feed-stock for the production of green ammonia at a nearby facility. The clean fuel will be then exported via the port of Ain Sokhna.
- Danish shipping company Maersk announced the signing of an MOU with the Egyptian government to explore the establishment of large-scale project for the production of green methanol, and green ammonia, specifically as ship fuels.
- Siemens Energy announced in a press release that it has signed an MOU with the Egyptian Electricity Holding Company EEHC to develop a green hydrogen pilot project in Egypt comprising 100 to 200 MW of electrolyzer capacity with the aim of promoting investment, technology transfer, and implementation of projects related to hydrogen production, based on renewable energy in Egypt.
- Belgium’s Dredging, Environmental & Marine Engineering Group (DEME) signed a cooperation agreement with the Egyptian government to start special studies for a green hydrogen production project.
- H2-Industries, the New-York based hydrogen production and energy storage company, signed an MOU with the SCZone to build a new Waste-to-Hydrogen facility at a new greenfield site in East Port Said, a project with an estimated cost of $4 billion.
- Fertiglobe, owned by ADNOC and OCIN also published in a press release that it has agreed with SCZone, the TSFE, EETC and NREA to develop a 50MW-100MW electrolyzer facility to produce green hydrogen for green ammonia production in Egypt.
- Taqa Power and Germany’s MAN Energy Solutions also agreed last year to undertake a pilot project to produce green hydrogen to fuel tourist buses in Egypt as stated in their press release.
Uncertain Regulation of Hydrogen
Currently, there is no unifying law which applies specifically to hydrogen projects in Egypt. Instead, the existing laws for the gas, transport and water sectors apply to hydrogen, which is classified as a gas under the Gas Market Law No. 196 of 2017 (the “Gas Market Law”).
The gas market is mainly regulated in Egypt by virtue of the Gas Market Law. “Gas” is defined broadly under this law to be “a mixture of hydrocarbon and non-hydrocarbon components, which exists in a gaseous state under standard conditions, including gas associated with oil or shale gas or extracted from biomass (biogas), as well as any other unconventional types of gas, whether it is liquefied or pressed or in a gaseous state, after treatment and separating any commercial derivatives such as condensate, butane, commercial propane, ethane-propane mixture according to the national network standard specifications, and it is considered a product that can be sold and traded in the markets.”
The Law provides for the establishment of a public body to be the regulator; this is the Gas Market Regulatory Authority. The Authority is responsible for regulating, licensing and overseeing all gas-related activities. The Law divided gas-related activities into (1) services activities, and (2) market activities. “Service activities” includes the operation of gas grids and facilities through transmission, storage, distribution of gas as well as LNG and regasification activities; “market activities” covers gas shipping and supply.
Regulation and national strategies specific to hydrogen and hydrogen technology will need to be put in place over time in Egypt in order to regulate the production, storage, and transportation of hydrogen. Regulatory reform will be a key area of focus if Egypt wants to deploy a hydrogen economy. Until this reform happens, any hydrogen project will be governed by the existing gas, energy, water, and environmental regulations.
The main laws and regulations that currently apply to Hydrogen include the following:
- Gas Market Law No. 196 of 2017 and it’s executive regulations issued by virtue of the Ministerial Decree No. 239 for 2018;
- Electricity Law No. 87 of 2015 and its executive regulations issued by the Ministerial Decree No. 230 of 2016; and
- Renewable Energy Law No. 203/2014.
Laws and regulations in respect of potential environmental impacts and safety include:
- Environment Protection Law No. 4 for 1994 and it’s executive regulations issued by virtue of the ministerial decree No. 338 for 1994;
- Law No. 7 for 2010 regulating Nuclear and Radiological Activities and its Executive Regulations issued by the Ministerial Decree No. 1326 for 2011; and
- Ministerial Decree No. 566 for 2002 for the Requirement and Measures of Carrying out Activities at the Egyptian Ports.
Conclusion
The government is acting proactively in the hydrogen economy. Given its successful achievements in the renewable energy as well as its strategic geographical location between Africa, Asia and Europe, Egypt can also lead an initiative to accelerate interactions between the North African countries – a potential supplier – and EU who are likely to become key hydrogen importers in the next decade based on their energy policy targets.
At present, there is no specific regulatory framework for the licensing and implementation of hydrogen in Egypt. Regulations and national strategies specific to hydrogen and hydrogen technology need to be discussed over time in Egypt. National regulations and codes need to be adopted to regulate the production, storage and subsequent transport of hydrogen.
Regulatory reform will be a key area of focus if Egypt will consider involvement in the hydrogen energy. Until this reform happens, any hydrogen project will be governed by the currently existing gas, energy, water and environmental regulations.
Egypt should think of alternative investment capital resources and business environment to rapidly engage in hydrogen production and export. A successful hydrogen industry would support Egypt’s environmental goals while also providing opportunities for revenue.
For more information about this topic, please contact Dr. Fatma Salah
[1] Over the last years, Egypt has introduced a number of regulations and policies to incentivize investment in renewable energy. Among these regulations and policies are announcing of the feed-in tariff, offering tax and non-tax incentives for renewable energy project, guaranteeing access to the grids, allowing long-term power purchase agreements, providing for priority of dispatch, allocating land needed for the projects at a discounted price, guaranteeing the financial obligations of the government off-taker, and gradually lifting of government subsidies on traditional fuels.
[2] New and Renewable Energy Authority (NREA)
[3] The Solar Atlas of Egypt.pdf
[4] The council is established by virtue of Prime Minister Decree No. 1921/2015. The council is competent, among others, to (1) organize and implement national research efforts on climate change and projects to reduce emissions and adapt to climate change risks; (2) vet projects submitted to the Green Climate Fund (GCF); (3) remove obstacles that stand in the way of collecting, managing and processing climate change data, (4) drawing the national and sectorial policies in relation to climate changes in light of the international conventions and the national interests, (5) follow up the NUFCCC negotiations and the related protocols and agreements, (6) support and increase R&D in climate changes, and (6) raising public awareness about climate change.
