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Egypt turns to renewable energy

19 December 2012 – The Egyptian electricity industry is expected to grow significantly, with additional power generation capacities coming online on an annual basis for the next decade. Total installed capacity is expected to double and reach almost 51 GW by 2020, compared to 2010.

Frost & Sullivan estimates a compound annual growth rate (CAGR) of 5.6% for electricity demand from fiscal year ending June 2011 to 2020. This growth is supported by improving socio-economic development, continuing urbanisation, and sustained population growth. However, electricity demand is expected to slow down in fiscal year ending June 2012. This is a direct consequence of the country’s change of regime and the following strong political instability which dried up foreign direct investments, and thus economic growth, since the Arab spring protests began in early 2011. Nonetheless, the impact on electricity demand growth should remain limited.

According to Egypt’s seventh five-year plan (fiscal years 2013 to 2017), it is estimated that about US$13.90 billion will be invested in the country’s electricity industry by 2017. Furthermore, the Egyptian government aims to diversify its energy mix away from natural gas, which represented 90% of the country’s power generation at the end of fiscal year 2011. The main reasons for this are concerns over the depletion of the country’s oil and natural gas reserves (even if the latter is controversial), and increasing greenhouse gas emissions. Consequently, the government has fixed the objective of having 20% of the country’s electrical energy mix from renewable sources by 2020.

“New capacities will predominantly be based on gas, given the availability of domestic resources, and also on renewable energies such as wind,” Frost & Sullivan’s energy and power systems research analyst Celine Paton, says. “The private sector is projected to play an important role in the implementation of new power infrastructure projects.”

Egyptian wind power installed capacity, already the largest on the African continent, is expected to grow from a current 547 MW to 7,200 MW by 2020. In contrast, Egypt’s solar power sector is far less advanced, with high capital costs remaining the main impediment. Yet this might change in the near future as a new solar plan totalling 3,500 MW was announced in mid-2012.

“Technology transfer, R&D and technical skills should be fostered on a large scale if Egypt aims to be recognised as the leader in renewable energy and, more particularly, of wind power development,” Paton says. “Clear government support, paralleled by a powerful institutional framework, will be critical, if renewable technology is to compete with cheaper thermal technology. To that end, the government will need to provide a clear long-term strategy and an incentive system that will attract private companies, as well as investors active in renewable energy.”

A key challenge for market prospects are highly subsidised fossil fuels and very low electricity prices. Due to the current unrest, plans to progressively phase out these subsidies and increase electricity tariffs remain problematic. While electricity prices have been increasing since 2004, the main impact has been on energy-intensive industries, whilst the residential sector still accounts for the largest electricity consumption in the country. Developing renewable projects and increasing consciousness on energy efficiency is difficult to implement in such a context.

“The establishment of a renewable energy fund is a good start. Its implementation and the way it will be funded, however, still need to be clarified,” Paton says. “A strong strategic vision, backed by empowered institutions, legislation, and incentives, must be endorsed or strengthened by the government in order to reach a substantial scale in the development of renewables and energy efficiency.”