Cairo power shortages leave Egypt's government feeling the heat

30 August 2010

Power shortages resulting from inadequate feedstock supply have left Egypt’s government facing stiff criticism. It hopes its rescue plan to firm up supply and galvanise private power will cool the situation

Key fact

Egypt power usage rose 11.5 per cent over the past year with peak demand hitting 23,500MW in 2010

Source: Electricity Ministry

Egypt’s long, hot summer reached new heights of discomfort in late August. A series of power shortages precipitated a full-blown political crisis as mounting public frustration with interrupted electricity and water supplies boiled over into street protests.

Soaring temperatures and an unusually humid Egyptian summer placed the country’s electricity grid under unprecedented strain. The result was doubly unpleasant for many Egyptians, with air-conditioning systems and refrigeration units shutting down amid increasingly frequent blackouts in the evening, when Ramadan celebrations were at their height.

This came to a head on 19 August, when angry crowds blocked the main road connecting Egypt’s north and south in the province of Fayoum, southwest of Cairo.

Power controversy in Egypt

Buck passing between the two main ministries involved – the Electricity & Energy Ministry and Petroleum Ministry – followed. It then fell to Mohammed Awad, the head of Egyptian Electricity Holding Company (EEHC) – the main power utility – to blame a 16GW dip in the power supply on the Petroleum Ministry’s inability to provide electricity generating plants with enough gas feedstock.

Over the last few years, Egypt has signed several gas contracts, but now it needs almost as much gas as it’s exporting

Angus Blair, Beltone Financial

The controversy has extended to Cairo’s foreign relations. With an estimated 1.7 billion cubic metres (bcm) of gas a year exported to Israel, local commentators have attacked the Petroleum Ministry for appearing to favour Tel Aviv over local gas consumers.

Wary of being caught on the hop, the government outlined an emergency plan on 23 August 2010. It aims to provide an additional 550MW to the national grid within two weeks, with a further 700MW to come by the end of the year. Under the plans, a new 375MW power station in Nubaria province north of Cairo is to start up on 10 September. The remaining 175MW will come from raised output from the Aswan High Dam hydro-electric plant. By December 2010, a new power station at Koraymat, south of Cairo, will be launched, offering 120MW of gas-fired power and 20MW of solar power.

Electricity peak load, Egypt
 2008-20092007-2008Change (%)
Peak load MW21,33019,7388.1
Total power generated (GWh)131,040125,1294.7
Hydro (GWh)                                       14,68215,510-5.3
Thermal (1) (GWh)                        101,89895,7826.4
Wind (Zafarana)(2) (GWh)                              93183112
Energy Purchased from IPPs (GWh)171421.4
Private Sector    (GWh)      13,24112,6424.7
Isolated Plants       (GWh)                  271350-22.6
MW=Megawatts; GWh=Gigawatt hours; IPPs=Independent power project. Source: EEHC

These near-term fixes are unlikely to satisfy Egyptians if the power outages are repeated over future summers. Public anger could reignite if regular electricity supplies cannot be guaranteed during peak demand periods. The top priority now is to ensure a more even supply/demand balance for the medium to long term. 

The government has little excuse not to anticipate the explosion in power demand, given recent economic growth trends and rises in population – the former averaging an impressive 5.5 per cent this year and the latter rising by 1.8 per cent last year. 

“The recent crisis has given the impression that the Petroleum Ministry hasn’t looked at the medium- to long-term picture and seen that with rising demand from industry and with population growth, gas consumption would be high,” says Angus Blair, head of research at Cairo-based Beltone Financial. “Over the last few years, Egypt has signed several gas contracts, but now it needs almost as much gas as it’s exporting.”

The government can claim exceptional circumstances. Officials said on 23 August that power usage had increased by 11.5 per cent over the past year, with peak demand hitting 23,500MW in 2010, against installed capacity of 25,000MW, as quoted by the Electricity Ministry. This would leave a surplus of 1,500MW, which is below the 2,000MW buffer that has been maintained in recent years.

Extra power generation needed to address Egypt’s needs

Although the Electricity & Energy Ministry has worked hard to boost power generation, both through conventional and alternative sources, the gap between peak demand and domestic capacity has been steadily eroding.

Egypt will need to add the equivalent of the 2,000MW Aswan Dam power station every year if it is to keep pace with demand.

EEHC’s sixth five-year plan stretching from 2007/08 to 2011/12 projected an expected average annual growth rate of demand of 6.4 per cent, which would be sated by an additional 7,750MW of new capacity. The following five years are expected to need 11,100MW of new supply, says the EEHC, to include 5,250MW of combined cycle gas-fired capacity and 5,850MW in steam generation capacity. This is expected to require an estimated $120bn in spending, which is far beyond the nascent resources of Egypt’s economy.

Analysts attest to the gargantuan task facing the authorities. “On many issues to do with the economy, the current government has done well over the past six years, but they are trying to undo a lot of long-term damage. The fact is, there is only so much they can do,” says Blair.

The centrepiece of the government’s energy strategy is to diversify supply sources and invite private developers to roll out new plant, whether hydro, renewable or gas-fired.

Cairo is studying plans to develop a series of independent power projects (IPPs) at five sites around the country, to provide up to 3,500MW of new power. The government has made some headway at erecting a suitable investment climate for private power, though a full-scale electricity law governing the transition to a competitive electricity market is not expected until 2011.

The first public-private partnership (PPP) project for a power plant was awarded in July 2009. The government has also invited 32 companies to bid for a build-own-operate contract on a wind farm scheme. The Egyptian Electricity Transmission Company (EETC) launched the project, located on the Gulf of Suez, which will have a 200MW capacity and will be constructed on a build-operate-transfer basis, to come online in 2013.

Sector liberalisation

For the main IPP project at Dairut in Asyut governorate, the Electricity & Energy Ministry received 19 prequalification bids in April of this year, to build the proposed 1,500MW plant, with an award expected by November 2010. 

The combined cycle plant is likely to consist of two 750MW units, though developers will also propose a different configuration using three 750MW units. EETC will buy the output of the plant for 20 years under a power-purchase agreement, based on the single-buyer model.

Power sector liberalisation will be extended via the spinning off of the five generation companies and nine distribution companies operating under the EEHC.

Renewable energy projects, which have managed to successfully tap donor financing, will also help to widen Egypt’s energy mix. In 2007, Egypt’s Supreme Energy Council approved an ambitious plan to increase the contribution of renewable energy to 20 per cent of the country’s total installed power capacity by 2020. Of this, 8 per cent is to be met through hydropower capacity and 12 per cent is to be wind powered.

The Electricity Ministry has unveiled plans to build a new 100MW solar power plant that should embellish the country’s credentials for building large-scale renewable energy projects.  The New & Renewable Energy Authority is promoting wind projects in the Zafarana region, preparing bids for a new 200MW wind farm that has already attracted funding.

Budget will also be made available for conventional power schemes.

In August 2010, state-owned utility East Delta Electricity Production Company awarded a contract to the Orascom Construction Industries with Belgium’s Besix to build part of the 1,300MW Ain Sokhna power plant, which will run on oil and natural gas. Based about 150km east of Cairo, it will come on stream in 2012.

Like other Middle East and North Africa states confronted by massive increases in demand, nuclear energy is also a vital component of Egypt’s future energy supply. Plans to build the country’s first nuclear power plant are due to be announced this year, with Dabaa, located northeast of Cairo, seen as the most likely site. In early August, Electricity & Energy Minister Hassan Younis said plans were under way to start an international bidding process to build the estimated $4bn plant, which will have up to 4,000MW of capacity to come on line by 2025. In the near term, Cairo must overcome the key issue stoking this summer’s power shortages – the lack of sufficient gas feedstock to keep all 25GW of its power plants operating.

Last year, Egyptian power plants consumed 26 bcm of gas, 60 per cent of the country’s total gas consumption of 42.5 bcm in 2009. Given that Egypt produced 62 bcm of gas that year, this did not significantly impinge on available gas feedstock resources. However, much of the near 20 bcm gas surplus currently devoted for export may be diverted to domestic users.

Feedstock supply in Egypt

There is some optimism that more gas will be made available for the grid. BG Group, which accounts for nearly 40 per cent of Egypt’s gas output, announced plans in July 2010 to drill new wells off the Mediterranean coast along with a new offshore pipeline, to be operational by the end of 2010. Nine wells will be drilled in the West Delta next year. The same month, a $9bn deal was signed between BP and Germany’s RWE Dea. Two firms will supply up to 1 billion cubic feet a day of gas to the domestic grid by 2014 from two offshore concessions.

Though gas exports provide valuable revenue streams, the urgency of domestic power requirements means available gas will, in future, have to be prioritised for the national grid. This may spell bad news for the Damietta liquefied natural gas (LNG) plant, as well as the Arab Gas Pipeline customers and Israel, all of which rely on grid gas, rather than dedicated fields such as BG’s LNG plant at Idku.

More tough decisions loom, but Cairo knows it is never too late to think ahead. It must galvanise private power and press ahead with its renewables and nuclear plans. Firming up gas feedstock supplies is also key to the country’s efforts to keep on the right side of the power demand and supply equilibrium.

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