With a rapidly growing population and an expanding economy, Egypt has been struggling to meet its energy needs, which has been growing at a rate of 6% annually. The majority of the domestic energy needs are supplied by gas with 53%, followed by oil with 41%, and hydro-power with 3% of the total. This extensive share of hydrocarbon in power production in Egypt is not sustainable in the long term. Therefore, to ensure a steady energy production, the government is recently changing its attitude towards alternatives by tapping into opportunities that renewables sources offer.
The country’s transition towards clean energy is being heavily supported by several governmental institutions. In October 2018, Egypt's Ministry of Electricity and Renewable Energy, the New and Renewable Energy (NREA), and the International Renewable Energy Agency (IRENA) organised a high-level energy conference in Cairo and launched a report that analyses the technology pathways available to maximise the country’s long-term renewables potential. As part of its sustainable energy strategy, Egypt is aiming at scaling up its renewable power generation target by 20% by 2020 (including 12% wind, 2% solar and 6% hydro-power) and 42% in 2035.
The concept of renewable energy is not new to Egypt. In 1986, NREA was established to act as the national focal point for expanding efforts to develop and introduce renewable energy technologies on a commercial scale. While this authority focuses on wind and solar technologies, other state-owned institutions are currently working on biomass projects.
International Support for Green Investments in Egypt
The heightened interest from the international community reflects the Egyptian government’s efforts to place renewable energy at the centre of its energy agenda and to promote an investor-friendly environment for the sector; including financial incentives such as tax breaks for clean energy projects. The international support was recently translated through a cooperation between the European Bank for Reconstruction and Development (EBRD) and the Green Climate Fund (GCF) to implement a renewable energy financing framework. It is designed to provide a tailored financing package needed to draw in private investors to kick-start a new renewable energy market and it includes two components:
· Financing support totalling USD 1 billion to support the development and construction of renewable energy projects;
· Technical assistance programme to enhance renewable energy integration, policies, and planning.
The projects that will be supported are expected to generate around 1,400 GWh electricity annually once they are operational.
Competitive Advantages and Investment Opportunities
Egypt possesses an abundance of land, sunny weather, and high wind speed, extensive resources from agricultural residues. These are all components that make Egypt attractive for wind, solar, and biomass energy production projects.
Egypt enjoys high wind energy potential, especially in the Suez Gulf which is one of the best locations in the world for harnessing wind energy as the average speed reaches 10.5 m/s. Moreover, promising new regions have been discovered east and west of the Nile river in the Beni Suef and Menya Governorates and El Kharga Oasis in the New Valley Governorate.
Technologies are maturing as a result of large-scale projects implemented over the last few years. There are now new business opportunities for both small stand-alone wind turbines and also larger wind-parks which can be connected to the national grid. In order to develop this grid, Egypt has relied on fruitful partnerships with major global wind energy companies, namely Siemens Gamesa Renewable Energy Company which announced in July 2018, the completion of world's largest combined cycle power plants in record time. The operations at the Beni Suef, Burullus and New Capital power plants will add a total of 14.4 gigawatts (GW) of power generation capacity to Egypt's national grid.
Known for year-round sunny days, Egypt is one of the world’s most attractive sites for solar energy which be harnessed through various technologies including Photovoltaic (PV) technology, solar heaters, and concentrated Solar Power (CSP) systems.
Benban project, the world’s largest solar park with an investment value of USD 2.8 billion is seen an example for future potential investments in the sector. The project is financed by five international institutions, including the International Finance Corporation IFC. The project is estimated to produce 1.8GW of power when operational by mid 2019. The site consists of a 37 square kilometre plot divided into 39 projects of approximately 50MW each and is allocated to special purpose project companies owned by developers and investors. Here, t is worth mentioning that the Multilateral Investment and Guarantee Agency (MIGA), another institution of the World Bank Group, is providing USD 210 million worth of political risk insurance to private lenders and investors involved in the solar park.
Despite having more than 35 million tonnes of agricultural waste, 4.7 million tons of agro-industrial residues, and 11 million tons of animal dung per year, bio-energy takes up only 1% in Egypt, thereby leaving a vast potential untapped.
Different biomass technologies have been demonstrated in Egypt, in particular for the production of bio=gas from animal waste in rural areas, as well as for the collection and briquetting of agricultural waste. In 2009, the Egyptian Environmental Affairs Agency (EEAA) initiated the Bio-energy for Sustainable Rural Development Project which achieved remarkable progress in disseminating across 10 governorates, more than 960 bio-gas digesters, and establishing Bio-energy Service Providers (BSPs) to support the market penetration of bio-energy in the country.
Progress is Made, While Some Challenges remain…
According to the World Bank’s Regulatory Indicators for Sustainable Energy (RISE) 2018 report, Egypt was one of the five fastest-improving countries in terms of regulatory frameworks for renewable energy between 2010 and 2017. Egypt’s total RISE score, which assesses regulation for universal access, renewable energy, and energy efficiency, jumped from 10 to 68 in just seven years. Also, the progress made by Egypt in the renewable energy sector was illustrated by Bloomberg Climatescope report, which showed that the country’s attractiveness for clean energy investment jumped 23 places to 19 out of 71 countries in 2017.
Egypt is beginning to attract investment particularly in solar and wind energy, which points to real potential for renewables. In 2017, there was a substantial increase in investment in Renewable Energy in Egypt, where it leapt nearly six-fold reaching USD 2.6 billion. This significant increase in renewable energy investment, came after several steps the Egyptian government took to establish feed-in tariffs for renewable sources. This is in addition to the new Investment Law of 2017, which provides a number of protections for foreign investors to meet its goal of sustainable development.
In September 2014, the Ministry of Electricity & Energy and the Regulatory Agency launched FiT support system for solar PV and wind projects with capacity less than 50 MW. The goal of the FIT programme is to boost renewable energy production in Egypt and to reach 2300 MW of PV capacity and 2000 MW of wind capacity. In January 2018, energy investors and the government agreed on a feed-in tariff (FiT) scheme for waste-to-energy projects between EGP 1.35 and EGP 1.65 per kWh, depending on the type of waste. The government is also providing financial support to green projects. As a result of these efforts, more private investment opportunities are being created, which is expected to increase in coming years as the country moves forward with an overall liberalisation of the energy sector.
Despite this remarkable progress in developing an enabling policy and improving the investment environment, the sector is still facing some challenges that are hindering the full deployment of the resources.
First, energy subsidies which are keeping fossil fuels cheap are creating market distortions and thus prohibiting the development of the renewable sector. Second, while the current strategy addresses energy production systems using solar power and wind, it has not given sufficient focus to the exploitation of biomass potential. This is evident in the limited availability of the financial support and the local biomass technologies, in addition to the considerable cost associated with biomass-based electricity. Finally, the successful deployment of renewable energy necessitates the development and implementation of adequate education policies and training programmes to ensure a skilled workforce capable of undertaking the production activities.
That being said, renewable energy remains a top sector for private investment in Egypt as it holds enormous potential. Certainly the recent increase in renewable energy ventures can attest to that. In addition, Egypt has made several positive steps to revive the renewable energy industry. However, it is relatively a new market for investment in Egypt and it will take great efforts from the government to ensure safeguards for investors. The success of Egypt in transforming its energy consumption towards renewables lies in the country’s commitment to reaching its targets of generating at least 20% of its power by 2020, which so far has been proved fruitful in attracting foreign investment in the sector.