Egypt commits to renewable energy target

13 October 2015

Cairo aims for renewables to account for 20 per cent of energy mix by 2022

  • Egypt is committed to 20 per cent renewable energy target
  • Renewables authority chairman says long term plan is targeting 30-40 of energy mix
  • Commitment comes as Egypt makes record gas discoveries in the Mediterranean

Egypt is committed to hitting a renewable energy target of 20 per cent of the total energy mix by 2022 according to Mohamed el-Sobki, chairman of the New & Renewable Energy Authority (NREA).

Speaking at the Lafarge Egypt Energy Briefing in Cairo on 12 October, El-Sobki added the country’s long-term plan was for renewable energies to comprise 30-40 per cent of the total electricity mix by 2035 and 65 per cent by 2050. If achieved, these figures will represent one of the world’s most largest and ambitious renewable and alternative energy programmes.

The increase in renewable forms of energy production will go hand-in-hand with advances in energy efficiency. NREA is aiming for an overall reduction of 8 per cent of energy demand by 2022, equivalent to 20 per cent of current demand levels, through energy efficiency initiatives in the cement, steel and glass sectors in particular. These would be supported by  mandatory audits of companies in these sectors as well as the introduction of various incentive schemes to encourage the firms to lower their energy demand.

From a conventional thermal power perspective, efficiencies would also be gained through the on-going programme to convert simple-cycle power plants into combined cycle.

El-Sobki also affirmed Egypt’s commitment to renewable forms of energy despite recent significant gas finds. “We are not backing out of the renewable energy programme even though we have found significant amounts of natural gas because we believe we can use this gas in other ways that a greater added value to the economy,” he said.

Egypt currently has four models for the development of wind and solar energy in the country: conventional EPC projects; the build-own-operate (BOO) model introduced in 2009; the merchant independent power project (IPP) model introduced in 2012; and the feed-in tariff (FIT) model, which became active in 2014.

The first round of the FIT model is the most ambitious of the four project implementation frameworks. It comprises 4,300MW of solar and wind capacity, split into 2,000MW of wind, 2,000MW of solar and 300MW of solar rooftop projects.

Due to  end in October 2016, the FIT model qualification round has to date attracted more than 135 developers. Land has already been available for these companies to start measuring for solar irradiation and wind profiles.

Plans for solar projects have been boosted by the lack of a need to carry out land-based solar irradiation testing. “Financial institutions have indicated that satellite irradiation measurements would be sufficient for financial closure on solar projects,” said El-Sobki. “However, wind projects still need one year of full wind measurements plus bird migration patterns.” Regardless of the technology used, financial close on the projects should be reached prior to the end of the first FIT round.

A further boost to these FIT schemes has been the recent reduction in taxes on them from 25 per cent to 22.5 per cent. This would increases the internal rate of return on them above the 14 per cent on which the FIT programme is based.

However, the presence of four different frameworks for the development of renewable energy has itself created some issues, particular for the merchant IPP model where the two developers under the model – Italgen and Elsewedy Electric – have to find offtakers for the electricity they produce. The main challenge is that the FIT has undercut the two IPP developers, making it difficult for them find offtakers and therefore undermining their investments.

“It’s tough for the three [private sector] models to co-exist, and the IPP model is facing some tough times,” said El-Sobki. “It’s enough to say that Italcimenti [the Italian cement producer and Italgen’s main shareholder] itself doesn’t buy from Italgen.”

El-Sobki did offer some support, however, by adding that Law 203 of 1991, which covers privatisation initiatives, did state that there could be commercial concessions made to projects affected by subsequent changes in legislation, although he did not offer a specific solution.  

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