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Egypt’s military companies flirt with solar energy
 
 
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This month’s issue of the Armed Forces magazine “Al-Defaa” (Defense) features a full-page ad with decidedly retro graphic design promoting a thoroughly modern product:  Against a green and white backdrop sits an array of photographs of solar panels and lights.

“Pioneers of solar cells and the production of solar panel units,” crows the ad copy.

The “pioneers” in question? Arab International Optronics, a company 51 percent controlled by the military-owned National Service Project Organization and 49 percent by French defense firm Thales.

The advertisement is just one of several indications that Egypt’s military industries are making a more concerted push into solar energy technologies. As the government looks to diversify energy sources to deal with a crippling power crisis, other decisions are decidedly more controversial than solar, such as the recent approval of coal imports and plans to go nuclear.

On April 14, Prime Minister Ibrahim Mehleb paid a visit to a solar power factory operated by the Arab Organization for Industrialization (AOI), another state-owned company with deep ties to the military elite. In addition to its existing factory in Ismailia, Sameh Mostafa, a technical officer and site engineer at the renewables division of AOI, promises that details of a new solar plant in Cairo will be unveiled in the coming days.

April has also seen Egypt’s Electricity Minister Mohamed Shaker announce plans to bring solar energy into the mainstream, as well as a proposal from the governor of Beheira, General Mostafa Hadhoud, to develop a solar project on 128 feddans of land in Wadi Natroun as joint venture between the ministries of defense, petroleum, education and the armed forces.

Why solar?

With Egypt’s energy crisis pushing policymakers and businesses alike to look beyond traditional fossil fuels, renewables looks poised to be a growth market.

Egypt’s solar potential is tremendous. With 2,000 to 3,200 kilowatt hours worth of solar energy falling on each square meter of Egyptian soil every year, the country has some of the highest levels of solar radiation in the world.

Likewise, though Egypt does not currently manufacture photovoltaic cells, it does produce aluminum and glass, both needed for assembly into panels, as well as many of the cables and components necessary to hook a system into the grid.

The market is also, for the most part, wide open. Egypt has a growing collection of homegrown and multinational companies that install solar panels and other solar systems, as well as local manufacturers of solar water heaters, but only one civilian factory builds panels.

The SunPrism Factory, located in the Ismailia Free Zone, manufactures 15 megawatts of panels per year, using cells imported from Germany via its partner company SunSet, says SunPrism marketing executive Sherine Mohamed.

Most of the panels assembled get re-exported to Europe, but the company is increasingly looking to supply the local market.

According to Samir Ayad, president of solar installation firm Egyptian Solar Energy Systems, SunPrism’s locally-assembled panels are “very competitive” with international imports. He’s strongly considering switching to their products instead of the European and American panels he’s currently using.

“Many are looking forward to using the local products,” explains Ayad. “There’s an objective to get people working. Should we pump money into foreign companies when we have people here needing work?”

Solar and other renewable energy technologies are also attractive fields for foreign investors looking at Egypt, and military-backed companies are often appealing business partners.

“Foreign investors now see that the military is clearly the power behind the throne, and if they are going to invest in Egypt, they want to invest alongside the institution that’s most influential in shaping future economic policy in Egypt,” says Shana Marshall, associate director of the Institute for Middle East Studies at the George Washington University. 

“Renewable energy and sustainable development looks very good on any corporation’s annual report, so if you’re going to coordinate or cooperate with an institution that’s unpopular in the international community, such as the Egyptian military, I guess the best project to coordinate with them on would be one like sustainable energy,” she adds.

An army business

In the current Constitution as well as previous ones, the military’s budget has been shielded from public oversight, leaving observers to speculate that it controls anywhere from 10 to 40 percent of Egypt’s economy. Estimates of the military’s true wealth range so absurdly that they illustrate the opacity of the institution and its holdings rather than provide any meaningful sense of its scale.

The army also interacts with the economy in a variety of ways. Some companies and factories, such as Arab International Optronics, are directly owned by the military, often in joint ventures with foreign companies who provide both capital and technology transfer. Others like AOI have a more complex ownership structure.

The AOI is “owned directly by the president,” emphasizes Mostafa. However, its board is made up of Cabinet ministers, including the ministers of military production and defense, who is also head of the Armed Forces.

Add in state or private companies managed or owned by retired generals, who often negotiate with policymakers with military backgrounds, such as General Mostafa Hadhoud, and the numbers at the higher end of the scale start to add up.

For the moment, the footprint of military is in the solar industry is still small. Advertisements to the contrary, Arab International Optronics are still focused on a very small range of expensive products, and target the military rather than the consumer market, says Omar Hosny, chief technology officer of local firm KarmSolar.

Hosny’s firm is a privately owned startup that develops and installs off-grid solar energy systems using imported panels, which has developed a solar water pumping solution.

The AOI’s operations are larger and, according to Hosny, potentially more disruptive. For the moment, like its private counterpart SunPrism, the AOI’s renewable energy division assembles panels, using components imported from Germany.

The main appeal of its products, according to Sameh Mostafa, is that they have warehouses full of them, which is convenient for small projects that just need a few panels and don’t mind paying a premium to avoid the hassle and delay of imports.

With the Cairo factory planned to open next year, Mostafa hopes economies of scale will bring the price down to competitive levels.

“The new factory will also import the cells and other components, but for big capacity modules with competitive prices,” he says.

For some, the growing role of a state-backed behemoth sparks concern for the future of smaller, more entrepreneurial ventures. As part of AOI, subsidiary Arab Company for Renewable Energy has free access to its factories and labor force, leaving it with virtually no overhead, says KarmSolar’s Omar Hosny.

This, he fears, will make it nearly impossible for independent solar panel factories to compete with them on price.

The AOI has also already built the largest solar plant in Egypt, a 600-kilowatt station on the Suez Road. Nobody else has such a project in their portfolio, which gives the well-connected AOI yet another advantage in bidding for contracts, shutting out smaller upstarts.

“They are very competent, but in terms of the market they are not helping,” says Hosny.

Mohamed ElSobki, director of Cairo University’s Energy Research Center, shares some of these concerns.

“I think it’s a positive move toward localization of the manufacturing of PV solar panels … but it’s a bit risky if you just limit it to one entity in the country, because that will end up with a sort of monopoly,” he says.

However, Sobki believes that the potential market for solar panels is big enough for both large and small companies to co-exist.

“It’s a business economy, and it will help the economy and add a number of jobs,” he says.

Tarek Hassan, commercial manager of alternative energy company HelioMisr, says anything that makes panels cheaper is good for local installers like him.

“It’s going to help all the market. They are going to reduce the price for all the market,” he says of the AOI’s plans to expand.

“It’s difficult to draw a line and say that the AOI being a partner with a solar energy company is less desirable than some other non-military affiliated company in Egypt being the investment partner for that project,” says Marshall. “I would be more concerned about the labor regulations and the environmental regulations that you see in the company.”

Regardless of where they stand on the military’s role in production, solar experts are unanimous on one point: energy subsidies must be reformed for Egypt’s solar industry to truly take off.

According to Hosny, Egypt can realistically produce solar power at 65 to 85 piasters per kilowatt hour — quite competitive at global market rates, but nowhere near the 5 piaster starting price for residential consumers purchasing subsidized power through the national electrical grid. Even the heaviest industrial users of electricity don’t pay more than 54 piasters at peak times.

This price discrepancy has pushed solar power to the margins; most installers work in remote areas off the grid, focusing on niche markets like agricultural pumps, telecommunications stations, or in the oil and gas industry.

Local companies like KarmSolar, HelioMisr and Egyptian Solar Energy Systems Company all reported fielding increasing numbers of inquiries as the power crisis worsens, but say customers still balk at the price.

“Compared to subsidized energy prices, solar doesn’t compete,” says Hosny.

“If you have this tremendous subsidy on fossil fuels, you should at least do the same on renewables.”

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Isabel Esterman