New policies for private investment in Egypt's renewables

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A combination of factors is driving demand for solar power in Egypt. According to the European Bank for Reconstruction and Development (EBRD), the cost of electricity produced by renewable projects has gradually decreased over recent years to become more competitive than traditional hydrocarbons-based sources. The government’s long-running effort to reduce the budgetary support it has historically provided fossil fuels has coincided with this trend: Egypt nearly halved its projected subsidy spending for petroleum products in the 2020/21 budget, lowering it from LE52.9bn ($3.3bn) to LE28.1bn ($1.7bn).

Gaining Momentum

With the era of government-subsidised hydrocarbons drawing to a close, consumers have become more receptive to alternative energy sources. Heavy energy users in the commercial and industrial sectors are particularly responsive to price changes, and they have started to turn to private renewable energy producers in a bid to reduce their input costs. Utilising renewable energy sources is also a useful way for companies to respond to growing investor focus on environmental, social and governance issues. “Using green energy can be a great tool for industries to brand themselves, as well as a way for them to secure a significant reduction in costs and better stability regarding accountancy,” Mohamed Amer, country manager of Norway’s Scatec Solar, told OBG.

According to the US Forum for Sustainable and Responsible Investments, global money managers have placed around $3trn in assets with considerations for climate change or carbon limitation. Businesses seen as contributing to the climate cause are likely to continue to attract capital from governments and companies responding to public concern about the environment. In this context, Egypt’s decision to boost its solar capacity is well timed.

Focal Point

One development, in particular, has emerged as focal point for the nation’s rapidly expanding solar power industry. Benban is Egypt’s first utility-scale photovoltaic (PV) plant, and its 1.8-GW capacity is sufficient to establish it as a significant solar player in the global market. The project site near the city of Aswan is divided into 41 plots of varying sizes, on which some 30 solar developers have installed infrastructure. The development was designed to attract inflows of domestic and foreign capital, as well as local and international technical expertise. Project participants include solar developers from 12 countries, including Germany’s ib vogt, India’s Shapoorji Pallonji, Spain’s Acciona, Italy’s Enerray, China’s Chint Solar, France’s EDF Renewables and Norway’s Scatec Solar. These producers are recompensed through feed-in tariffs spanning 25 years, the formulation of which was, in recent years, one of the most hotly debated aspects of Egypt’s renewables strategy.

The government-owned Egyptian Electricity Holding Company built the major infrastructure at the site, including roads, a control centre and four substations, with the help of loans from the International Finance Corporation and the World Bank. The plots are arranged in groups of four rows, each of which feeds power to a sub-station via 22-KV cables buried in the sand. The site’s position, adjacent to a corridor of other 22-KV transmission lines, grants it access to the national grid, and this connection may be further solidified in the future due to the proximity of two 500-KV high-voltage lines.

In the closing months of 2019 the project was nearing completion, with more than 80% of the PV infrastructure in place. In April 2020 US-based General Electric announced that it had completed the construction of the facility’s control and monitoring centre. The Benban plant is expected to become fully operational by the end of the third quarter of 2020, after an initial commencement date was postponed due to the global outbreak of Covid-19.

New Era

The success of Benban has provided a significant boost to the Egyptian solar industry. The scale of the project has helped to reduce the cost of PV systems in the country and has burnished the image of a technology that had previously suffered reputational damage as a result of a number of high-profile missteps. Prior to the Benban project Egypt had struggled to attract foreign investment in its energy sector outside the oil and gas segment – a state of affairs that has been reversed by flows of capital to the Aswan site.

Importantly for the future of solar power in Egypt, the momentum generated by Benban is being carried through to other projects. A third phase of the project has the potential to add more than 300 MW to the plant’s capacity, while another solar development is currently emerging at Kom Ombo, 45 km north of Aswan: in December 2019 the Egyptian Electricity Transmission Company (EETC) signed a power-purchase agreement with UAE-based Amea Power for the supply of approximately 200 MW of solar capacity after it has completed the construction of its Kom Ombo PV power plant, which is expected to begin commercial operations in 2021.

In early 2020 the government revealed plans to add an additional 500 MW of solar power through the construction of a number of new plants across the country. The new facilities will be built by China’s Gezhouba Group, which has already constructed solar infrastructure at the Benban facility. As many as 12 domestic and foreign companies have also been reported to be taking part in a tender launched by the EETC for a 200-MW solar plant to be located in the West Nile Delta. Key participants included Saudi Arabia’s ACWA Power, the UAE’s Masdar and Alcazar Energy, EDF Renewables and Orascom Construction. Another angle of collaboration between China and Egypt in solar energy is the opening in 2019 of a research laboratory in Sohag in eastern Egypt. The laboratory will research different solar power technologies, including battery automation technology and efficiency improvements. The centre’s collaboration results from an agreement signed by Tianjin University and the Egyptian Academy of Scientific Research and Technology.

Local Benefits

The Benban project has also raised the profiles of its local participants, making it easier for them to attract investment themselves. Cairo-based Infinity Energy has commissioned several plants at the Benban facility, with a combined capacity of 133 MW. In January 2020 the EBRD became a shareholder in the company with an investment of $60m. Infinity Energy intends to use the capital injection to develop a pipeline of renewable energy and electricity distribution projects, as well as a network of electric vehicle charging stations. Infinity’s emergence as a key player in the solar arena has also caught the eye of the UAE’s clean energy developer, Masdar. In early 2020 the two companies entered into a joint venture to create Infinity Power. The new company is expected to start operations in 2020, pursuing renewable energy opportunities in Egypt and Africa.

The New and Renewable Energy Authority (NREA) is currently looking into the feasibility of additional solar plants that would together have a total capacity of 970 MW, Mohamed Al Khayya, the head of the agency, told local media in late May 2020. Additionally, government plans to adopt a new framework of flexible policies to encourage additional private investment in solar projects. Under the new and more flexible policies, private companies would be allowed to own, construct and operate renewable energy projects. The NREA’s, efforts combined with upcoming projects in Kom Ombo and the West Nile Delta, will add to the country’s total solar capacity and increase momentum in its drive to establish itself as a centre for solar energy.

Ancillary Activities

Egypt’s emergence as a solar centre means that there is considerable potential to establish itself as a production centre for solar plant and related materials as well. A May 2020 announcement from scientists at Benha University illustrates growing local expertise in the field: the Benha research team discovered a new technique for actively cooling solar panels, using a phase change material consisting of water, aluminium oxide and calcium chloride hexahydrate.

The cost advantages that have long been enjoyed by China in terms of raw materials have historically made it difficult for other producers to compete in this segment; however, in 2018 details emerged of an integrated solar panel factory that would be established with Chinese assistance. The facility, priced at $2bn, was to be constructed by the Egyptian military in partnership with China’s Golden Concord Group, with funding to be supplied by Chinese banks. Capital for feasibility studies, meanwhile, was anticipated to be provided by the Kuwait Fund for Arab Economic Development. Negotiations regarding how to utilise the factory’s output delayed the construction of the project, and in 2019 its future appeared to be in doubt. In February 2020, however, the government announced that a Chinese partner would be contracted before the end of the year to build two new solar panel production facilities that would together provide a combined annual capacity of 5 GW, adding that the initiative will be funded by Chinese banks. Egypt’s ambition to become a manufacturing centre for solar hardware therefore appears to be moving closer to fruition.

Covid-19 Implications

The Covid-19 pandemic may provide further momentum to the process. Solar panel production in China slowed as a result of its government’s efforts to tackle the outbreak, and industrial imports to Egypt were delayed by quarantine measures. Some of Egypt’s biggest solar developers reported project delays as a result of these developments and expressed uncertainty as to how business might be affected over the longer term. However, against that backdrop of challenging economic circumstances, a number of announcements were made to reassure stakeholders in the solar energy market. On April 1, 2020 it was announced that the World Bank’s Multilateral Investment Guarantee Agency (MIGA) would provide funding for six new solar power plants at Benban Solar Park. The total investment of $52.4m will be issued in the form of guarantees to Scatec Solar. This constitutes part of Egypt’s solar feed-in-tariff programme, which provides long-term contracts to private energy companies with a view to generating investment in renewable sources.

“In the face of the uncertainty that has arisen from the Covid-19 pandemic, MIGA remains committed to helping drive foreign direct investment (FDI) through supporting investors who are helping Egypt achieve its long-term goals of diversifying its energy mix,” Hiroshi Matano, executive vice-president of MIGA, said in a statement in March 2020. While the pandemic has indeed caused a number of delays for the renewables segment, notably the postponement of the construction of four solar plants by Inter Solar Egypt, the future bodes well for the expansion of the industry.

“In the current uncertain economic environment, solar energy has become popular, as it can be produced up to 80% more cheaply than other sources,” Yaseen Abdel-Ghaffar, managing director of SolarizEgypt and board member of the Solar Company, told OBG. “Although it was initially difficult to secure FDI for projects, banks are becoming increasingly receptive to renewables, and growth in financing is expected after regular economic conditions are re-established.” With the events of early 2020 highlighting the fragility of global supply chains, the argument for local production where a competitive facility can be established has been strengthened.

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The Report: Egypt 2020

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