Egypt: Meeting energy demand

With its large and growing population, expanding economy and sizeable industrial sector, Egypt is an energy-hungry country, and demand for electricity is forecast to double within the next decade and a half.

To meet soaring consumption, the country has long been preparing to increase capacity through the construction of several power plants. While conventional generating facilities will form one component of the enhanced capacity, part of the growth is expected to come from renewables. Though renewables already account for a significant proportion of installed capacity, their role is set to increase considerably over the coming years, and the segment is attracting particular interest from international investors and suppliers.

By 2025, Egypt’s electricity demand is expected to rise to 50 GWh, around twice the current level. This will entail a large-scale expansion of supply, and to this end Egypt has laid out plans to attract $110bn in power investment by 2027. The private sector is playing a leading role in construction, equipment and financing, and, through the independent power producer (IPP) programme, is set to become more involved in generation and asset management. Several IPP plants are in the pipeline and have attracted a considerable amount of public interest.

While revolution in early 2011 put a number of the government’s long-term plans on hold, power station construction is now moving forward again. In one of the biggest deals since the change of government, in September US-based power firm General Electric (GE) was awarded the $300m contract to supply six gas turbines to two combined-cycle plants near Cairo due to open in mid-2013, adding a combined 2250 MW to supply.

However, it is in the renewables segment that is proving to be the most dynamic, which is not particularly surprisingly given the variety of challenges facing the country.

The need to diversify sources of power is pressing, and not only for environmental reasons. While Egypt has substantial oil and natural gas resources, fields are maturing and the need to strengthen export revenues limits capacity for domestic usage. Furthermore, the country is likely to use increasing amounts of hydrocarbons as feedstock for its petrochemicals and other value-added industries, so a proportion of power demand will have to be met by other sources.

Also, Egypt’s complex and expensive system of subsidies means that the rising use of oil and gas in energy is costly for the public purse, when other areas such as health and education are short of financial resources.

The government has set the goal of generating 20% of the country’s electricity through renewables by 2020, of which around three-fifths (some 7200 MW, it is forecast) would be derived from wind power, with the remainder from solar, hydroelectric and other sources.

This may be an optimistic target, particularly given the slowdown in development caused by changes in government. Currently the country has 550 MW of installed wind capacity, less than 3% of the total, though it does have around 2800 MW of hydroelectric capacity.

However, the long-term viability of renewables in the country is virtually assured. Egypt’s geography is well-suited to solar and wind, particularly the Red Sea coast, where the country’s two established windfarms are located. The Gulf of Suez experiences some of the region’s strongest winds, averaging between eight and 10 metres a second, according to the New & Renewable Energy Authority (NREA), an official body established in 1986 to support and oversee the sector. Many in the private sector share the authority’s confidence about the potential for wind power.

“I’m very positive about Egypt’s prospects for wind energy,” Ahmed El Sewedy, the president and CEO of Elsewedy Electric, an Egyptian firm that manufactures equipment for the energy industry, told OBG. “The Red Sea holds enormous potential for wind energy with its long windy coast that could reach up to 20 GW. Egypt doesn’t have enough gas or oil to sustain its energy needs for the next 10 years. Renewable energy also has the potential to create up to 250,000 jobs per year over the next five to 10 years if the policy is implemented properly.”

Egypt also has advantages in the solar power segment. The NREA calculates that the country’s average solar energy irradiance is 612 watts per square metre, more than three times the global average. While solar energy is currently still rather expensive and inefficient, industry experts are confident that advances will be made in the coming years that will make it much more viable as a source of power in the long term. In the more immediate future, solar plants could be used to supply electricity to more remote settlements, for which the cost of long-distance connections to the main grid is costly.

Recent news suggests that Egypt is making real progress towards its goals. In December, the NREA signed a deal with Spanish wind turbine manufacturer Gamesa to equip the Gabal el Zeit wind farm in central Egypt. The LE2.8bn (€355m) station is expected to have an installed capacity of 200 MW, and is funded by international bodies including Germany’s Kfw Development Bank, the European Investment Bank (EIB) and the government of Japan.

The turbines are due to be delivered in 2013, with operation likely to start the same year. According to international press reports, the government is also preparing to issue contracts for the construction of a mammoth 1000-MW wind farm, likely to be one of the biggest in the world.

Private investors will be watching this and other developments in the sector with interest; the planned investments will provide opportunities for companies to build, fund, equip and manage power plants and their associated infrastructure. Naji Jreijiri, the CEO and regional manager for ABB in Egypt and Central Africa, a Switzerland-based company specialising in power and automation technologies, told OBG he expected growing opportunities for business generated by the expansion of solar and wind plants, particularly in the IPP segment.

The energy sector is not immune from the uncertainty about Egypt’s immediate political and economic outlook. Investors will seek to be reassured that an incoming government is committed to the IPP programme and to renewables, and that private power developers will be guaranteed attractive feed-in tariffs.

But what is certain is that Egypt has huge and growing demand for power across the board and that it will need to diversify its energy sources to preserve precious fossil fuels. Meeting this demand is both a challenge for the country, and one of its biggest business opportunities.