A sunnier outlook for power in Egypt
Egypt has long been a pioneer in renewable energy; unlike other countries in the region, exploration of the potential of Egypt’s vast renewable energy resources started more than a hundred years ago.
Construction of the world’s first thermal solar power station began in 1912 at Maadi, in the south of Cairo, before progress was halted by the outbreak of the First World War. Egypt started looking into the potential of hydroelectric power in the 1920s.
The country began to look more seriously at renewable energy in the 1980s, collecting wind data from 65 measuring stations around the country and setting up a dedicated renewable energy body, the new and renewable energy authority (NREA), in 1986. The country’s first wind farm was commissioned at Ras Ghareb on the Red Sea coast in 1988. The country now has 750 megawatts wind power, 20MW of parabolic trough solar power, where the sun’s energy is gathered by focusing mirrors, and less than 10MW of small photovoltaic panel solar power projects installed, according to the NREA. It also has sizeable hydropower generating capacity.
Egypt is taking bold steps to speed up the development of its renewable energy sector. The country has a target of generating 20 per cent of its electricity through renewable resources by 2022. It is an ambitious aim that would involve increasing its current renewable energy generating capacity many times over.
Egypt has many renewable energy projects that are either signed or under construction including 2,860MW of wind projects and 240MW of photovoltaic solar projects. Even so, it would need to develop a lot more to reach its target.
Cairo has therefore decided to introduce feed-in tariffs for renewable energy projects. Under the new system, private companies will receive a fixed tariff for the power they produce from renewable resources. The size of the payment depends on the type of technology used, the number of hours the project is generating electricity and the size of the project.
Feed-in tariffs have been used extensively in Europe and some US states. Similar models have been deployed in South Africa and Jordan. Typically, introducing fixed tariffs leads to a sharp rise in installed renewable energy capacity.
Egypt is hoping for a similar effect. In fact, the architects of its feed-in tariff turned to Europe for inspiration. “[They] looked at Germany, Spain and Italy where they have used these tariffs,” says Lamya Youssef, the general manager for renewable energy projects at the Egyptian Electricity Transmission Company (EETC).
In its first feed-in tariff round, which will run until 2017, Egypt will sign agreements with private companies to build 4,300MW renewable power projects. This includes 300MW in small rooftop solar units, 2,000MW in larger solar projects up to 50MW and 2,000MW using wind power.
Egypt has set its tariff prices at a high level.
“The feed-in tariff is regarded as lucrative,” says Mohammed Nabil Hazzaa, a senior associate at Egyptian law firm Sharkawy & Sarhan. “Dubai is paying almost half of what Egypt’s feed-in tariff is for its latest 100MW solar project.”
Saudi Arabia-incorported Acwa won that Dubai project after submitting a bid of 5.98 US cents per kilowatt/hour (kWh).
The higher Egyptian costs will be borne by electricity consumers. EETC will sell the power to consumers at the same price that is paid to developers. “If you consume 100kWh and you assume renewables account for 10 per cent of the total generation of the network, 10 per cent of your bill will be at the renewable energy price,” says Ms Youssef.
Consumers of very little power – 100kWh a month or less – will be exempt from the renewable energy charges, however. About 20 per cent of residential users fall into this category, according to Mohammed Salah El Sobki, the NREA’s executive chairman.
The decision to sell renewable energy to consumers at cost price is an unusual one, particularly for a country in which government electricity subsidies are the norm. However, Egyptian state finances are such that the government would not be able to afford to subsidise the power itself. And, as demand for power exceeds supply, large power consumers may well be happy to receive the extra power, even if it costs more.
“[Everyone knows] that the public budget is already [strained],” says Mr Hazzaa. “They wanted to comfort investors that this will not be a burden on the public budget but ultimately shifted to the consumers.”
The tariff for renewable energy has been set deliberately high. “[The high tariff] is to attract investors in an economy which has [been under pressure] for a while now,” says Mr El Sobki.
The tariff is likely to be reduced in future. Other countries have followed a similar pattern. “In the first phase of Jordan’s and South Africa’s feed-in tariff, [the payments were] much higher,” says Ms Youssef. “In our case, this is the first chance and we are trying to open the market for solar in Egypt … in the last couple of years we have had a big shortage to meet demand. This was thought of as a speedy solution.”
A total of 187 companies submitted proposals in November and 136 were deemed qualified. If all of the qualified bidders constructed their proposed projects, Egypt would exceed its 2,000MW target for large solar projects by about 50 per cent.
Projects will be approved on a first-come-first-served basis. As a result, companies are in a race to sign agreements with the government and secure land for their projects. “Most of the successful applicants are in the process of doing that,” says Mr El Sobki. “We have already signed memoranda of understanding [for] land with 11 of the successful consortia.”
Agreements for about 550MW of projects have already been signed, according to Mr El Sobki. The NREA expects to sign land deals for the rest of the projects within six weeks, he says.
While Egypt has a made a lot of progress on its feed-in tariff plan, some issues remain. For instance, the developers will be paid in Egyptian pounds. This may not be a problem as long as they can easily convert pounds into international currency such as US dollars. To address this, Egypt’s renewable energy agencies are discussing the potential for a dedicated fund within Egypt’s central bank to ensure that developers can access the state’s foreign currency to change pounds into dollars, euros or whatever.
“We understand that there is a need to make some of the payments [in international currency] or make it so that the developers can convert their Egyptian pounds into foreign currency,” says Mr El Sobki.
“We are looking at possibly having an escrow account within the Central Bank of Egypt to guarantee the payments in foreign currency for at least part of the energy produced … We are studying a number of possible solutions, but nothing has been settled.”
This, along with several other issues, will need to be resolved. Even if Egypt clarifies the details of its programme, meeting its 2022 renewables target will be tough. The task will be particularly difficult as rising demand for power is unlikely to subside.
Still, the adoption of a feed-in tariff is a strong indication that Egypt is committed to renewable power. Whether it hits its target or not, the country is set to be one of the largest renewable energy producers in the region.
Updated: May 7, 2015 04:00 AM