Egypt’s government urgently needs to bring new power projects on line to fill the growing gap between and supply, the Arab Petroleum Investment Corporation (Apicorp) says in a report published today.
The main challenge is the lack of finance which the government is seeking to address by pursuing an aggressive reform agenda aimed at restructuring the power sector and removing subsidies.
“The government’s objective is to attract Independent Power Producers (IPPs) to revive the industry,” Apicorp says. “The failure to do so will mean that power outages will persist.”
Apicorp says Egypt’s electricity consumption has been rising at an annual rate of 5.6 per cent in the past ten years.
“Egypt’s estimated capacity of 34GW is not sufficient to meet this rising demand, and power outages are frequent – especially in summer months – when people can experience blackouts more than three times a day,” Apicorp says. “Our estimates suggest that Egypt will need to invest $28bn in power generation and a further $15bn in transmission and distribution (T&D). This would increase capacity in MENA’s most populous country by approximately 20GW to reach 54GW in 2020.”
Egypt plans to diversify its power generation mix by introducing nuclear and coal plants. It aims to build 4.3GW of wind and solar targeted by 2020.
“Financing challenges remain the government’s biggest obstacle, with a weakening currency and tightening financing terms from international banks,”Apicorp says. “It is therefore imperative that the government pushes ahead with the market and price reforms that it has announced.” The private sector is responsible for only 10 per cent of generating assets.
“This has to change, and moving forward, IPPs will be key to the future of Egypt’s power sector,”Apicorp says.
The discovery of the Al-Zohr field, coupled with BP’s West Nile Delta upstream developments and several LNG import contracts should solve gas supply problems, Apicorp says.
New projects include:
- Three 4.8GW combined-cycle gas-power plants, which will be among the largest in the world, being built by Orascom and Siemens. Gas-fired power plants represent nearly 19GW of the 20GW of projects under development.
- Plans to develop 2.5GW of wind, 1.7GW photovoltaic (PV), and 100MW of Concentrated Solar Power (CSP) capacity by 2020. A total of 20GW of renewable generation capacity is in execution and ready for commissioning by the end of the decade.
- Four coal plants with a combined capacity of 12GW.
- Plans to build four 1.2GW nuclear reactors. The deal involves a Russian loan of $25bn to cover 85% of the cost of the project, while the Egyptian government will fund the remaining. Although a flurry of optimism surrounded Egyptian nuclear plans, many financial, political, and regulatory obstacles still need to be addressed before any concrete progress is made. This will leave coal and gas as the main components of new capacity beyond 2020.
“Financing remains the biggest threat to the government’s plans to increase capacity in power generation,” Apicorp says. “The government is having to look abroad to provide the necessary financing. Although there is strong overseas interest in the Egyptian market, the country’s acute financial situation, diminishing foreign reserves, and weakening pound are all of major concern to international investors.”