Egypt Opens Path for Investment in Green Hydrogen

Egypt has been at the forefront of renewable energy deployment in Africa, notably through its Feed-in-Tariff programme (“FiT Programme”) launched in 2014. The aim of the FiT Programme is to transition Egypt’s electricity sector to a more environmentally friendly and sustainable energy future, by promoting renewable energy sources and reducing hazardous emissions and pollutants (i.e., Carbon Dioxide). Therefore, Green hydrogen, which is hydrogen produced by the electrolysis of water, using renewable electricity was the logical next step. While renewable energy is essential to fight climate change, renewables alone will not suffice to meet the United Nations Paris Agreement’s goal of avoiding a rise in global temperature by 2°C. Decarbonizing all sectors of the economy, including heavy industry and transportation, requires the advent of new sources of energy such as green hydrogen. The Egyptian government has now issued Law No.2 of 2024 (the “Green Hydrogen Incentives Law”) following its approval by the Egyptian House of representatives. This Law Update aims to shed light on the government’s agenda towards a greener approach, it plans to adopt and its perceptions by virtue of the newly issued Green Hydrogen Incentives Law.

During the EGYPES – Egypt Energy Show 2024 Strategic Conference[1] themed “Driving Energy Transition, Security and Decarbonisation”, Egypt’s Minister of Petroleum and Mineral Resources, his Excellency Tarek El Molla, stressed on the fact that “[we’re] all focused on the future of energy, and the transition from fossil fuels to green alternatives is paramount. Adding that, “delivering affordable green energy to the market is a very long journey, requiring careful planning and development from the ground up.” The new Green Hydrogen Incentives Law is inclusive of various types of green hydrogen production projects such as factories that produce green hydrogen and its derivatives, water desalination stations, electric power plants, projects that operate in the transmission, storage, and distribution of green hydrogen and its derivatives, and projects that are involved in the manufacturing and production of equipment necessary for green hydrogen production and their derivatives. Entities eligible for the incentives provided by the aforementioned law must meet the corresponding requirements and conditions. Accordingly, this ensures that the (“Project Company”) can access and enjoy the benefits outlined within the legislation.

This law comes into effect to offer favourable tax incentives and exemptions for investors. A cash investment incentive (i.e., cashback) referred to as the “Green Hydrogen Incentive” is provided at a rate ranging from 33% to 55% of the tax payable on revenues generated from the production of green hydrogen. Moreover, investors shall benefit from total tax exemptions from value added tax (“VAT”) on equipment, vehicles, supplies, and raw materials used in the production. Additionally, exports of green hydrogen projects and their derivatives shall be subject to VAT at zero percent. Upon the approval of the cabinet, a ministerial decree issued by the competent minister, may exempt green hydrogen projects and their derivatives from real-estate tax on assets that are effectively utilised in such projects. By virtue of the issued decree, stamp duties, documentation and registration fees related to the company’s articles of association, credit facility and mortgage contracts, land registration contracts necessary for establishing green hydrogen projects and their derivatives shall be waived; as well as, customs duties on all imports essential for the said projects, with the exception of passenger cars.

The new Green Hydrogen Incentives Law, grants investors other in-kind incentives (i.e., non-tax incentives), whereby, companies of green hydrogen projects are to obtain a one-time single approval referred to as the Golden License – according to the Goden License Guidebook issued by the General Authority for investment and Free Zones, a Golden License is a comprehensive approval on the set-up, operation, and management of a project, including the building licenses of such projects and the allocation of the real property required therefor – by virtue of the Investment Law No. 72 of 2017 and its executive regulations.[2] Accordingly, the Project Company may import directly or through third parties without registering in the importer’s registry, what it deems necessary in terms of its equipment, raw materials, machinery, spare parts, appropriate transportation means for operational and expansion purposes. The legislation allows the Project Company to export its products directly or indirectly without a license and registration in the exporter’s registry. At the same time, allowing for more flexibility and autonomy, whereby Project Companies are permissible to hire foreign employees up to 30% of the workforce of the project during its first ten years of its lifetime. Project Companies may establish special customs department for the project’s exports and imports in coordination with the Minister of Finance. A 30% reduction shall be applicable to the designated fees for the usage of the services provided of the Egyptian ports by project companies. In addition, a 25% reduction of the usufruct fees for land allocated for the project company and a 20% reduction on the usufruct fees for land used as warehouses at Egyptian ports. The Project Company shall be granted a grace period for payment of the land usufruct fees until the commercial operation date of the project. Finally, the project licenses shall be granted for the same duration of the project agreements and shall terminate by its termination/completion.

The newly enacted Green Hydrogen Incentives Law is not only paving the way to make Egypt a regional hub for green hydrogen and derivatives projects, primarily reliant on renewable energy sources such as wind and solar energy that contribute to reducing greenhouse gas emissions and mitigating climate change; but also brings about additional positive spillover effects in different fields. Through the attractive investment environment created for Project Companies, Egypt’s economic position is on the outreach of a positive stance, whereby, sustainable development is being encouraged, employment opportunities are on the rise, unemployment rates are reducing, and competition is being supported by different stakeholders. Moreover, Egypt’s commitment to fostering technological innovation and research development in the field of green hydrogen production, places Egypt among the leading countries in clean energy technology. In that sense, Egypt is capable of serving as an important calibre in providing investors with an attractive investment climate, that is reliant on boosting production, increasing exports, and maximizing the utilization of renewable energy sources, incentivizing investment in them.

In partnership with the Egyptian government, Egypt signed more than 27 agreements with international developers seeking to establish green hydrogen and renewable energy projects. Accordingly, Ayman Soliman, the CEO of The Sovereign Fund of Egypt (“TSFE”), indicated that “The Fund is receiving continuous and increasing interest from investors in green hydrogen projects, and that reflects the growing interest of companies in joining the Egyptian green hydrogen program, which reflects the state’s progress on the right path through establishing a clearly defined and fully-fledged program supported by all state agencies.”

A prominent existing client to the firm, known to be one of the world’s largest private water desalination company, leader in energy transition and first mover into green hydrogen, has signed the framework agreement, following the Memorandum of Understanding that was previously signed to outline the development of the first phase of the green hydrogen project in Egypt with a capacity of 600,000 tonnes-per-year of green ammonia, with an investment in excess of USD 4bn, with the intention of scaling up to a second phase with a potential capacity of 2 million tonnes-per-year. The agreement involved other stakeholders including the TSFE, the Suez Canal Economic Zone, the Egyptian Electricity Transmission Company, and the New and Renewable Energy Authority. Moreover, Marco Arcelli, the CEO of ACWA Power, one of the Project Companies, referred in a statement upon signing that it “is proud to bring its expertise in this new and exciting market to Egypt. Egypt is well-positioned to become one of the world’s top producers of green hydrogen and we [they] are elated to be a part of the country’s energy transition.”

While there might be some doubts around the implementation process of the new Green Hydrogen Incentives Law due to its novelty, the provisions of the law stipulate that the issued certification granting Project Companies the incentives by the competent minister or any of his authorized representatives shall be considered final and effective on its own without the need for additional approvals from any other related parties involved.

Finally, it is evident as per the increasing number of agreements of memorandums of understanding signed, that Egypt is an investment hotspot for green hydrogen energy from the perspective of the different stakeholders involved, as the circumstances and conditions by virtue of the new Green Hydrogen Incentives Law allow it to take place. While some fallacious government regulations/reforms and implementation processes happen to sometimes impede the set out aims of the law, it is vital to ensure the accuracy and efficiency of regulatory frameworks to minimize such hindrances and uphold the integrity of the legislation. At the same time, it is important to acknowledge the benefits generated as a result of investments directed to the energy sector in terms of economic growth, energy security, and accordingly a positive long-term impact on standards of living.

[1] The Egypt Petroleum Show is North Africa & the Mediterranean’s most important oil & gas exhibition & conference held under the patronage of His Excellency Abdel Fattah El Sisi, President of the Arab Republic of Egypt, where oil & gas professionals convene to engage in dialogue, create partnerships, do business, identify solutions & strategies that will reshape the global energy markets.

[2] https://www.investinegypt.gov.eg/Fact%20Sheets/Golden%20License%20Guidebook.pdf