Regions of Egypt are known for excellent wind resources, allowing the country to become a leader in terms of installed wind power capacity in Africa and the Arab region. The government has committed to an ambitious target of increasing the share of wind energy to 12% by 2020 through engaging the private sector for the first time in developing Egypt’s wind farms. However, bidding processes have not run as smoothly as expected and achieving the target remains elusive.
The Current Share of Wind Energy
“The MENA region is a paradise for renewable energy,” said Hossam Gamil, the director of educational programs at the German Academy for Renewable Energy and Environmental Technology, pointing out the region has very good climate conditions. In Egypt, there are excellent wind regimes in the Gulf of Suez region, on the Nile banks in the Western and Eastern Desert and in some parts of the Sinai, he noted. Egypt is in a favorable position when it comes to the cost of wind energy since most of its potential is for onshore farms. These require significantly less investments than offshore farms, which constitute the vast majority in Europe.
With financing from the government and international donors, Egypt’s New & Renewable Energy Authority (NREA) has built two wind farms which produce 550 MW in total, accounting for about 2% of the country’s power capacity. The NREA established a pilot wind farm in 1988 in Ras Gharib, near the Gulf of Suez. In 1993, a 5.5 MW demonstration wind farm was set up in Hurghada. Egypt’s first commercial wind project was the phase one of the Zafarana wind farm in the Gulf of Suez area, which was commissioned in 2001 with a capacity of 30 MW. This was followed by seven more phases, which increased the farm to about 700 turbines and 545 MW by 2010.
Strategy for Achieving the 12% Target
The government’s current target of increasing the share of wind energy to 12% by 2020 was announced in 2008. The 12% share represents a capacity of 7,200 MW. In order to achieve this target, the government is engaging private investors in the development of wind farms. The government foresees that by 2020 the projects implemented and owned by the NREA will account for 2,375 MW and private sector projects for 4,825 MW.
A bulk of the private investments will be engaged in the form of build-own-operate projects. The electricity generated from these projects will be sold to the Egyptian Electricity Transmission Company, which will sign contracts for 20-25 years. The investors will also benefit from selling certificates of greenhouse gas emission reduction as per the Kyoto mechanism. Several other private wind projects will be based on the independent power producer model. Most production from these projects will be sold directly to end consumers.
As for the incentives already in place, all renewable energy equipment has been exempted from custom duties and sales taxes since 2010. Besides, the government has allocated more than 7,600 square kilometers of land on the Gulf of Suez and the Nile banks for implementing wind projects. The NREA also intends to introduce feed-in tariffs for some projects. Last year the government established a fund for covering the difference between the production costs and selling price of renewable energy, but the details of these plans have not yet been set.
50% Renewable Requirement to Speed up Tenders
The NREA is currently developing seven wind projects with a total capacity of 1,140 MW, with one already under construction. Private sector projects in the pipeline total 1,470 MW. They include Egypt’s first self-producer wind project, a 120 MW wind farm for Italgen. The first phase of the project, costing about USD 180 million, will create a capacity of 120 MW, which satisfies about 35% of the energy needs of Italgen’s subsidiary Suez Cament. The company has committed to increasing the capacity to 400 MW. (2)
Egypt’s first wind build-own-operate project, with a capacity of 250 MW, is currently in the bidding stage. Even though the project has secured financing from the Japanese government, the bidding process has been lengthy. Investors were invited to submit pre-qualification documents in May 2009 and in November 2012, 10 bidders were shortlisted. In spring this year, the NREA made a request for proposals, but the final deadline to receive them has been postponed several times.
There are six lots, each denoted for a capacity of 100 MW, at the bidding stage. The NREA intends to conclude 25-year concession agreements with winners that foresee 2% of power production, or its monetary equivalent, being given to the government for the use of land. The rest will be sold directly to end clients, a list of which needs to be submitted with bid. A request for pre-qualifications was made in December 2012 and the submittal deadline was September 30th. Since potential investors had difficulties with finding end clients, the government decided in September that starting in 2015 energy-intensive factories will be granted operating permits only if they meet 50% of their electricity needs with new and renewable energy sources. (3)
Key Players in Egypt’s Wind Sector
According to advisory firm Caravel Financial, potential foreign private wind developers in Egypt are companies such as Toyota of Japan, Siemens of Germany, Kharafi National of Kuwait and General Electric of the US. As for local firms, the potential developers include Elsewedy for Wind Energy Generation, Orascom Construction Industries and PICO Energy. For existing projects, the key supplier has been Gamessa of Spain, which has installed 406 MW of capacity in Egypt since 2003. However, around only one-fourth of the investments for the Zafarana farm has flowed into the Egyptian economy.
An emerging player in the sector is Elsewedy Electric, which entered wind energy industry in 2008 by buying a stake in the Spanish wind turbine manufacturer MTorres in order to acquire its know-how and by forming a joint venture with the German wind tower manufacturer SIAG. According to Elsewedy, its wind energy unit has factories for manufacturing turbines, towers and rotor blades and the company expects to double their capacities within five years. It appears to have a good chance to become a major supplier of wind energy projects in Egypt since the government decided to give tender privilege to local companies. Elsewedy intends to export its surplus from Egypt to Africa, the Middle East and Europe.
Government’s Credit Rating a Hindrance
According to the Arab Future Energy Index by Regional Center for Renewable Energy and Energy Efficiency (RCREEE), an NGO based in Cairo, Egypt is a leader of institutional capacity in the region when it comes to renewables. However, the country’s recent political instability and economic crisis have slowed down the development of wind energy. “In the past three years, hardly anything has happened in this field,” said Allam Hussein, the founder and chairman of Caravel Financial. Therefore, the 2020 target seems a very distant prospect. “A distinct gap exists between the stated goals of national governments and the current course of development,” notes RCREEE, pointing out that an average annual growth by 739 MW is needed to meet the target. “It is very difficult to achieve this target given the current situation,” agrees Hussein.
According to RCREEE, Egypt needs to phase out energy subsidies, speed up bidding processes and provide additional incentives for private developers. Hossam Gamil from the German Academy for Renewable Energy and Environmental Technology thinks that it would be wise for MENA countries to increase taxes on fossil fuels and use the resulting funds to support renewables. He also stressed the importance of feed-in tariffs, adding that since the energy economy is changing constantly, incentives have to be re-calibrated periodically.
Hussein pointed out that a large obstacle for private-public wind power developments such as the build-own-operate projects is the poor credit rating of the government. The banks that could provide financing for such projects to private investors will take the credit rating of the government into consideration since it is the off-taker. For the government’s credit rating to improve, more political stability is needed. Additionally, Hussein said, the government needs to make more efforts in the wind energy front and have officials who would push this sector on a daily basis. He also pointed out that an electricity law that includes regulations concerning feed-in tariffs, bidding and take-or-pay contracts, which could encourage wind energy development, is waiting to be ratified by the parliament for months already.
Hussein added that small-scale renewable energy projects by companies, farms or individuals for their own consumption, which depend less on the government’s initiative, could be a big opportunity for Egypt. “Especially considering the frequent power cuts, companies could choose to do it as a source of energy security,” he explained. “It is more expensive than the electricity from the grid, but one needs to think about it in a different way, by taking the lost days of production caused by power cuts also into account.” A few months ago a law came out calling for two-way meters, which enables renewable energy producers to sell to the grid the electricity generated in excess of own consumption. According to Gamil, this is definitively a good initiative for speeding up such developments. Gamil said that it might also be a good idea to provide grants or favorable credit policy for small-scale wind projects, pointing out that they already have a significant market share in the US and the UK as well as quickly increasing popularity in China.
Technological Progress is the Key for Success
Hussein added that although the government’s incentives are important, the key for the success of wind energy in Egypt, lies in achieving technological innovation that would decrease the huge initial investments it requires, which is a job for scientists all around the world. Gamil is optimistic that such innovation will occur, just as it has happened in the past. He noted that wind turbines are nowadays 40 times more powerful than 20 years ago. “Wind energy is already in the same cost region as new gas and coal-fired power plants and it’s cheaper than new nuclear and CCS (carbon capture and storage) plants,” Gamil said, adding that one should also not forget the advantages of wind energy in terms of the environment and public health.
Many experts believe that by 2020, the average cost of wind energy can be reduced to USD 0.05-0.09 and wind power can account for as much as 50% of global electricity by that time, Gamil noted. According to him, technologies are being developed that can reduce the costs of new materials with lower weight, permanent magnet generators, concrete towers instead of steel, direct drivers, deformable blade profiles as well as substitutes for rare earths.
In the past, Egypt has been successful compared to other countries of the region in developing its promising wind energy resources. This development has suffered a significant setback due to the political instability of recent years. Considering all the challenges that the country has faced, the development of wind energy has not been a priority. In order to achieve the 7,200 GW target by 2020, the government needs to put significantly more effort in developing the sector. Such efforts, accompanied by technological progress, can make wind energy a real success story for Egypt in the future.
1. “Power in the Land of the Pyramids.” Sun & Wind Energy, September 2009.
2. “Suez Cement Sister Italgen To Construct 1st Private Wind Farm In Egypt.” Amwal Al Ghad, 24 June 2013.
3. “Government mandates high consumption factories to use renewable energy to meet half their needs.” Daily News Egypt, 24 September 2013.