Cairo set to end government monopoly of electricity supply

04 April 2008
Parliament debates legislation allowing private sector suppliers to compete.

Egypt is set to open its electricity market to competition between suppliers, ending the government’s monopoly.

A new electricity law, which will be submitted to parliament before the summer recess, will allow customers to buy power directly from private or public sector generating companies. The transition will be brought in over six years.

The law will also strengthen the regulator, the Egyptian Electric Utility & Consumer Protection Regulatory Agency, which will oversee the transition to the liberalised market.

The regulator will organise, monitor and help develop the sector, including setting power generating tariffs for the government-backed utilities and transmission and distribution tariffs across the sector.

“We are currently not responsible for drafting electricity tariffs,” says Hafez el-Salmawy, managing director of the regulator. “It is now the responsibility of the cabinet. Under the new law, a tariff will be proposed by a service provider and will be approved by the agency.”

Several types of competitive markets will be established. A bilateral market will allow customers and generating companies to buy and sell power. If the generating company cannot fulfil the contract, the Egyptian Electricity Transmission Company (EETC) will step in and secure power from another company and supply to the customer.

A market for ancillary services will also be created, allowing EETC to buy more short-term power to cope with unexpected losses from the grid or rises in demand.

Finally, a ‘day-ahead’ market will be created to allow big industrial customers to buy electricity at short notice. “Each customer is not sure of their exact load 24 hours ahead,” says El-Salmawy.

“They will adjust their need and buy from the spot market and then notify the transmission operator [EETC].”

The bilateral contract market will be the first to be rolled out. The others will become fully operational three years later.

The largest customers will be the first to benefit from the new open market.

“During the first phase, consumers connected to the grid at a capacity above 20MW will be shifted to the competitive market,” says El-Salmawy.

This will affect 100 industrial customers, which together account for 30 per cent of electricity sold every year.

Phase two will affect 4,000 customers who use at least 500kW. They account for 20 per cent of the market.

A third phase could involve residential and small customers being moved to the competitive market, but the government has yet to decide if this will happen.

The new law also covers power generation using renewable resources. Initially, tariffs for renewable energy projects will continue to be set using a competitive bid system.

Within five years, Cairo plans to set a ‘feed-in’ tariff for all renew-able energy schemes at a level high enough to attract private sector investors.

“The competitive bid system is the starting mechanism,” says El-Salmawy. “As we have a pool or databank of prices, we will be in a position to decide on a fair and attractive feed-in tariff.”

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