Egypt tackles its power problems
The country's energy picture looks brighter after years of underinvestment.
Years of chronic underinvestment has left Egypt’s power infrastructure creaking so badly that many of its 90 million citizens have become used to the blackouts that frequently hit the country’s major cities.
The government’s ability to fund the much needed upgrade and expansion of power generation and grid capacity has been severely constrained by energy subsidies that swallow around 40% of the state’s budget – as much as is spent on healthcare and education combined.
It’s a highly politically charged issue and no previous government has dared take the unpopular decision to raise energy prices. But after one of the country’s worse outages in decades in September 2014, president Abdel Fattah al-Sisi took action, raising energy prices by close to 80%.
The combination of reduced subsidies with a huge drop in international oil prices since the turn of the year has eased the financial strain on the country which has become more and more dependent on imports to meet its growing energy needs. The result has been a 30% year-on-year reduction in spending on subsidies in recent months.
The winds of change
The willingness of president al-Sisi to tackle the unsustainable subsidies appears to have gone down well with investors and in the space of just a few months Egypt’s energy picture has turned from bleak to something approaching rosy.
In November Egypt announced an ambitious programme to procure 12 GW of renewable energy by 2020, making it the new poster boy for renewable energy in the MENA region. Close to 180 companies expressed interest in participating in the first stage and in January it was revealed that 110 firms had qualified to develop over 100 projects.
These consist of 13 photovoltaic (PV) projects of up to 20MW and 69 PV projects of between 20 and 50MW as well as 28 wind power plants of the same size.
The success of the first stage of the renewable energy procurement programme was followed in March by the Egypt Economic Development Conference (EEDC) in Sharm El-Sheikh. During and after the event the announcements came thick and fast, with some of the biggest names in the business lining up to pledge billions of dollars of investment in Egyptian energy projects and helping to create thousands of much needed jobs.
With electricity demand growing at 10-12% per year, Egypt will need to nearly double its installed power generation capacity to around 50 GW by 2025.
The standout announcement was Siemens’ plan to build a 4.4 GW combined-cycle power plant and install wind power capacity of 2 GW as well as also creating 1,000 new jobs by building a factory to manufacture rotor blades for wind turbines.
The German firm also penned Memorandums of Understanding to build additional combined cycle power plants with a capacity of up to 6.6GW and ten substations for reliable power supply. The value of the contracts is estimated to be in the region of $10bn.
“Egypt needs a powerful and reliable energy system to support its long-term, sustainable economic development, and experienced partners who understand the specific challenges facing the country,” said Joe Kaeser, CEO of Siemens.
GE revealed it is supporting the ‘Egyptian Power Boost Program,’ to add 2.6GW of power by May this year, in time to meet peak summer power demand. The US giant is building two power plants in consortium with construction company Orascom consisting of twelve 9E heavy-duty gas turbines that will generate a total of 1,500MW. A further 34 aeroderivative gas turbines will generate 1,200MW.
GE also announced it will create hundreds of jobs through a $200mn multimodal manufacturing, engineering, services and training centre which will focus on various industries including power generation, renewables, water, oil & gas, aviation and rail transportation.
Not to be outdone, regional companies also got in on the act. Masdar (the Abu Dhabi Renewable Energy Company) and Saudi-based power plant developer ACWA Power concluded a Memorandum of Understanding (MoU) to explore developing up to 4 GW of renewable and natural gas-fired power generation projects in Egypt.
The partners will evaluate 2 GW of renewable energy projects, including 1.5 GW of solar and 500 MW of wind. The framework agreement also calls for development of 2.2 GW of combined-cycle natural gas generation led by ACWA Power.
Many of the deals may be still at the preliminary stage and it remains to be seen whether all of them will get built. But what looks certain is that Egypt has finally decided to tackle the decline of its power infrastructure and in the years to come many gigawatts of new power generation capacity will be installed covering gas, coal and renewable energy.