CAIRO: A year on from the start of the global financial crisis, the emergency brakes of Egypt s rickety development train have been lifted: although GDP has dropped by around 2.2 percent, the wheels are beginning to turn again and economic observers are optimistic as the country starts to steadily regain speed on its lurching journey.
However, cut to the engine room and agitated muttering is echoing with increasing amplitude as the fuel stockpile shrinks.
“Egypt s energy is running out, says Usama Said, the General Manager for the Wind Energy Development Project at the New and Renewable Energy Authority (NREA), a government organization devoted to research into and implementation of renewable energy projects in Egypt. “We need to think about the future generations, otherwise there is going to be nothing left and we are going to have problems, he adds.
Egypt’s swelling population has seen electricity demands increase by an average of 7 percent between 1998 and 2004, a trend which looks set to continue. It is estimated that the government will have to expand its electricity capacity to 32,000 MW over the next five years to meet demand.
Soaring demand is being matched with declining oil supplies as oil reserves mature and dry up. In 2007, Egypt s oil production dropped to 664,000 barrels of oil per day (bbl/d), continuing the trend of steady decline from a high of 950,000 bbl/d in 1995.
As oil dwindles, representatives of the two energy sectors with the greatest potential for enlargement, natural gas and wind power, are jostling for international funds and government attention, whilst marketing themselves as the crucial piece missing in the Egyptian energy puzzle.
Natural gas has made explosive headway in Egypt over the last decade and seems to have successfully prized the crown from Egypt s ailing oil fields as the most important energy source in the country. Production of natural gas mushroomed by over 30 percent from 1999 to 2007.
Furthermore, there are strong indications that the sector has further potential to grow. Oil and Gas Journal has estimated that Egypt s proven gas reserves stand at 58.5 Tcf, or roughly 1 percent of world reserves, and the International Energy Agency (IEA) project that both production and exports of natural gas will double between 2005 and 2030.
The World Bank is also spearheading investment in new connections in order to supply more Egyptian households with power generated by Liquid Natural Gas (LNG). “Conversion to piped natural gas will contribute to higher welfare among consumers in Egypt by reducing the cost and increasing the convenience and reliability of energy supply, as well as enhancing safety, says Anna Bjerde, the World Bank s Natural gas Connections Project team leader.
Such enthusiasm for increasing natural gas production is attributable to its relative abundance and availability in comparison with oil, as well as the relatively low cost of sourcing, refining and transporting the fossil fuel. Another frequently cited advantage is that it is the cleanest of the fossil fuels, releasing less carbon dioxide per joule than oil or coal and fewer pollutants than other fossil fuels.
New Hope
However, the wind energy camp are still optimistic that, despite the higher costs of producing wind energy (6.2 US cents/ kWh), a renewable power source such as wind power can win valuable points in a war of attrition for a bigger share of the energy market.
Said from NREA firmly believes that natural gas cannot compete with wind power in terms of sustainability. “At the end of the day, natural gas is a fossil fuel, and, although it may seem like we have adequate reserves now, there is high demand. It won t last forever. It s also still a source of pollution. The answer is renewable energy. And that renewable energy for Egypt is wind power.
Jonathan Walters, Transport and Energy Manager for the World Bank’s Middle East and North Africa region, believes that Egypt has a significant natural advantage when it comes to wind power due to the “high and persistent winds in the Gulf of Suez, which, he claims, demonstrates that Egypt has “excellent potential for wind power – among the best in the world.
However, if wind energy is going to gain any of the ground that is currently being feverishly expropriated by the burgeoning natural gas industry, the sector needs to progress at a much quicker rate than it has in the past. At present wind power accounts for only 3 percent of Egypt s total energy production.
Nonetheless, steps are being taken to change this: financial support from overseas donor agencies (of German, Spanish and Japanese origin) is bolstering NREA-led projects to increase the country s wind power capacity to 5 percent of total energy generation levels by 2012, and 12 percent by 2021.
In line with this plan, capacity increases will average between 400MW and 1000MW per year by 2012 and will entail the expansion of wind farms in the Gulf of Suez, an area which is already the primary source of Egypt s wind energy.
Challenges and opportunities
However, Professor Mohamed El Sobki, a researcher for the International Institute for Sustainable Development (IISD), highlights that there are severe challenges to overcome before such plans can be realized.
“To strengthen and extend our current networks for transferring wind energy to the power grids alone will require an investment of around $8,000 million. And then there s the amount of money needed to build the new wind farms themselves. In order to secure this investment, there needs to be an injection of capital from the private sector, which requires the current administration to look at how they can stimulate investment and develop the market.
Despite the large amount of investment required by the wind power industry and the somewhat discouraging fact that wind production costs currently exceed the price at which the NREA sells electricity to the government-owned transmission company (6.2 US cents/kWh versus 2.5/kWh), some experts insist that wind can still be an economical alternative energy source.
They claim that increasing wind power s stake in the domestic energy market would allow more natural gas to be reserved for export. Currently, Egyptian legislation puts a cap on the amount that natural gas can be sold for on the domestic market, at $1 MBtu, which is far below the price it can be sold for abroad. As a result, the opportunity cost of domestic consumption of natural gas is estimated to be between $2.5/MBtu and $11.5/MBtu.
According to leading energy researchers, if the opportunity cost of natural gas is taken into consideration, the costs of wind power and natural gas are comparable and, when the price of natural gas on the international market is high, wind power can even be more profitable, especially when its additional carbon credit values are taken into account.
“With the help of wind energy, we can make natural gas more financially efficient. As well as gas being reserved for export, its uses can be diversified beyond power generation to, say, the petrochemicals industry, which will give it an added value, claims El Sobki.
Advocates of wind power have also declared that a lucrative long-term plan would be to export excess electricity generated by wind power to the European Union, by means of an underwater cable or Mediterranean ring. “The attraction of the idea to Egypt is that such electricity generation may qualify for European renewable incentives, which are currently far more valuable than carbon credits under the Clean Development Mechanism (CDM) of the Kyoto Protocol, state the IISD.
However, in the case of Egypt for the moment, the figurative gulf between ambition and reality is as expansive as that of the Suez that straddles Asia and Africa. In 2006 Egypt only exported 0.3 percent of its net electricity production. Even the IISD admits that a lot of work would need to be done for the exportation of wind power to be ever realized.
“In order to develop such opportunities, major new electricity transmission infrastructure would be requir
ed, along with agreements governing the eligibility of electricity generated. Both of these issues represent major challenges.
Yet, despite the significant changes which need to be made to ensure that wind power energy generation grows to its full potential, Professor El Sobki remains optimistic.
“Projections about increasing wind energy are definitely realistic. With the right momentum and the right funding we can make this a reality. It is being taken very seriously by the government, given the limit on fossil fuels. If things are done right, wind power can be Egypt s second biggest energy source in the very near future.
