A $9bn deal inked in Egypt will give a substantial boost to the country’s electricity generation capacity, helping the government address power shortages and support a growing population and economy. On June 3, 2015 German industrial conglomerate Siemens agreed a deal to supply gas and wind power plants that will add 50% − or 16.4 GW − to Egypt’s national grid.The deal, described as the biggest order in Siemens’ 168-year history, was signed during a visit by Egypt’s President Abdel Fattah El Sisi to Germany, and follows on the back of a memorandums of understanding (MoUs) signed in March at the Egypt Economic Development Conference in Sharm El Sheikh. It includes the supply of 24 H-Class gas turbines for power plants that are scheduled to come on-stream in phases, starting in the summer of 2017.
Two of the plants, worth €1.6bn ($1.8bn), are to be constructed by a consortium of Siemens and Egypt-based conglomerate Orascom Construction, with a total generation capacity of 9.6 GW.
However, while the sheer size and cost of the gas-fired turbines is impressive, one of the more laudatory aspects of the deal falls in the alternative energy realm. This projects falls in line with efforts by the government to increase renewable contributions to the energy supply to 20% of the total. The Siemens deal also includes around 600 wind turbines for 12 wind farms located in the Gulf of Suez in the northern Red Sea. The farms are expected to have a total installed capacity of 2 GW.
Wind power is already relatively established in Egypt, at least by emerging markets standards. Prior to the revolution, the Supreme Council of Energy – established in 2006 as a body that coordinates the various policies of the wider energy sector – approved its strategy for electricity generation based on diversifying energy production sources, rationalising the use of energy and expanding the renewable component. It set a renewable target of 20% of total production by 2030, of which the share of grid-connected wind power will be in the region of 12%, or around 7200 MW.
Wind power has developed from the experimental projects established in the 1990s to the nation’s first major wind farm at Zafarana on the Gulf of Suez. Established in 2001, the facility has grown in several phases to include 700 turbines of varying models (600 KW, 660 KW and 850 KW) to reach a total installed capacity of 545 MW as of June 2013.
Zafarana’s performance over the 2012/13 financial year demonstrates the utility of Egypt’s wind resource: an average wind speed of 6.7 metres per second allowed it to attain an availability factor of 94.1% and a capacity factor of 25.2%, resulting in energy production of around 1.3bn KWh.
The development of the country’s wind sector is being undertaken by the New and Renewable Energy Authority (NREA), which currently has seven projects in the implementation or preparation stage, with a combined capacity of 1340 MW.
In the meantime, Egypt is already bringing new capacity on-stream to address what has become a perennial supply-demand mismatch as the country enters the hottest part of summer. In May 2015, the government opened a 750-MW combined-cycle gas turbine power plant in the Qalyubia governorate, in the northern outskirts of Cairo, at a cost of LE3.6bn ($490.7m).
The government has also moved to boost supply and trim demand in 2015. It has reduced fuel subsidies – long a distorting factor in Egypt’s economy that has encouraged overconsumption while weighing heavily on the national budget.
Towards the end of June 2015, a ministerial economic group approved the creation of a company that will own and manage projects with a view to adding electricity units to help meet demand. According to the cabinet statement, the company may also be listed on the Egyptian Stock Exchange.
Despite these efforts, Egypt continues to face power shortages. Energy consumption is rising and both a lack of fuel and inadequate generating capacity have led to load-shedding among both residential and commercial consumers. In 2014, power shortages dominated the hot summer months, affecting households and businesses across the board. A ministry spokesperson said recently that the capacity of Egypt’s national electricity grid has reached an estimated 32,000 MW, with electricity consumption expected to reach 28,000 MW during Ramadan.
In May 2015, the Ministry of Electricity declared a “state of emergency” for power producers, transporters and distributors in the run-up to the summer. Later in the month, the Egyptian Natural Gas Holding Company announced it had stopped pumping gas to 60% of high-consumption gas factories – including steel mills, cement factories and fertiliser plants − in order to direct resources to power stations for civilian use. The government has aggressively sought to address the issue with demand-side management, from a reintroduction of the daylight savings time regime, which had been dropped in 2011, to an initiative to replace standard light bulbs with high-efficiency ones. The Egyptian Electricity Holding Company has also announced plans for the introduction of more efficient street lighting, less energy-intensive potable and sewage water plants, increased use of solar water heaters and smart meters in the residential sector, and a media awareness campaign to be launched with the cooperation of government ministries to drive home the importance of energy efficiency to the public.
Egypt is also introducing a range of supply-side improvements that can address the shortfall in the immediate term while still paving the way for sustained growth in capacity over the long term, ranging from a rise in electricity imports to a more attractive investment framework.
“In Egypt, there is a big interest in electricity generation projects. However, in parallel, improving energy efficiency and upgrading transmission and distribution stations to accommodate the new capacities that will be generated in the future, requires mega investments to strengthen the quality of electricity, and reduce the waste of power during distribution which is estimated at 10% – 15%. “Naji Jreijiri, managing director Egypt, North and Central Africa at ABB for Electrical Industries, an international power and automation technology company, told OBG.
“In addition to the need of installing new grids to conduct electricity, there is a realisation by the government that it needs to reduce the waste of energy in the national grid and to reinforce the transmission and distribution networks in order to meet increased electricity demand,” Jreijiri told OBG. “We in Egypt need improved quality of electricity as well as more even distribution − that’s why the government is in a hurry to implement many of the power projects,”
While attention has understandably focused on big-ticket power projects, Jreijiri highlighted the potential for localised networks, with smaller, sometimes mobile power plants and off-grid equipment supplying clusters of villages in rural areas. This requires less investment in the network, and the plants could be supplied almost ready-to-go, making them quicker to deliver, he said. Equally crucially, they open up space for greater renewable generation, albeit on a much smaller scale than the deal that was made with GE.