There’s a lot of action in Egypt’s rapidly developing solar and renewable energy market space. Nearly 5 GW worth of solar power development agreements have been signed so far this year, while Egypt ‘s New and Renewable Energy Authority (NREA) announced it would partner with 67 companies to see these agreements through to fruition.
With a young, fast-growing population of some 90 million, Egypt remains one of Africa’s largest economies despite recent social and political turmoil. “With social structures now returning to stability…securing an adequate power supply is a top priority as frequent blackouts impede industrial development and stir discontent. Solar and wind power are expected to play a key role in this process,” according to Berlin-based Apricum’s March 2015 Egypt country profile.
Having launched a renewable energy feed-in tariff (FIT) program and other keystone elements of a strategic plan to develop what’s considered a very rich base of renewable energy resources, Egypt’s government “is sending a message that Egypt is a stable country for investment,” said Dr. Moritz Borgmann, an Apricum partner.
Inspiring Investor and Market Confidence
The Egyptian government has set the ambitious goal of renewable energy supplying 20 percent of national electricity by 2022 — double the current share. Renewable energy deployment is viewed by the Egyptian government as an equitable and cost-effective means of addressing a range of critical social and ecological issues while at the same time boosting job creation and the national economy. “That’s why [renewable energy] is so high on the government’s agenda,” Dr. Borgmann pointed out.
Egypt’s renewable energy goals are eminently attainable given the sharp decline and increasing performance of solar and wind power, according to Apricum analysts, who are working with private sector developers, investors and Egyptian government agencies to foster investment and project development. As a result of the Egyptian government’s efforts an institutional framework of national policies, regulations and programs is emerging, and quickly.
Aiming to play a greater role in the fast-growing renewable energy sector, as well as in terms of regional political stability and security, Gulf Cooperation Council (GCC) countries, such as Bahrain, Saudi Arabia and United Arab Emirates (UAE), staunchly support Egypt’s current government, Dr. Borgmann noted. They’re investing heavily both politically and in terms of participating in developing Egypt’s solar and wind energy resources.
Saudi Arabia’s Acwa Power, Bahrain’s Terra Sol and International Gulf Development (IGD), in partnership with Canada’s SkyPower, are among those that have successfully passed through Egypt’s FIT pre-qualification process. Collectively, Egypt has awarded FIT contracts totaling some 5 GW of solar power generation alone.
As part of their agreement to build 3 GW of utility-scale PV capacity, IGD and SkyPower plan to build a 600-MW PV fabrication and assembly facility in Egypt. They also have pledged to invest US$173 million in capacity-building education, training, research and development initiatives.
In fact, Egypt is the only nation in the Middle East to date “that has allocated land specifically for development of renewables, with about 7,650 square kilometers which can host about 87 GW (54.3 GW PV and 32.7 GW wind projects),” according to Ehab Ismail, general manager of NREA’s Planning Department. That’s the kind of strong government support that Egypt hopes will inspire “market confidence for expanding its strong natural resource potential,” Ismail said.
NREA has “already implemented key steps to achieve its renewable energy strategy,” Ismail continued. In addition to amending the name of Ministry of Electricity and Energy to the Ministry of Electricity and Renewable Energy these include:
- A five-year tariff reform program. Consequently, the price of the electricity generated from renewable energy will be increased annually at the same rate as wholesale electricity through 2019;
- A legal framework has been established that allows NREA to set up RE companies by itself or in partnership with the private sector to implement RE generation and O&M (operations and maintenance) projects;
- Issued last December, Egypt’s new Renewable Energy Law encourages the generation of electricity from RE sources via four development schemes:
- Governmental Projects: Via EPC contracts NREA targets installation of 1,890 MW from wind energy and 80 MW from grid connected PV power plants;
- Competitive Bids: the Egyptian Electricity Transmission Company (EETC) is issuing tenders to private-sector companies internationally to build, own and operate (BOO) RE facilities and sell electricity at agreed-upon prices. A 250 MW wind power plant and a 200 MW PV plant are at the preparatory stage;
- Third Party Access IPP (Independent Power Producer): Under preparation this scheme permits investors to sell electricity generated from projects directly to consumers using the national grid for distribution subject to a wheeling charge (120+600 MW);
- Feed-in Tariff (FiT): The Egyptian government has announced an interim target for the first regulatory period (2015-2017) of 4,300 MW of both solar and wind energy, broken out as follows:
- 300 MW for small solar systems (less than 500 KW);
- 2,000 MW of medium- and large-size of solar plants;
- 2,000 MW of medium- and large-size of wind plants;
- 67 consortiums have qualified for PV projects with total capacity 2,880 MW and 27 consortiums have qualified for wind projects with total capacity of 1,670 MW.
Overcoming RE Development Challenges
Egyptians are suffering through severe power shortages at present. Its installed generation capacity of 31 GW “falls short of meeting peak demand, especially during the summer months,” according to Apricum. Resulting blackouts and curtailments not only hinder economic activity, but stir social discontent. Demand for electrical power, meanwhile, is expected to rise 5-6 percent per year.
Fossil fuel subsidies and dependence are major obstacles in Egypt’s drive to realize its renewable energy goals. With subsidies representing 21 percent of the national budget, oil and gas-fired thermal power plants supply 90 percent of electricity at present, Apricum notes. That’s unnecessarily high and increasingly costly, not only economically, but in terms of the broader toll it takes on society and ecosystems.
In addition, though Egypt’s FIT contracts are indexed to the U.S. dollar, currency convertibility remains a risk, Dr. Borgmann noted. Faced with several other key development challenges — broadly speaking, mitigating credit and operational risks — Ismail noted that to date “much of Egypt’s financing for the promotion of renewable energy comes from international soft finance.
“Wind farms have been developed largely through resources from Germany, Spain, Japanese, Danish governments as well as the European Investment Bank (EIB) and the World Bank,” Ismail said.
In a first stage of its renewable energy FIT program, NREA aimed to award licenses for 2 GW of wind and solar power generation capacity. Heavily over-subscribed, NREA received 178 project proposals for double the amount on offer during the pre-qualification process, according to Apricum.
Seeing these projects through to fruition is critical to the realization of Egypt’s renewable energy goals. To help assure this occurs, the government has drafted a standard power purchase agreement (PPA) and financial securities deemed to be bankable.
Lead image: Egypt flag. Credit: Shutterstock.