Renewables just one element of Egypt's strategy

01 December 2014

Cairo recently launched 4,300MW direct proposal renewable energy programme

With the launch of its 4,300MW direct proposal wind and solar programme, Egypt has suddenly become the centre of the renewables market for the Middle East.

The packed room on 26 November as developers submitted expressions of interest (EoIs) is testament to the keen interest in renewables schemes in the region. This is despite the slightly lower tariffs than in Jordan or Morocco, where schemes have previously attracted lively interest. Due to the lack of activity on Saudi Arabia’s 23.9GW renewables programme and the slow progress in the rest of the Gulf, developers have had few opportunities to invest in the sector.

Cairo is pushing ahead with a vast alternative energy programme on a very ambitious timescale. The clients – the Ministry of Electricity and Renewable Energy, Egyptian Electricity Holding Company (EEHC) and the New and Renewable Energy Authority (NREA) – are confident they have the manpower and expertise to deal with more than 100 bidders and 80 projects, and the political support to surmount the inevitable obstacles.

Many of the pieces are already in place. The government has committed to be the offtaker, establishing sophisticated feed-in tariffs on a sliding scale based on capacity and hours of operation, in September. These give developers incentives and a clear framework to base their projections and investment around.  

Land will be made available through governorates, development authorities and the NREA, with usufruct agreements based on a percentage of the value of energy produced. The clients have power purchase agreements (PPAs) and technical documents pre-prepared to negotiate with developers. However, approving this volume of projects will still be a challenging task.

The other challenge is for the developers themselves to design and manage sound, profitable projects. Many of the interested parties have previously prequalified or won power contracts in Egypt, but doubts remain over their technical and commercial capabilities.

While banks have the financial vehicles and will to finance these schemes, renewable energy is still an untested area. The banks will be setting the bar high for the project proposals and scrutinising their figures closely before committing, despite the guarantees of the feed-in tariff.

The steps already taken underline the Egyptian government’s commitment to meeting its power generation shortfall, essential to maintaining popular legitimacy. Power cuts and black-outs have plagued Egypt’s cities since 2012 and contributed to former president Mohamed Mursi’s unpopularity. With peak load almost doubling between 2000 and 2010, and the country’s 31GW of generating capacity operating at well below optimal levels due to lack of investment and gas shortages, this problem is growing ever more urgent.

An estimated 30GW of new capacity before 2020 is essential to Egypt’s future development. The new government cannot afford to neglect any of its options: nuclear, coal, renewables and conventional power plants.

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