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It does not take an expert to recognize Egypt’s solar energy potential. Some areas of the country receive over 4,000 hours of sunshine per year, among the highest in the world. And with 95% of the 91 million residents occupying only 5% of the landmass, the country has huge swathes of empty desert.
Add to this rising energy demand due to sharp population growth, and a series of blackouts during the peak summer months caused by insufficient supply, and Egypt seems ready for a solar energy boom.
But is it happening? Currently, less than 1% of electricity in Egypt is produced by solar energy. The solar energy that is available mostly comes from small-scale projects, for instance on rooftops. The only larger projects, up to 10 megawatts (MW), are several hybrid solar-diesel solutions for agriculture and resorts, developed by the United Arab Emirates company Masdar.
“There are lots of small projects happening, but these do not have a large impact on the overall energy mix.”
The government is hoping to change this, both for environmental reasons and to attract foreign investment. By 2020, it plans to generate 20% of its energy from renewable sources, of which 2% is solar, 12% wind and 6% hydro.
In order to achieve this, the government launched a stimulus programme in November 2014, offering a high $0.142 cents per kilowatt hour (kWh) feed-in tariff for large 25MW-50MW solar and wind projects. This resulted in around 40 listed projects around Aswan in the south and several other locations, to be developed by local and international renewable energy companies.
The potential for solar is huge, according to Warren. Besides the abundance of sunshine, even the type of desert is suitable for solar panels, as ripples and rocks prevent sand from blowing on to the panels, he said.
Moreover, some of the infrastructure needed for large-scale solar development is already in place. There is easy access for components from China through harbours at the Gulf of Suez, and new transmission lines are being built to help hold the additional capacity.
Companies were given a deadline in October 2016 to finalize the funding and contracts for the projects.
However, a blow was dealt to the projects under the feed-in tariff scheme in June. In the final stages of negotiations, the Ministry of Electricity inserted a new clause into the scheme’s power purchase agreement (PPA), insisting on local arbitration only (no international arbitration) in the event of disputes.
This clause has led international financial institutions largely to withdraw from the projects.
“The main challenge lies now in the regulatory and financial framework,” said Warren. “Two months ago there was great momentum for the larger feed-in projects to take off, but uncertainties about PPAs have slowed it down.”
Numerous firms have reportedly notified the ministry that they are unable to secure the funding for the projects because of the local arbitration clause. Several companies involved in the scheme have submitted a proposal to the government to reach a compromise so that the projects can proceed, but so far without success.
It remains to be seen whether the solar developers, which have already made considerable investments, will await the feed-in tariff for the second round, to be announced in autumn 2016, to decide whether or not to pursue the projects.
One reason for the last-minute change could be that the government wanted to reduce its financial exposure to the first-round tariff, which was relatively high. “Other countries are paying much lower prices for electricity, so Egypt may think it offered too generous a rate,” Warren said.
What might also play a role is the construction of three 4,800MW gas-fired power plants by German company Siemens, which will start operating from late 2016 onwards. These plants are expected to fulfil most of Egypt’s immediate electricity needs.
“Egypt will have a healthy power surplus by early 2017,” Warren predicted.
Moreover, an immense gas field, expected to start producing in 2017, was discovered off Egypt’s Mediterranean coast last August, along with several other major discoveries. It would seem that Egypt, for now at least, is prioritizing realizing the output of this gas field through gas-fired plants over its solar energy potential.
The uncertainties surrounding agreements with the government have led some developers to choose another path: off-grid solar development.
One of the players in this field is KarmSolar. Founded in 2011, its mission is to empower people and impact communities through off-grid solar energy. It started out offering solar pumping systems for farmers in the Western Desert.
Ahmed Zahran, the company’s CEO and co-founder, told Fanack that targeting the off-grid market “makes more sense”, as it creates energy independence and avoids having to deal with government bureaucracy.
Besides agriculture, KarmSolar is building solar plants for resorts in the south of Egypt (150kW and 75kW). Next month it will start operating a 1MW plant in a direct agreement with diary producer Juhayna.
With several larger projects (up to 10MW) with private companies in the pipeline, KarmSolar has plans to expand in the next few years. Although the number of projects is still small, Zahran believes the future of solar lies in changing the market into one that is off-grid, government-independent and focuses on innovation.
“In the long-term I want off-grid to be able to compete with on-grid,” he said.
The recent hurdles faced by large on-grid solar projects support his vision.
In addition, there are currently few incentives for individuals or private parties to install on-grid panels, for instance on rooftops, as it is difficult for on-grid solar energy to compete economically with heavily subsidized electricity from the net.
Warren recognizes that companies like KarmSolar are growing quickly and tap into a market need, but believes that large on-grid projects are essential for solar to make a real impact on the country’s overall energy mix.
“All you need is a successful first round of large-scale projects for solar to really take off in Egypt.”
Another challenge to these projects is the recent depreciation of the Egyptian pound against the dollar, which has made it more expensive to import components. Moreover, simply sending dollars out of the country has become difficult.
However, Warren remains positive. “Solar is in an absolutely crucial phase now. They have to find a way to continue with these larger feed-in tariff projects.”