Implementing the OECD Framework for Industry’s Net‑Zero Transition in Egypt

Law No. 2 of 2024 provides a comprehensive set of incentives to attract foreign investment and promote sustainable development. It introduces tax exemptions, including a cash rebate of up to 55% on income tax, fast-track licensing through the Golden License mechanism and local content requirements to ensure technology transfer and job creation. These measures are designed to position Egypt as a competitive and reliable hub for low-carbon hydrogen production and export, aligned with its climate goals and Egypt’s Vision 2030. However, the current national reform agenda can benefit from additional operational regulatory measures, especially regarding infrastructure usage (e.g. third-party access to energy infrastructure, including electricity grids and hydrogen transport networks) and the development of hydrogen certification schemes. Emphasising the importance of certification systems is critical.

The production of green hydrogen in Egypt currently remains far more expensive than fossil-based counterparts. The OECD’s assessment of four project scenarios – conducted under current conditions – revealed a Levelised Cost of Hydrogen (LCOH) in Egypt ranging between USD 3.7 and USD 4.8 per kilogramme (kg) of hydrogen (H₂). This is at least double the price of USD 1.8/kg H₂ envisioned in Egypt’s National Low-Carbon Hydrogen Strategy by 2040, which assumes an annual production scale of 6-9 Mt by 2040.

Egypt’s National Low-Carbon Hydrogen Strategy uses price estimates to analyse the projected economic impact and export potential. In contrast, the LCOH estimations presented in this study are an independent assessment conducted by the OECD based on a techno-economic assessment and a consistent set of assumptions. Therefore, they have not been derived from Egypt’s National Low-Carbon Hydrogen Strategy. As with any such assessment, estimates vary depending on the underlying assumptions such as technology performance characteristics and costs, financing conditions and operational parameters. Findings should thus be considered indicative and comparative rather than definitive.

According to the OECD’s assessment, the most cost-effective setup under is a co-located system combining on-site renewables, electrolysers and pressurised storage, particularly in high-resource areas like Gharib Cape, where the LCOH can be as low as USD 3.7/kg H₂ under current conditions. This hybrid model, which draws 2%-5% of electricity from the grid during low-generation periods, avoids costly oversizing of renewable and storage capacity.

Egypt could significantly narrow the cost-competitiveness gap between current hydrogen production estimates and its strategic targets to 2040 by implementing measures to strengthen its enabling investment environment and by developing and implementing financing instruments. Key levers include reducing upfront investment costs, especially for electrolysers and storage infrastructure to ensure stable output; further improving regulatory clarity, permitting processes and grid integration of renewables; enhancing access to concessional finance and blended finance instruments; and scaling up domestic manufacturing capacity for hydrogen equipment. Technological learning is expected between now and 2040 – driven by innovation, economies of scale and policy support – and will lower notably the capital costs of equipment over time.

The lowest Levelised Cost of Green Ammonia (LCOA) is estimated at USD 844 per tonne for when hydrogen is converted to ammonia for stable storage and long-distance transport to the EU. Production remains highly capital-intensive, with upfront costs representing nearly 80% of the LCOA.

For green Direct Reduced Iron (DRI), the lowest estimated cost is USD 733 per tonne, covering the whole value chain including DRI production in Egypt and subsequently exported. This is about 25% cheaper than the estimated production cost of DRI in the EU (USD 967 per tonne).

The lowest Levelised Cost of E-methanol (USD 714 per tonne) is estimated when integrating grid electricity to the system and crediting surplus renewable power sale back to the grid, which reduces the need for oversized systems and battery storage. Sourcing carbon dioxide (CO₂) from nearby industrial emitters improves cost-efficiency, while relying on direct air capture could raise costs by USD 415 per tonne.

These findings highlight Egypt’s potential as a competitive exporter of green hydrogen derivatives but also stress the need to overcome high capital costs, infrastructure constraints and lack of offtake guarantees to scale deployment.

To develop an annual green hydrogen production capacity of 1.5 Mt by 2030 as outlined in Egypt’s National Strategy for Low-Carbon Hydrogen, Egypt will need an estimated USD 45.6 billion in investment between 2025 and 2030. Approximately 65% of this investment will be required for renewable energy capacity and 24% for electrolyser systems.

An investor survey and impact assessment identified a suite of financial solutions (economic and de-risking instruments) to close the cost-competitiveness gap with fossil fuel-based hydrogen. Capital expenditure (CAPEX) grants and concessional loans are the most effective, reducing the gap by up to 70%-90% across low-carbon hydrogen, e-methanol and green iron, while green premiums and carbon pricing alone are insufficient to close the gap. Contracts for Difference (CfDs) also play a critical role in ensuring offtake certainty and lowering operational costs amid market volatility. In parallel, key enabling investment conditions such as grid access reform, standardised wheeling charges, peer-to-peer markets and common user infrastructure are complementing the identified financial instruments.

The report puts forward the following suggested recommendations to support the implementation of Egypt’s National Low-Carbon Hydrogen Strategy:

• Effectively deploy CAPEX grants combined with risk mitigation tools like Debt Service Reserve Account (DSRA) and performance guarantees. A dedicated government-backed entity could co-ordinate concessional finance and prioritise strategic projects.

• Mitigate foreign exchange risks by engaging local banks for Egyptian Pound (EGP)‑denominated components and leveraging foreign exchange (FX) guarantees from international finance institutions (IFIs) or government-backed facilities.

• Implement CfDs through a dual-auction model, adapted from H2Global and supported by IFIs, to de-risk early domestic and export investments.

• Advance power sector reforms – grid access, wheeling charges, and unbundling – alongside peer-to-peer trading and pooled renewable markets to reduce investor risk and support certification.

• Invest in common user infrastructure, including pipelines, desalination and export terminals to lower costs and improve bankability, while embedding environment, social and governance safeguards to attract institutional capital.

• Develop local skills and manufacturing to reduce import reliance, strengthen the hydrogen value chain and enhance Egypt’s global competitiveness.