After a period when electricity shortages and black-outs were a regular occurrence in Egypt, we are now entering an exciting period in the Egyptian energy sector, despite the challenges of the prevailing economic climate.
Government initiatives to prioritise electricity provision to residential and commercial areas and the emergence of the private sector in generating electricity to more remote areas have helped to improve the situation.
Progress has been in the right direction but the future has the potential to be even brighter as the government continues its drive to generate 20% of electricity from renewable sources by 2020, according to the New and Renewable Energy Authority (NREA).
And there is no doubt that Egypt has the natural resources to make renewable energy a huge success.
Renowned renewable energy expert, Gerhard Knies, suggests that within six hours, deserts receive more energy from the sun than humankind consumes within one year. With two major deserts, covering some 896,000 sqkm, Egypt is blessed with abundant solar energy.
The story is similar when it comes to wind power. Constant north-westerly winds mean the west coast of the Red Sea is considered to be one of the world’s best locations for wind energy. According to the Global Energy Wind Council, currently 468 MW of wind farms are installed in the Middle East and Africa, of which approximately 56% are in Egypt, according to the Global Wind Energy Council.
The government’s ambitious targets were set before the hugely significant natural gas field find by the Italian firm Eni. However, I firmly believe the commitment to developing renewable energy will remain very strong. The government sees renewables as a long-term solution to Egypt’s energy challenges. Also in the long-term, natural gas maybe exported to help address the country’s foreign currency imbalance. The value of Eni’s gas field find could be up to $100bn and if even a fraction of that is exported, it would bring in some much-needed foreign currency, according to the New York Times.
We are seeing a range of different development models for renewable energy projects, including bilateral agreements between the government and private developers, feed-in-tariffs, and Build-Own-Operate and Build-Own-Transfer tenders.
The government’s feed-in-tariff scheme, for example, reflects its commitment to renewable energy and is attracting significant investment from overseas. And there are some major projects underway, albeit in the early stages, with the ultimate aim of 20GW of additional renewable electricity production by 2020, according to the NREA.
Many of the projects are being underpinned by overseas investment from organisations with significant experience in the sector from markets such as Saudi Arabia, the UAE, China and Europe.
But alongside the overseas investment, there are exciting opportunities for Egyptian companies of all sizes to play a major role in realising the country’s ambitious renewable energy targets.
This drive for renewable energy is certainly sparking the interest of businesses throughout the country. We are seeing companies—which historically have no connection to renewables or even the energy sector—bidding for and winning concessions. They are then partnering with more experienced, international organisations to bring in the necessary technical expertise.
For example, there are a number of companies from the real estate sector that are seeking out opportunities in renewables, making the initial investment and then bringing in the relevant industry experts.
Even where projects are being led by international investors, there is an excellent opportunity for smaller, local companies to play a role. With many of the agreements being denominated in Egyptian pounds, international businesses will welcome the opportunity to work with domestic Egyptian businesses who can be paid in the local currency, helping to negate some of the currency risk.
So I do believe Egyptian companies should be looking to promote their local knowledge and market themselves as solution providers for parts or services on these major projects.
Renewable energy is a relatively new industry for Egypt and there is a unique opportunity for businesses to really carve out a niche for themselves. HSBC has spoken to some companies, for example, that are looking into manufacturing solar panels here in Egypt. The technology is not overly advanced and businesses which can adapt and diversify their capabilities could certainly prosper.
For smaller businesses, accessing the opportunities associated with such major projects can be quite an intimidating prospect. Firstly, you must familiarise yourself with the scope of the projects. There is a huge amount of information in the public domain regarding the concessions, their requirements and the bidding parties, so doing the necessary research should be relatively straightforward.
Secondly, it is important to leverage your professional partners—banks, lawyers and advisers— who will be working with the companies leading these major projects and who can provide invaluable insight into the work that is underway and what is required.
These are very exciting times in Egypt. There is no doubt that the targets set by the government around renewable energy are very ambitious but there is a real commitment to drive investment in the sector up to 2020 and far beyond.
Ahmed Yeganeh is head of Commercial Banking at HSBC Bank Egypt
