Amidst the fragmented politics of the last six months, one of the most pressing questions has been how Egypt would meet its energy demands from 2014 onwards.

“Nobody has done the math,” lamented Environment Laila Iskandar when she addressed the Cairo Climate Talks.

This leaves a gap in the overall future energy strategy of Egypt — a gap deeply connected to politics, the nation’s poorest citizens and the country’s industrial output, among many other factors.

The combination of a growing population and inefficient energy use has spurred an increased demand for electricity. Demand is outstripping provision by 10-15 percent, and is rising by roughly 7 percent a year.

“Nothing says that coal will be the least-cost strategy. Nobody can claim coal will be cheaper, because nobody has done a least-cost scenario."

Egypt used to be rich in natural gas reserves, meeting domestic demand while still having enough to export. The incumbent electricity system reflects this: Electricity is generated using 74.7 percent natural gas, 15.8 percent oil, 8.3 percent hydro, 1.1 percent wind and 0.1 percent solar.

A combination of factors makes this system of generating electricity outdated and inefficient. Native supplies of petroleum products — which fuel 91 percent of electricity generation — are dwindling, and the costs of importing are rising and volatile.

Furthermore, 10.7 percent of total electricity produced is lost during transmission, distribution and transformation — roughly double the loss rate of countries such as the UK and America.

The response from political actors responsible for this sector has been lacking in substance.

There have been announcements of large amounts of funding, to be issued as loans, from international banks such as the European Bank for Reconstruction and Development, the European Investment Bank and the Islamic Bank. The aid would finance the switchover of existing power plants to more efficient technology, which would also increase capacity.

There has been excitement around importing coal to alleviate pressure on the natural gas supply caused by heavily consuming cement factories, though no official announcement or decision has been made on whether to legalize the imports.

There are also rumors circulating that the National Renewable Energy Agency (NREA) under the Ministry of Electricity is intending to publish a renewables roadmap by the end of 2014.

However, how these fragmented solutions fit into the long-term effort to fill the energy deficit is not clear.

So far, the government has dealt with domestic demand pressures by substantially cutting electricity to industry. The chair of the Industrial Development Agency was criticizing this decision at the recent Egyptian National Competitiveness Council annual conference: “Industry works against all odds,” he complained.

“We don't have competitiveness at all because we don’t have industrial output,” he said, arguing that Egypt doesn’t have the energy capacity to be competitive outside its own borders because it can’t even reliably meet domestic energy demands.

Although participants on the energy panel were not in total agreement as to the fuel source that would meet Egypt’s energy demand, they did all agree that a minimum vision for power generation by 2030 was needed as soon as possible.

“The current energy mix is not safe or sustainable, as most of it is imported,” said a Ministry of Petroleum representative on the panel.

“Renewables are the only option to prevent Egypt bringing in imports,” added the chair of the governmental Electricity Regulatory and Consumer Protection Utility.

“Nothing says that coal will be the least-cost strategy. Nobody can claim coal will be cheaper, because nobody has done a least-cost scenario. We are financially incapable of building a nuclear power plant because it can’t be a public-private partnership. So we have a gap and this will open doors for renewables,” he argued.

“Renewables are not a cost, they are an investment," he stressed.

In February 2008, the Supreme Council for Energy adopted a target of 20 percent renewables by 2020 to be comprised of 12 percent wind (7,200 MW), 6 percent hydro (3,600 MW) and 2 percent solar (1,200 MW).

This was followed by the Cabinet-approved “Egyptian Solar Plan” in July 2012, which aimed to install only another 3,500 MW of solar by 2027.

To put these figures into perspective, to date only 550 MW of wind and 20 MW of solar have been installed since the 2008 target was set. Based on this track record, energy experts are saying the government will not achieve its 2020 target without some serious political will, starting now.

When the target was announced in 2008, it was seen as a statement of intent to investors and renewables companies such as Spain’s Gamesa and Germany’s Siemens. However, as the market has been slow to take off and many of the required factors for investment have been absent since 2011, some initial investments already made have also been put on hold, and technical staff reallocated to non-technical jobs or made redundant.

The NREA stated that it would develop 33 percent of the total capacity needed to meet the 2008 target with international agencies funding and the help of the Central Bank. The larger 67 percent was to come from private sector investment, both domestic and international.

Yet there are various political and legal commitments which must be made before investors will get involved at the level NREA is seeking. These commitments include security of land tenure or agreements, stability of the rule of law to ensure their contracts and investments are protected, availability of power generating licenses and contracts for supplying the centralized Egyptian Electricity Holding Company that distributes power to the whole country.

These are non-negotiable factors in drawing investment to Egypt’s power sector, without even addressing the question of incentives such as competitive pricing, energy subsidies promoting sustainable energy instead of fossil fuels, as they do currently, and feed-in tariffs.

Achieving targets such as 20 percent renewables by 2020 is much less likely to succeed when there is no long term overall energy strategy within which to create medium term targets to boost certain sectors, such as renewables.

The government’s choice of energy infrastructure to invest in, and its timeline for doing so, sheds light on its preferred development pathway and philosophy, and its short term political agenda versus its long term desire to aid Egypt’s stable transition and equal access to energy for all citizens.

Egypt’s energy future could also be connected to the increasing need for jobs for its young people by developing native energy production and manufacturing which serves that market. This in turn would kick-start more academic research and technical training in universities because of the flourishing job market waiting for them when they graduate.

An energy vision for how Egypt sustains its people from the present into the next decades is much more than breaching the widening energy gap by tackling blackouts — it’s an investment in Egypt’s future as a whole. 

Comments

This is the conclusion of a

This is the conclusion of a study that I have prepared during 2011, however it stays valid for today:

As Egypt became a net oil importer since 2006 and starts to suffer to satisfy the domestic needs in natural gas, it is now more than ever that the country needs a clear, detailed and integrated structured vision for the strategic planning of its future energy supply and demand scenarios including all related economic aspects.

Energy efficiency (EE) and renewable energy (RE) are now becoming critical to Egypt’s energy resource planning, and if properly designed and applied, energy efficiency can be the most cost-effective tool to managing demand, rationalizing the depletion of fossil resources, deferring future energy supply investments and mitigating the threat of climate change.

Despite the efforts to improve the regulatory framework, the market is still limited and the EE and RE potential projects are still facing significant difficulties in attracting commercial funding. The problems are multiple and complex but the energy subsidy remains one of the major obstacles. Besides the subsidy, the other problems mainly concern the supportive policy and regulatory framework and the lack of risk capital, which provides important guarantee for investors as well as for lenders.

The government has announced to produce 20% of the generated electricity from renewable resources by 2020. However for energy efficiency, a high-level political well and government attention is needed. A national agenda for energy efficiency and a lower carbon economy should be developed and implemented by means of detailed planning with measurable objectives. This agenda has to be prioritized for fund raising in parallel with current expansion plans and even before adding new investments for expanding the existing wind energy projects or looking for financing the plans for new nuclear power plants.

To achieve a market transformation towards EE&RE products and services, positive signals has to be given to investors, service providers and energy end-users as well. This will not take place unless the government build an enabling environment based on a strategic vision including effective institutional and regulatory framework as well as information dissemination portal that can provide simple and direct information to all concerned parties in both the supply and demand sides of the energy matrix in the country.

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