challenges to energy transition in egypt: a study of wind and solar sectors
TRANSCRIPT
Challenges to Energy Transition in Egypt: A Study of Wind and Solar Sectors
A Thesis
Presented to the
Faculty of Economic and Social Sciences
Potsdam Center for Policy and Management
University of Potsdam, Germany
In Partial Fulfillment
of the Requirements for the Degree
Master of Public Management
Stream
Submitted by
Marwa Mostafa
Potsdam, September, 2014
Supervisors
Prof. Dr. Harald Fuhr, First Supervisor
Prof.Dr. Taylor Schildgen, Second Supervisor
Master of Public Management 2014
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Acknowledgments
It is a pleasure to thank all those who made this study possible.
First, I’d like to thank most sincerely my supervisors: Prof. Dr. Harald Fuhr, and
Prof. Dr. Taylor Schildgen, who have always answered my questions tirelessly,
and provided support since day one.
I’d like to extend my gratitude to Ms. Rawya El Shayzly, and Mr. Thomas Fink for
their valuable suggestions. Also, thanks are due to Engineer Amr Mohsen, whose
enthusiasm for the best interest of Egypt has been contagious.
I also, thank the continuous support of the MPM office as well as the academic
staff. I am deeply grateful to the German Academic Exchange Service (DAAD) for
this opportunity.
The greatest support I have received-and always receive-from my parents, whose
love makes everything much easier. I also thank my friends and family; I am lucky
being be part of your lives. I owe my deepest gratitude to Dina Medhat, Paulyn
Duman, and Salma El Banna.
Lastly, it has been a pleasure being part of this MPM class, and especially the
library support group. I am thankful for all of my colleagues who have lent their
helping hand, especially Lidia, Sunil and Tony.
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Abstract
In 2008, the Government of Egypt (GoE) announced new targets for Renewable
Energies (RE) up to 2020. It was the first time specific targets were set. By 2020,
20 percent of the national energy demand is supposed to be met by renewable
forms of energy.
This study aims to identify key challenges that may be encountered for changing
the current energy mix.
The first section of the study briefs the reader with a background of the situation in
Egypt, the research question, research methodology and the limitations of the
study. The second section is dedicated to present theoretical considerations made
in this regard, in addition to some practical aspects and lessons learned from
countries’ experience with energy transition. Followed by “Egypt’s Country Profile”;
presenting the main data required to assess the country’s potentials. The fourth
section develops an analysis of both theoretical as well as practical considerations
applying to the case of Egypt.
And finally the study will summarize the major findings and remarks in the
conclusion part.
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Table of Contents
ACKNOWLEDGMENTS ................................................................................................... 2
ABSTRACT ...................................................................................................................... 3
LIST OF TABLES AND FIGURES .................................................................................... 5
1. INTRODUCTION……… ................................................................................................ 7
1.1 BACKGROUND ........................................................................................................... 7
1.2 METHODOLOGY ......................................................................................................... 9
1.3 LIMITATIONS OF THE STUDY ..................................................................................... 10
2. THEORETICAL FRAMEWORK .................................................................................. 11
2.1 DEFINING ENERGY TRANSITION ................................................................................ 11
2.2 STUDYING TRANSITION: THEORETICAL CONSIDERATIONS ........................................... 12
2.3 CHALLENGES TO TRANSITION: PRACTICAL CONSIDERATIONS ..................................... 15
3. EGYPT'S COUNTRY PROFILE .................................................................................. 21
3.1 OVERVIEW OF THE ENERGY DEMAND ........................................................................ 21
3.2 POTENTIALS OF WIND AND SOLAR ENERGY ............................................................... 22
3.3 INSTALLED CAPACITIES AND INFRASTRUCTURE .......................................................... 24
3.4 LEGAL AND INSTITUTIONAL SETTING ......................................................................... 27
3.5 MARKET OVERVIEW ................................................................................................. 33
4. CHALLENGES TO EGYPT'S ENERGY TRANSITION ............................................... 36
4.1 POLICY GAPS .......................................................................................................... 36
4.2 CHALLENGES TO ENERGY TRANSITION ...................................................................... 44
5. CONCLUSION ............................................................................................................ 53
DECLARATION OF HONOR .......................................................................................... 57
6. LIST OF REFERENCES ............................................................................................. 58
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List of Tables and Figures
Table 1: The NATO Model by Christopher Hood Table 2: Summary of Findings: Theoretical Framework Table 3: Regional Initiatives Table 4: Findings’ Matrix
Box 1: El- Zaafrana Wind Parks, a model to be replicated Box 2: Off-Grid and Small Scale RE Projects in Egypt Box 3: Feed-in-Tariffs (FITs) Box 4: Electricity Prices in Egypt Box 5: Tanweer El-Haiz Project Box 6: Environmental limitations in El Zaafrana Region
Figure 1: Increase in Energy Demand Figure 2: Egypt's Wind Atlas Figure 3: Government Institutions Figure 4: Budget's Allocations
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List of Acronyms
ASRT Academy of Scientific Research and Technology BOO Build Own and Operate CSP Concentrated Solar Power
CREMP Combined Renewable Energy Master Plan DIE German Development Institute
EEHC Egyptian Electricity Holding Company EETC Egyptian Electricity Transmission Company EGP Egyptian Pound
EGYPTERA Egypt Electric Utility and Consumer Protection Regulatory Agency
ERC Energy Research Center FDI Foreign Direct Investment FIT Feed-in-Tariff
GDP Gross Domestic Product GoE Government of Egypt GW Giga Watt
GWH Giga watt per hour KFW German Development Bank KWH Kilo watt per hour MoEE Ministry of Electricity and Energy NREA New and Renewable Energy Authority PPAs Power Purchasing Agreements
PV Photovoltaic Cells RE Renewable Energy
REC Renewable Energy Communities R&D Research and Development SCE Supreme Council of Energy
SWEG SWH
Sewedy Wind Energy Group Solar Water Heaters
USD U.S Dollar WB World Bank
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1. Introduction
1.1 Background
With 87 million inhabitants (CAPMAS, 2014) a population that continues to grow,
the Government of Egypt (GoE) is challenged to provide public goods and
services.
In 2012, the National Electricity Control Center (NECC) reported that shortages in
electricity generation have reached 4,000 MW. Such shortage was manifested in
several black outs especially during the summer season. It was evident that it
Egypt has an energy supply crisis, that has been met with a growing dissent by the
public. “We Won’t Pay!” was the slogan of a movement launched in Imbaba, one
of Cairo’s most populated neighborhoods, with a strong presence from a socialist
alliance. The founders of that movement urged citizens not to pay their electricity
bills as a symbol of dissatisfaction with the services (Khalifa A., 2012).
The energy situation in Egypt is characterized by an increased energy demand,
low energy efficiency and highly subsidized fossil fuels and electricity.
Furthermore, the growing population will contribute to exacerbated energy
problems, also due to a high rate of urbanization (Hafner & Taliapietra, 2013).
Consequently, carbon emissions followed the energy consumption growth; Egypt
is considered the 10th largest greenhouse gases emitter in the world (Hanna ,
2013).
The limited capacity of the government to maintain the welfare state it has been
providing for decades is becoming clearer than ever. The planned state budget for
the FY 2014-2015 reports a budget deficit of 12 percent, owing to "two large bills
the government has to pay: salaries and subsidies" (MOF, 2014: 2).
To add more, in the aftermath of the Arab spring, unemployment was estimated at
13-14 percent, where youths comprised one fourth of this percentage (MOF,
2014). Given the public rage at Mubarak’s regime, the GoE had to face additional
pressure to come up with policies not only geared towards social and economic
welfare, but also towards creating more jobs (DIE, 2012).
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In this context, establishing Renewable Energy (RE) projects could be considered
as a viable solution to a number of Egypt’s problems. It tackles energy shortages
and reduces the soar unemployment rates.
Expanded reliance on renewable forms of energy is not a new idea. The world’s
oldest solar plant was established in Egypt in 1916, by the American inventor
Frank Shauman, who saw in the Egyptian environment the perfect conditions for
generating sun power (New York Times Archive, 1916).
Egypt enjoys exceptional conditions for the production of RE; located in the Sun
Belt where it enjoys up to 9 hours of radiation (NREA 2013). Furthermore, the
country has excellent wind conditions (DII, 2013).
Besides, Egypt is considered a potentially vibrant market for renewable energies,
especially wind and solar. Also, reliance on RE will allow higher rate of gas
exports, increase energy supply, lower GHG emissions, create opportunities for
local industries (EL Sobki, Wooders& Sherif, 2009) and create more jobs. World
Bank calculated the average range of jobs the Concentrated Solar Power (CSP)
sector only could offer to be within 64,000 to 79,000 jobs (World Bank, 2011).
In 2008, the supreme council for energy (SCE) - the highest level council
mandated to price energy- set RE targets to be achieved by 2020. These targets
could be considered as a milestone in Egypt’s attempts of transitioning to RE
sources of energy. The 2020 goals focus mainly on wind and solar energy; they
were translated to a number of policies supporting their achievement.
Focusing on wind and solar energy is a policy trait not only confined to Egypt.
Wind and Photovoltaic (PV) solar cells are the most advanced technologies
among RE technologies. Also, they have a higher competitive potential than other
sources i.e. biomass, hydropower, or geothermal (remain underdeveloped
technologies). However, wind and solar are to be viewed as complementary
sources to be developed in parallel to other sources of energy (Agora, 2014)
Nevertheless, Egypt has a number of specific challenges to overcome to be able
to diversify its energy mix. Policy and institutional obstacles should not be
underestimated in studying RE transitions. The case of Egypt serves as an
example illustrating how institutions play a greater role in RE transitions than
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expected. For instance, low prices of fossil fuels and electricity in Egypt are among
the lowest prices in the world (highly subsidized commodity). Subsidizing energy
may sound beneficial to low income classes, while in fact it creates complex
problems and distort the energy market. Eventually, pricing of energy is one of the
government’s main roles, which may have further dimensions than the social one.
Additionally, allocating and distributing land resources remain within the scope of
governmental authorities even in some modern states. In Egypt, high speed wind
spots are located within state-owned lands. Accordingly, they require long
ownership transfer procedures to be given to investors, who are willing to establish
RE projects (NARUC, 2010). Hence, it could be argued that governments play a
significant role in RE transition, especially in a developing country such as Egypt.
Mainly because RE transitions are not simple decisions governments chose to
make or not to make. It requires a certain level of technological advancement, high
investments cost, continuous Research and Development (R&D). Accordingly, RE
transitions are complex in nature and require the involvement of multiple
stakeholders; the most important are the end users, the consumers whose
demand shape the entire process’s dynamics.
Despite Egypt's potentials, the size of renewable energy market remains relatively
small (Ernest & Young, 2013). Accordingly, it could be assumed that the GoE’s
institutional and legal framework may not be enabling for the development of this
sector. Building upon this assumption, the objective of this study is as follows;
Research Objective: Providing a comprehensive analysis of the RE sector in
Egypt and identifying key policy areas that require further improvement.
This study will address one main question, which is;
Research Question: What are the major challenges that could hinder Egypt’s
transition to renewable forms of energy?
1.2 Methodology
In an attempt to answer the research question, the study relied on both
quantitative and qualitative data. The greater share of data comes from secondary
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sources. Furthermore, a literature review of what the RE transition literature1 has
concluded till date will be provided, which will construct the basis of the analysis
and discussion. Additionally, the study will use a single case study approach to
illustrate the theoretical aspects of RE transition applied to the case of Egypt, and
conclude with the potential challenges and policy shortcomings of the case.
1.3 Limitations of the Study
A number of limitations may have affected the end results of this study, among
them are;
An evident information shortage with regard to RE in Egypt. International reports
either focus on Egypt’s potentials, provide aggregate data to the Middle East
North African (MENA) Region, and/or report on certain aspects i.e. wind energy
only.
The only comprehensive assessment for RE sector’s in Egypt found was a study
conducted by the German Development Institute (DIE), focusing mainly on
assessing the domestic capabilities of local production, and partially, the DII
study.
The GoE’s reports were either not updated or report figures and facts with no
assessment for the RE and related sectors. Additionally, some figures
contradicted with internationally reported figures. Thus, the study committed to
the figures provided by the GoE
Technical data were partially available only for El Zaafrana Wind Park, provided
by the KFW.
Egypt’s strategic plan for RE until 2050 has not been published till 2014.
The time dedicated to the fulfillment of this study has affected the choice of
research instruments; primary data and field work could have contributed to the
lack of information, especially with regard to the different scale of production of
RE components.
Reliable data regarding the role of experts and academia in RE development
was minimal. Also, the role of incumbent regime beneficiaries i.e. oil producers
was not reported. Despite rumors of corruption, no verifiable data was found.
1 The study has benefited from the suggestions made by Ms.Rawya El Shazly, Project
Manager-Energy Sector of KFW Egypt’s office; Mr. Thomas Fink- Researcher at the Wuppertal Institute, and Eng. Amr Mohsen- Owner of Lotus Solar Technologies, Egypt.
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2. Theoretical Framework
As a starting point, different theories of RE transition will be explained. It will
contribute to designing a theoretical framework for studying the case of RE
transition in Egypt. However, theories may consider some aspects and ignore
other aspects that may be more relevant to the context of developing countries or
driven by empirical evidence. Accordingly, this chapter will start by presenting
what is meant by energy transition, followed by theories often illustrated by case
studies like Egypt; moving to some practical considerations raised by some
scholars, and major donors conclusions made in this regard
2.1 Defining Energy Transition
Challenges posed by climate change, such as resource depletion and
environmental degradation, have motivated a new path for innovation and
economic development, without jeopardizing environmental sustainability. Such
changes are often referred to as transitions:
"The processes of structural change in major societal subsystems, resulting in greater sustainability throughout society" (Hunt & Laurentis, 2014)
Also, energy transition has been defined as:
"A particularly significant set of changes to the patterns of energy use in a
society which can affect any step" in the production "chain, and will often
affect multiple steps" (Smil, 2010a).
Additionally, energy transition to renewable forms usually follows a soft path,
which is:
" A prompt and serious commitment to efficient use of energy" with" a rapid
development of renewable energy sources matched in scale and in energy
quality to endue needs" (V. Smil, 2010a)
Accordingly, the three definitions indicate that transition requires changes both in
policies and/or technologies as well as societal supply and demand patterns (Hunt
& Laurentis, 2014). Furthermore, they highlight the significance of subsystems in
addition to the commitment of governments to renewable energies as well as the
efficient use of the existing sources.
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2.2 Studying Transition: Theoretical Considerations
Multi-Level Perspective
These definitions of transition are only part of a wider theoretical debate by
scholars. One prominent approach was that of Frank W. Geels arguing that
challenges similar to energy transition require considerations of large-scale
system changes; changes which not only comprise policy reforms but also
technological advancements. Furthermore, changes develop within a complex
setting of socio-technical systems; this complexity resembles the nature of societal
needs (Geels & Schot 2007).
In that sense, the Multi-level Perspective (MLP) theory has been developed with
the main aim of understanding the nature of such transitions. To better understand
transitions that occur within a socio-technological system, it is vital to analyze it on
three different levels: the niche level, the regime level and the landscape level:
1. The Regime Level
This represents the status quo of supply and demand patterns in a system,
the semi-coherent rules that stabilize existing trajectories through
regulations, adaptation of lifestyles, investments made in infrastructure, and
competences, among others (Geels &Schot 2007).
2. The Niche Level
It is the space for innovation, which is created to support technological
innovation, support the learning processes, establish networks, and to
articulate innovation necessities (Hunt & Laurentis, 2014; Geels& Schot
2007). Niche-innovations are small networks of committed actors,
supported by a framework of regulations (Geels & Schot 2007).
3. The Landscape Level
It is a wider context than the regime and the niche; it is the macroeconomic
conditions, cultural affluence, public sentiment and political developments
(Geels & Schot 2007).
The central hypothesis of this theory is that Innovations are formed when the
regime is subjected to pressure by the landscape, pressures such as the
emergence of new markets, population growth, economic crises, technological
advancements and/or academia as well as experts' pressure. Thus, a window of
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opportunity for innovation is created, and interactions between these three levels
are conducive to change (Geels & Schot 2007).
Transition Management Theory
It defines transition as "complementing existing policy with a long-term vision,
insuring coherence and short-term actions to explore options as well as process
management" (Kern & Howlett, 2009).
Transition Management theorists stress the importance of a vision for transition. A
vision should start with articulation of goals and then preferable transition path
selection. It plays a role in enabling policy-makers to mobilize actors for change.
Accordingly, visions should enjoy a high degree of coherence and compatibility
with their context. They should be translated into plausible solutions to rising
concerns and problems. Moreover, visions are intended to be useful not only for
governing transitions but also for the process of transition itself (Hunt & Laurentis,
2014). In this context, governments are to play a leading role of stimulators,
controllers and directors of change.
Opponents of transition management do not disregard the potential of learning
within power structures (AGORA, 2012). For them, once a vision is created, actors
and resources are mobilized and the transition cycle begins, and it ends with
monitoring and evaluating progress. In addition, aligning interests and developing
knowledge, trust, and communication among actors lies among the responsibilities
of governments (Hunt & Laurentis, 2014).
Transition Management =
Current policy + Long-Term vision + Coherence &
Short-Term Action + Process Management (Kern& Howlett, 2009)
Policy Design
Governments have a wide variety of policy tools they choose from to attain their
objectives. In view of that, scholars have set some criteria for successful policy
designs; similar to the transition management theory, coherency and consistency
of policy goals and tools were found to be vital.
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Goals are only considered coherent if a) they are linked to the overall policy
objectives, and b) if they are feasible. Furthermore, policy tools are consistent
when they work together to support the policy goals and do not contradict with one
another (Kern & Howlett, 2009).
Consequently, it is vital to identify the main actors, policy goals; tools and
instruments to better understand policy formulation and expected outcomes;
especially, if these policies are "bounded by a climate of uncertainty caused by the
context, information gaps and/ or the time" (Howlett, Ramesh & Perl, 2009).
In 1986, Christopher Hood developed the 'NATO model' which explains how policy
tools could be categorized under four categories; these categories describe how
governments allocate resources for achieving certain policy goals. Governments
tackle public problems either by relying on what they have of a) Information
(Nodality), b) capacity to make regulations (Authority), c) financial resources
(Treasure), and/or d) formal organizations (Organization) (Howlett, Ramesh &
Perl, 2009). This model helps elaborate whether governments capitalize on all the
resources made available for them or not.
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Renewable Energy Communities (RECs)
Ernest F. Schaumacher- a British economist and a statistician- presented his
notion of "Small is Beautiful", which approaches economic development through
four concepts: 1) Make things small when possible, 2) Simplify the process, 3)
Decrease capital intensity and 4) Make it peaceful (Smil, 2010a).
Small scale and bottom up approaches may need greater attention from scholars;
"Small is Beautiful" is a logic that could be used to explain Renewable Energy
Communities (RECs); a complementary approach to traditional transition theories.
According to Dóci, Vasileiadou & Petersen, RECs are the communities that
produce or invest in the production of RE locally, either to cover their own energy
needs or to make profits (Dóci, Vasileiadou & Petersen, 2014). These
communities are worth investigating owing to their increasing number in many
countries. They resemble niches of innovation; however, one could also argue that
they have a social nature. In some cases they could be considered as market
niches, which support the formation of small scale business models.
These bottom-up initiatives by local groups, associations and/or organizations, are
motivated either by environmental or, economical reasons. Also, they could be
dissatisfied individuals with the effectiveness of the government's policies, who
search for grassroots solutions for the community problems.
Local governments should also encourage the formulation of these local energy
initiatives for the benefits the society can yield from RECs formation. For instance,
the Dutch province of Overijssel organized a competition to encourage local
sustainable initiatives, where one winning village was supported financially by the
province, yet all other participating villages were found to have gained some
knowledge (Arnsten & Bellekom, 2014).
2.3 Challenges to Transition: Practical Considerations
In 1979, Cesare Marchetti tried to develop a model depicting potential transition
patterns. He designed a model to study how new techniques penetrate existing
markets. The main argument was that technical advancements are by default
competitive, and their future improvements are predetermined in the early stages
of market penetration. Furthermore, transitions will take place over extended
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periods of time and at a slow pace (1 to 50 percent in 100 years), not necessarily
driven by primary sources of energy exhaustion or other external (contextual)
factors. Also, for Marchetti humans are only optimizers in this process not decision
makers (Marchetti, 1979) (Smil, 2010b).
Marchetti's model has invited skepticism by Valcav Smil, one of the scholars who
has dedicated much of work to studying energy systems and energy transitions.
Smil described Marchetti's findings as "excessively deterministic" and have been
proven wrong by the rapid advancements in the energy sector in only 30 years.
The change in the energy mix in the new millennium rather than that of the 1970s
indicates that humans can indeed affect the energy transition patterns (Smil,
2010b).
On the other hand, in his book "Energy Myths and Realities", Smil highlights the
common mistakes governments make when they set high national targets for
energy transitions. Despite the fact that Renewable Energies (RE) are growing
faster than fossil fuels did, they remain behind compared to governments'
aspirations (Smil, 2010a). He believed that national targets are often short-term,
unrealistic, and often set by "poorly informed enthusiasts". Furthermore, these
goals are repeatedly set assuming "extraordinary advantageous" circumstances of
continuous reductions in RE costs and relying on government's support (i.e.
subsidies to RE). Whereas in real terms, RE has no specific growth model; for
instance, wind energy installation in the U.S grew at a rate of 84 percent within
only six years (1980-1986), however, this growth rate fell to 2.3 percent when the
government subsidies were halted (Smil, 2010b). Smil's arguments could be
grouped under three broad categories:
First: Technical challenges
The first element that needs to be considered in transitioning to renewable forms
of energy is that it has to be produced on a large scale, to reduce carbon
emissions and to serve as a feasible substitute for the high demand on energy,
especially in urban areas. With this magnitude arise the question of intermittency
(irregularity of supply) of renewable energy-based electricity and its density (Smil,
2010b).
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Another challenge is power densities, the harnessing power of wind was found to
be 10 percent of its theoretical capacity while Photovoltaic (PV) cells are even
lower and their efficiency improves at a slower pace compared to the pace of their
cost reductions (Smil, 2010a)
Second: Economic & Financial Challenges
Smill further elaborates that RE projects require large scale infrastructure which in
turn poses financial as well as spatial limitations. In addition, they require grids or
High Voltage Lines (HV) in place to overcome the problem of intermittency (Smil,
2010a). Costs of PV installation does not fall as rapidly as the cost of their
production (Smil, 2010b)
Additionally, RE projects are susceptible to unpredictable shifts in energy prices,
sudden increase or change in the number of consumers, loss of faith in the new
technology (i.e. enthusiasm for nuclear energy has decreased over the past few
years), the emergence of long term environmental impacts of the new energies,
economic crises, as well as financial mismanagement of the projects. Also, Smill
warns of "fashionable support" for transition to RE, and adopting goals and targets
which may have no or limited impact on the sector (Smil, 2010b).
Third: Policy Prerequisites
In addition to challenges which may cripple reliance on RE, Smil has emphasized
a number of policy requirements i.e. the need for governments’ intervention to
support transition at least in its earliest stages. The need for reduced energy
consumption per capita is imperative to support transition to RE (Smil, 2010a).
Accordingly, energy efficiency policies should be considered as part of the
necessary tools for transition to RE.
With regard to the scale of production, Smil stated there's no specific scale of
capacity that should be followed, instead diversity is a key factor for effective
energy policy (Smil, 2010a). Furthermore, governments should maintain some sort
of policy continuity and he questioned how resilient a policy could be in face of
prices fluctuations. Hence, a proper pricing should be done to enhance the
capacity of governments to sustain support of RE in the form of a subsidy, or a tax,
that should be well studied beforehand.
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Lessons Learned from Countries’ Experience
A number of development literature have studied transition. The World Bank (WB)
is considered the world's top provider of funds for renewable energy projects
(Bloomberg, 2013). It has published a comprehensive set of instructions to RE
projects and summarized some lessons learned from energy transitions around
the globe as follows;
First: Under-Pricing Fossil Fuels and Subsidies are Major Setbacks
Evidences show that fossil fuel prices have contributed to massive expansion in oil
and gas exploration. Under-pricing energy and subsidizing fossil fuels cause
chronic inefficiencies and market distortions. They are also chief reasons for poor
financial performance of energy companies, especially state-owned energy
suppliers (World Bank, 2013).
"Prices below cost-recovery can start a vicious cycle, whereby
a state-owned utility saddled with debts stops paying for fuel to
a state-owned refinery, which in turn is suffering from decades
of price subsidies and runs out of cash to buy crude oil"
(World Bank, 2013)
Efficient payment systems seem to be one of potential solutions i.e. metering. In
addition, the underpriced fossil fuels make the introduction of unsubsidized RE to
the market a hard process. Thus, RE get subsidized which in turn reduce their
capacity to be financially sustainable. In brief, subsidies and underpricing of fossil
fuels create market distortions and are not economically sound choices for
governments to make.
Second: Energy Efficiency matters
Efficient consumption patterns reduce losses in energy, and balance energy
demand in general. However, energy efficiency initiatives cannot withstand the
underpricing of energy, where it diminishes the motive. Also, operational
inefficiencies of power utilities jeopardize their sustainability which pose
challenges to energy supply as well as the financial sustainability of the utilities.
Third: Institutional inadequacy makes the transition process even more
problematic (World Bank, 2013). Sound institutional frameworks capable of
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defining a vision and develop strategy with no duplication of efforts or contradiction
is a key element in the success equation.
And finally, DII suggests that the growing population may influence RE transition
negatively, especially in Egypt (DII, 2013)
In conclusion, this chapter attempted to present the key arguments pertinent to
studying transition and the role of governments in managing the transition process.
However, due to the aforementioned limitations of the study, not all aspects
highlighted by the scholars could be analyzed in this study.
Accordingly, some aspects were chosen to construct the theoretical framework for
analyzing Egypt's position on the transition path. Table (2) below demonstrates
which elements are to be considered for answering the research questions. The
subsequent chapters will:
(1) Present the different aspects of the landscape level, and then spread a section
for analyzing regime actors. Nevertheless, limited information, if any, was made
available on the niche level; this could be attributed to the top-down nature of the
implementation process adopted by the Government of Egypt (GoE).
(2) Evaluate the degree to which the vision and goals announced by the
government are coherent. Furthermore, the tools GoE has chosen to translate its
vision will also be analyzed in view of which resources they are supposed to
benefit from (information, authority, treasure and organization), to check if the tools
were sufficiently diversified and consistent or not;
(3) Present a thorough analysis of the situation in the discussions section
dedicated to analyze the challenges Egypt faces or expected to face in the future.
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Table (2): Summary of Findings: Theoretical Framework
Situation Analysis Indicators
Level(s) of Analysis Unit(s) of Analysis
Landscape Level Energy Demand Political Conditions
Regime Level Regulations Actors(State and non-State) Infrastructure
Niche Level Policy support to niches development
Policy Analysis Criteria
1. A vision that is coherent and clearly articulated
2. Coherent Policy Goals
3. Consistent policy tools capitalizing on all government resources
4. Diversified Policy toolkit
5. Political Commitment to RE
6. Support for REC to emerge
Global Transitions Challenges
7. Technical Challenges for large scale RE projects : Intermittency-
Power Densities- Spatial requirements - Grid Connections
8. Economic Challenges : Capital Investments - Under pricing
9. Energy Efficiency Measures are often missing
10. Growing Population.
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3. Egypt's Country Profile
3.1 Overview of Energy Demand
Egypt’s population is over 87 million inhabitants, and it continues to grow
(CAPMAS, 2014), while its annual GDP growth is not growing with the same pace.
On the contrary, it dropped to 1.8 percent in 2011 from 5.1 percent in 2010 (EIA,
2013). Partially because of the lack of political stability the country witnessed since
2011, with constantly changing governments it was hard to set strategic goals.
The country relies largely on fossil fuels (95 percent), namely, oil and natural gas
to cater for its increasing energy demand. The industrial sector accounts for the
greatest share of demand as well as the housing sector comes, followed by
transportation with heavy reliance on oil production (Hanna, 2013). On average
households' consumption of electricity range between 172 KWH for low income
units, up to 918 KWH for higher income categories (MDGIF, 2010).
Additionally, an increase in demand for electricity is expected in the near future by
an annual average of 4.5 percent, rising to as high as 178.8 terawatt hours (GAFI,
2012). The economy is growing with a rate of 6.8 percent; the economic activities
in Egypt amount to 50 percent of the final energy production. Furthermore, the
energy intensity of the Egyptian economy has increased by 9 percent over the
past few years (Hanna, 2013).
Figure (1): Increase of Energy Demand
Source: MOEE, 2011-2012
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Egypt has one of the highest rates of oil subsidies in the world; it is selling gasoline
and diesel below international markets' price (Davis, 2013) which has contributed
to increased oil consumption (EIA, 2013). The average domestic power generation
cost has been 0.03 EGP per KWH, equivalent to 0.05 USD (DIE, 2012). Word
Bank estimates subsidies to account for at least 6.3 percent of the Gross Domestic
Product (GDP) (Khan& Milbert, 2014). The GoE has announced several subsidy
reforms, the latest of which was on 30th June 2014, aiming at decreasing
subsidies by almost USD 5.6 billion dollars. However, the announcement had no
clear timetable (Ottawy, 2014).
It is worth noting that, oil producers in Egypt are required to sell their crude oil to
the Egyptian General Petroleum Corporation (EGPC) at a price below international
market prices, then EGPC sells the crude to its refineries on the global market
(EIA, 2013).
3.2 Potentials of Wind and Solar Energy
A recent report by Ernst & Young has placed Egypt the 29th on the index of the
forty most attractive states in the RE sector. Egypt’s scored the highest in the
sectors of CSP and onshore wind energy. It occupied the 30th position in the solar
energy index, and ranked 28th in the wind energy index, climbing one position
compared to 2012 (Ernest &Young, 2013).
Every year, different locations in Egypt offer 2,400 or more hours of solar
operation compared to maximum European figures of 1,900 in Spain and Greece
for instance. As for wind energy, hours of operation in areas with the highest wind
speeds can reach up to 3,900 hours per year (GAFI, 2012).
Wind Energy
The geophysical research center of Stanford University published a study in 2005
categorizing wind speeds in 3 classes. The average winds speed needed to
produce low-cost and large scale electricity was 6.4-7 m/s (Smil, 2010a).
The same year, the Egyptian Wind Atlas was issued by the Egyptian
Meteorological Authority (EMA) and the Danish Riso laboratories identifying areas
with high potentials for producing wind energy. Both the Gulf of Suez Area and
sides of the Nile River, in addition to some areas in Sinai were reported to have
23
the highest potentials for wind energy (NREA, 2013). As a result, wind farms were
built along the shores of the Red Sea.
Figure (2): Egypt's Wind Atlas
Solar Energy
Similar to the wind atlas of 2005, the New and Renewable Energy Authority
(NREA) is currently preparing a study in cooperation with the German Government
to identify the suitable locations for thermal solar stations (GAFI, 2012). Egypt is
one of the Sun Belt countries, which enjoys abundant direct sun rays allowing the
generation of up to 73,656 billion watt per hour annually (Ernest and Young,
2013). Furthermore, the sunshine duration ranges between 9 and 11 hours per
day (NREA, 2013). However, solar energy generates only an estimated 206 MWH
in Egypt (Ernest and Young, 2013).
It is expected that by 2050, the RE share will increase to six‐fold over that of 2010,
to more than 800 Terawatt hours. Nevertheless, during this timeframe the
population may also grow from more than 80 to more than 120 million (DII &
NREA Press Release, 2013).
24
Land Resources
Despite the fact that large scale wind production has spatial implications (Smil,
2010a) Egypt has sufficient land resources with favorable locations on the West
Coast of the Gulf of Suez (NREA, 2013). In this area wind speed is equal to 500 to
800 W/m² (SWE, 2010). Also, land slots are available on the western banks of the
Nile, where wind speed is lower 300-400 W/m². What’s more, it has an advantage
of being connected to high-voltage transmission lines which transport electricity to
Cairo (SWE, 2010).
Grid Connections
Egypt has good connections with countries in the region, Jordan (550 MW)
Palestinian Territories (150–200 MW in the pipeline) and Saudi Arabia.
Furthermore, in 1990s, the Seven Countries Interconnection Project (SCIP) was
launched which interconnected grids of Libya, Egypt, Jordan, Syria, Iraq, Turkey,
and Lebanon (REN21, 2013). Studies were conducted to include Tunisia in that
connection, in addition to a connection between Egypt, Sudan and Ethiopia
(MOEE, 2012)
3.3 Installed Capacities and Infrastructure
In 2013, NREA reported an installed capacity was distributed as follows:
First: Wind Farms
Egypt has been making progress in installing Wind Energy, where it is the leader
in the region with 550 MW of installed capacity (REN 21, 2013). There are several
wind farms in Egypt, amongst is the Hurghada Park, operating since 1993, with
the capacity of 100-300 KW and the largest wind farm is El zaafrana Parks
(NREA, 2013).
Box (1): El- Zaafrana Wind Parks, a model to be replicated
For the first time in Egypt, wind generated electricity was produced on a commercial
scale (KFW, 2009). With an installed capacity of 545 MW, 700 turbines using different
technologies (NREA, 2013); It is a prominent model for wind parks in the MENA Region.
The highest record of average wind speed in the world was recorded in El Zaafrana
region, with roughly 9.5 m/s (REN21, 2013). The project has been implemented on
different phases. It is Collaboration between the GoE and Spain, Germany, Denmark
and Japan (Ernest & Young, 2013).
El-Zaafrana Park is the subject of a course on wind farm management in the Technical
University of Heilbronn, Germany. Scholars are investigating new methods to optimize
the yields of the farm (REN21, 2013)
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In addition to the two wind parks, Egypt had a bidding process for the Kahramaa
single wind farm to provide 1,000 MW of new capacity by 2016. Moreover, it
announced a second international tender for six plots each of 15-km2 of land for
wind farms in the Gulf of Suez area to provide an additional 600 MW capacity
(REN 21, 2013)
Regarding the generated energy, two types of projects exist:
In the first type, the Egyptian Electricity Transmission Company purchases
electricity generated from producers. These include: a) Governmental Projects
funded by the GoE and donors; b) Competitive Bids, internationally issued tenders
to establish wind energy projects. c) Feed-in-Tariff (FIT), the system was
announced to be applied based on the prices achieved through the competitive
bids (NREA, 2013). The second type of projects include: direct provision of
electricity to consumers, or feeding producers' own loads through an Independent
Power Producer (IPP) project of a 720 MW capacity (NREA, 2013).
Second: Solar Energy Projects
The Egyptian Solar Plan, approved in July 2012, has set a target of 2,800 MW of
CSP, and 700 MW of solar PV by 2027. In the MENA countries, CSP technology
has a higher potential than Photovoltaic (PV) systems despite its relative high cost
of production. Owing mainly to its energy storage potential (REN21, 2013). In
2011, Egypt started to operate its first CSP plant in El Kuraymat with almost 40
percent generated locally (REN21, 2013). However, the plant only produces 20
MW from solar power (DIE, 2012).
On the other hand, solar PVs have an important role to play in the electrification of
rural areas; Egypt has 15 MW of PV generated electricity. To encourage the use of
PV systems in buildings, the GoE agreed to apply the net metering system,
allowing consumers to install PV systems on their rooftops and sell the electricity
produced to the national grid. The Ministry of Electricity and Renewable Energy
(MOEE) installed 2 power plants each of 40 KW on the rooftops of its buildings. In
addition, the GoE used PV panels to secure electrical supply in two villages in
Matrouh Governorate (NREA, 2013).
26
Box (2): Off-Grid and Small Scale RE Projects in Egypt
In 2012, the German Juwi-renewable energy specialist-
constructed its first off-grid renewable energy project in Egypt.
An installation in the rural Wadi El Natroun included 50 KW PV
system, four small wind turbines, and a battery storage system
to provide 24-hour power, to desalinate groundwater and
provide water for irrigation (REN21, 2013)
Despite the maturity of Solar Water Heater (SWH) technologies worldwide, they
remain an untapped potential to a certain extent (Smil, 2010b). In 2012, SWH
projects installed capacity totaled 525 MW, Egypt has set (SWH) target of 10.7
GW by 2027.
Also, it is part of a regional certification scheme for SWH in the process of
development to increase the quality of production (REN21, 2013). The NREA
reported that roughly a total of 750,000 meter squared of SWH is installed. Also,
the GoE is co-financing a SWHs project in Sinai and the Red Sea with the Italian
government and the United Nations Environment Program (UNEP). The project’s
overall objective is to install 5000 meter squared of SWHs (NREA, 2013).
Third: Energy Efficiency Projects
As mentioned before, energy efficiency is essential for facilitating energy
transitions. Egypt has a substantial potential for energy efficiency improvements
across various sectors, which helps in return reducing the cost of energy services
(Hanna, 2013).
Four sectors usually consume the largest share of energy: households, industry,
commerce, and transportation (Smil, 2010b). The Ministry of Electricity and Energy
(MoEE) has approved a number of initiatives to use efficient light bulbs in street
lighting. Furthermore, the Egyptian Ministry of State for Environmental Affairs
started replacing old taxis with new Compressed Natural Gas (CNG) driven
vehicles, as part of a national plan to convert the official cars to CNG (DIE, 2012).
Also, the Energy efficiency laboratories test home appliances to prevent wasted
energy (NREA, 2013).
27
Fourth: Projects in the Pipeline
The government is currently seeking a USD 110 billion worth of investments to its
energy sector by 2027 (GAFI, 2014). Egypt has a 1.2 MW renewable energy
planned capacity, mostly wind energy projects (REN21, 2013).
For wind projects, a planned wind park in Gabal El-Zayet is to be established in
2014 on the Red Sea Coast. It is expected to accumulate a total of 330 MW by
2018 (NREA, 2013) with a total budget of USD 340 million (DIE, 2012) from KFW
and a consortium of banks (REN21, 2013). Also, there are plans to build a wind
farm with the capacity of 250 MW in 2016 based on the Build, Own and Operate
(BOO) system through a competitive bidding selection process (NREA, 2013).
Six land slots were assigned to establish wind farms by 2018 with the capacity of
100 MW each in the Gulf of Suez auction. Furthermore, two solar PV power plants
-20 MW each- are being constructed in Hurghada and Kom Ombo in Aswan to be
operated in 2016 & 2017 respectively. In addition to a solar thermal plant in Kom
Ombo of a 100 MW capacity is under construction. And plans to connect 70
villages and 195 local communities were announced (NREA, 2013).
3.4 Legal and Institutional Setting
This section will provide an overview of the state and non-state actors who are
deemed to have an influence over the decision making process in the RE sector;
First: Legal Framework
Egypt's National Renewable Energy Strategy for 2020 was approved in 2008. It
aims to provide 20 percent of the overall needed electricity from renewable
sources by 2020. The Supreme Council of Energy (SCE) announced the necessity
for a diversified energy mix in order to attain the 2020 targets; 12 percent of wind
energy, 8 percent of solar energy and 2 percent of hydropower (NREA, 2013).
With regard to the required infrastructure, the state will implement 33 percent of
the projects, whilst the private sector will bear the remaining 67 percent (NREA,
2013). The GoE has also announced reforming RE sector from being "a vertically
integrated state-owned monopoly into a commercially oriented flexible structure"
(NREA, 2012).
28
RE Regulations
The government has introduced reforms to increase the private sector's
involvement and correct market’s distortions. The council of energy has issued
some regulations to scale up renewable energy production in Egypt as follows;
1. The GoE has approved to bear supplementary costs of RE projects.
2. The Central Bank of Egypt (CBE) guarantees Power Purchasing Agreements
(PPAs) of 20-25 years, and started to accept transactions made in foreign
currencies. Also it approved Build, Operate & Own (BOO) projects.
3. The GoE supports attempts made to respect to environmental social
clearances. (NREA, 2012)
Financial Incentives
In May 2011, the GoE enabled the use of state-owned lands with the usufruct
system to build RE projects. Also, the SCE eliminated custom duties on imported
wind equipment, and spare parts (NREA, 2012). Moreover, 7600 square
kilometers of land were allocated for RE projects; they were distributed for a 2
percent of the annual energy generated from the project (NREA, 2013).
Regarding land-related concerns, further incentives and policy support schemes
were adopted by GAFI. It established a licensing process that ensures efficient
management of authorization requests through a single point of interface. Also, it
has identified locations that have better access to the national grid, to reduce the
capital costs incurred by investors (GAFI, 2012)
Price Regulations
An increase in the prices of energy was issued only for heavy industries in 2008,
where energy prices consumed at peak load periods were increased in 2010
(NREA, 2012). In July 2014, to reduce budget deficit, the GoE has increased
Box (3): Feed-in-Tariffs (FITs)
In January 2013, the FITs system was introduced. The Egyptian Electric Utility
and Consumer Protection Regulatory Agency (EgyptERA) endorsed the "Net
Metering" system, a fed-in tariff designed to encourage the installation of
rooftop PVs. EgyptERA has set a goal of 2500 MW of installations to be
achieved by medium and small developers (EgyptERA, 2013). EgyptERA is to
provide the metering system to its clients; however, they have to bear its costs
(EgyptERA Decree, 2013)
29
electricity and fuel prices. The decision was meant to recover the deteriorating
economic status of Egypt, which has been providing electricity at almost half of its
production cost (BBC News, 2014). The results of this modification were debated,
and will be discussed with a greater level of detail in the following sections.
Public Private Partnerships
In January 2013, the Egyptian Electricity Transmission Company (EETC)
requested tenders for establishing large scale RE supply projects for specific pre-
determined sites on a Build, Own, and Operate (BOO) basis. The competitive
bidding approach is expected to yield additional capacity of about 2500 MW from
private sector’s input (NREA, 2012).
Independent Power Producer (IPP) projects were also approved; investors are
now allowed to operate wind or solar plants to satisfy their needs, and/or to sell
energy to other consumers using the national electricity grid (NREA, 2013).
Energy Efficiency Regulations
In 2007, the draft of the Green Pyramid Rating System (GPRS) was developed
(Hanna, 2013). The GPRS is one of the measures the GoE started taking to
promote the rational use of energy and improve energy efficiency in buildings.
Furthermore, taking into consideration the financial burden of the inefficient use of
energy, the GoE established a new system in 2013 obligating heavy industries to
use a percentage of its electricity consumption from RE resources starting 2015
(NREA, 2013).
Box (4): Overview of Electricity Prices in Egypt
Starting October 2007, prices were separated into two categories: energy intensive
industries that paid 0.20 KWH, and non-energy intensive industries. Energy intensive
industries are charged the highest rates.
As for residential consumers, they are divided into the following categories:
The first: consume 50-100 KWH per month, for roughly EGP 0.05 KWH (USD 0.01).
The second: consume more than 1, 000 KWH for EGP 0.48kWh.
Commercial units are charged EGP 0.20 KWH higher for each level of consumption.
As for agricultural consumers, they pay EGP 0.10 KWH as a fixed price for any level
of consumption. (El Sobki et al, 2009)
Recently, the GoE increased the prices to with an average of 150 to 222 percent to
cover its production cost (Reuters, 2014: Abdel Halim, 2014)
30
The industrial sector consumption in Egypt amount to almost 47.7 percent of the
total energy consumption. Industrial heating process consumes 60 percent of the
total energy consumption. Studies calculated the amount of energy lost in the
sector to be as high as 20-30 percent. The lack of regular maintenance and
operational deficiencies result in such energy waste (Lotus Solar, 2009).
The highest potential for using solar heat in the industrial sector was found to be in
the food, textile and chemical plants. Solar heat provides the necessary
temperature these industries require. The African Development Bank funded El-
Nassr Pharmaceutical factory pilot solar plant in Cairo. The plant provided the pre-
existing pharmaceutical factory with energy equivalent to 1.33 MW required for the
industrial heating processes (Cottret & Menichetti, 2012). Shifting the reliance of
factories like El Nassr from fossil fuels to solar energy, will decrease energy
wasted, and enhance the environmental conditions of their surroundings.
In 2000, the Energy Efficiency Council (EEC) was formed to promote energy-
efficient measures; the council has representatives from 14 public and private
sector organizations including NREA. However, despite this broad representation
of stakeholders, the council’s decisions have a non-binding nature (Nassr, 2001).
Beyond 2020: Master plan for 2050
The GoE, in collaboration with the European Commission and the KFW have
agreed on the first draft for the Combined Renewable Energy Master Plan
(CREMP). The preparation of this plan has been financed under the framework of
the Neighborhood Investment Facility (NIF).
The breadlines of this draft states that it will comprise two phases: Phase 1: a
framework for wind and solar energy up to 2025. It will focus on tackling the
economic challenges, provide institutional support, financing the framework for
wind and solar energies, promoting technological & industrial policies, and
facilitating the integration of wind and solar energies to the power supply.
Phase 2: until 2050, will include all other forms of RE i.e. biomass and geothermal
power. Also, the CREMP will provide a full feasibility study for Kom Ombo, CSP
plant. The CREMP presented a number of recommendations such as the need to
develop an action plan and a long term commitment to capacity building and
Research and Development (R&D) (NREA, 2013; Dirksen, 2011).
31
Second: Institutional Framework
There are two entities that govern the energy sector in Egypt:
The Supreme Council of Energy (SCE), established in 1979, is a high level
ministerial committee that supervises the policy making process in the energy
sector, reporting directly to the president. Headed by the Prime Minister, the
membership of the SCE extends to include ministers of Defense and Military
Production, Tourism, Petroleum, Energy and Electricity, Commerce, Industry and
Investment, Transportation, Housing, Environment, as well as the Minister of
Finance. In addition, the SCE could call other experts and stakeholders to attend
its meetings (Kamel, 2014).
Ministry of Electricity and Energy (MoEE) is responsible for planning,
generating, transmitting and distributing electricity (MDGIF, 2010). Under the
auspices of MoEE, two entities appear central to the formulation and
implementation of energy policies in Egypt:
New and Renewable Energy Authority (NREA)
Established in 1986, mandated to identify and evaluate new RE sources, to plan
their development, and to implement these projects, through its own means or
co-operating with other institutions. It also certifies and provides guarantee for
RE products. Furthermore, NREA create synergies with national as well as
international organizations (MDGIF, 2010).
Additionally, the Renewable Energy Fund has been created in May 2011 to
ensure the availability of sufficient funds needed for RE projects and activated in
2013. With the main objective of reducing the costs of energy generated from
renewable sources (NREA, 2013).
The Egyptian Electricity Holding Company (EEHC)
Responsible for system studies and planning, managing power plants projects,
transmission and network projects, as well as operation and maintenance
(MDGIF, 2010). EEHC supervises six electricity production companies, in
addition to 9 distribution companies and one transmission company (MoEE,
2014).
Fig.3 Government Institutions
32
In addition, two parliamentary committees specialized in energy and industries are
engaged in major decisions regarding the energy sector.
The Academy of Scientific Research and Technology (ASRT) provides a great
share of its budget annually to finance the research in the field of energy and
make a great emphasis in energy efficiency and renewable energy (ASRT, 2014).
As for non-state actors, a limited number of civil society organizations are engaged
in the RE field. Two NGOs are involved in the various energy and environment
issues: the Egyptian National Committee of the World Energy Council and the
Arab Office for Youth and Environment (AOYE) In addition, the Egyptian Energy
Service Business Association (EESBA) organizes private companies offering
energy efficiency products and services (MDGIF, 2010).
Regional and International Cooperation
The on-going global financial crisis has urged developed countries to scale back
support for RE and reduce commercial and concessional funds for developing
countries (DIE, 2012).
Egypt is a member of some regional organizations promoting RE and Energy
Efficiency which facilitate acquiring financial and technical support to a great
extent. It is a member state of the Mediterranean Renewable Energy Center
(MEDREC), established in 2004 for training, information sharing, networking,
developing and financing pilot projects in its five member states; Italy, Algeria,
Morocco, Tunisia, and Egypt (MEDREC, 2014). Furthermore, the Regional Center
for Renewable Energy and Energy Efficiency (RECREE) was established in Egypt
in 2008 by the Deutsche Gesellschaft für Internationale Zusammenarbeit GIZ,
funded by MOEE, NREA and the Ministry of Foreign Affairs of Denmark
Supreme Council of Energy (SCE)
Ministry of Electrcity & Energy(MOEE)
EEHC
NREA
33
(DANIDA). It serves as a joint platform for initiating policy dialogue and creating
partnerships among 13 countries of the MENA Region including Egypt, as well as
international partners (GIZ, 2014). Moreover, GoE is a member of the International
Renewable Energy Agency (IRENA’s Website).
Additionally, Egypt has signed a number of cooperation protocols, either bilateral
or multi-lateral (REN21, 2013), which enabled the country to implement some of
the projects mentioned above. The GoE is also part of some of the regional
initiatives aiming at promoting RE, attracting Foreign Direct Investment (FDI) and
fostering regional cooperation, as shown in table (3) below:
Table (3): Regional Initiatives Initiative Date Purpose/Description
MENAREC Middle-East and
North Africa Renewable
Energy Conference
2004 The successive MENARECs are a framework for fostering regional cooperation, developing RE technologies, and discussing national RE programs of the MENA Region (REN21, 2013)
MSP The
Mediterranean Solar Plan
2008
An initiative of the Union for Mediterranean (UFM), a policy forum supporting energy savings plans, as well as achieving a 20 GW by 2020 (UMF, 2012)
DII Desert Power
2012 A private sector joint venture interested in creating markets for solar and wind energy in MENA region for fulfilling domestic demand and exporting to Europe (REN21, 2012)
MEDGRID
2010
A consortium aiming at developing the necessary grid infrastructure for scaling up RE projects, and exporting to Europe with 5 GW by 2020 (MEDGRID, 2014)
MedRing The
Mediterranean Ring
2000
To enable power flows at lower costs in the region, this initiative aims to provide interconnection of electric power transmission grids among the Mediterranean countries (REN21, 2013)
MEDREP Mediterranean
Renewable Energy Program
2004 This program has a special focus on providing sustainable energy to rural areas (MEDREC, 2014)
STS-MED Small Scale
Thermal Solar District units for Mediterranean
NA
A joint cooperation between the GoE, france, Italy, Cyprus, Jordan, and Greece to increase the adoption of small concentrated solar systems in rural and coastal areas through disseminating knowledge (NREA, 2013)
3.5 Market Overview
Egypt is one of the most industrialized countries in the region, with some sectors
capable of competing internationally (DIE, 2012). With a proximity to the European
markets, it could be considered as an attractive investment market. Egypt is
34
producing almost 57 percent of the region’s total wind energy; making it ahead of
Morocco, Iran and Tunisia. (REN21, 2013)
It has a more developed industry of wind core components more than CSP. That
is due to the low costs of local production, low maintenance requirements, existing
partnerships with international producers who facilitate technological transfer; and
the presence of financial resources (in complementary industries i.e. steel industry
and electric cables), which are main components needed for wind mill towers (DIE,
2012).
National plans for wind power have encouraged the internationally active Egyptian
cable manufacturer El Sewedy to established Sewedy Wind Energy Group
(SWEG). Later it managed to establish partnerships with a German counterpart
SIAG to acquire the know-how of producing good quality wind towers (DIE, 2012).
SWEG also established a blades’ factory, and plans to produce the entire supply
chain (SWE, 2010). Only three companies in Egypt developed wind tower
production capabilities: DSD Ferrometalco, Orascom Construction Industries, and
El-Sewedy Group (DIE, 2012).
Considerable potential remains for the development of a local market. According
to NREA, 30 percent of components used in existing wind projects are locally
produced with potential to reach 70 percent share (REN21, 2013). Localized
supply chains have high potentials. It is more cost effective to produce locally
given the size of the core components needed, as local suppliers will be close to
the implementation sites. Local manufacturers enjoy a competitive edge in the
wind energy production, and they could potentially serve regional markets (DIE,
2012).
With regard to the solar sector, CSP's has an advantage for its high capacity to
store energy (DIE, 2012), which in turn achieve a lower degree of intermittency.
Furthermore, it has proven more efficient when used for desalination purposes
where Egypt needs such investments. However, CSP is a less developed field for
a number of reasons. For one, there are less ambitious of targets for solar energy
than wind. Unlike wind energy, CSP is not a mature technology and requires
higher capital costs. In addition, it is restricted to few players in Europe (DIE,
2012).
35
The main material needed for installing CSP farms are available i.e. steel,
concrete and cement. However, the glass mirrors available contain a higher iron
input that is not suitable for desert winds. Thus, there is a need for adjusting inputs
to match the environmental requirements. As a result, International financers are
more interested in investing in wind energy more than CSP (DIE, 2012). Finally,
the experience gained from building the first CSP plant in Egypt suggests that
relevant local capabilities exist in engineering, procurement, and construction
activities (REN21, 2013).
As for PVs, it is a more mature technology which could contribute to both large
scale and small scale production of solar energy (DIE, 2012). The PV market in
Egypt involves local system integrators and suppliers who carry out design,
installation of components, operation and maintenance. About 25 percent of the
PV modules used in Egypt are locally manufactured. Egypt and Algeria have the
only manufacturing plants that are able to produce float glass in the MENA region;
however, they have not yet met international quality standards (REN21, 2013).
SWH, is also an underdeveloped field, only 20 Egyptian companies are working in
this field (NREA, 2013)
And finally, it is worth noting that gauging the role of oil companies and foreign
contractors on the decision making in Egypt was not feasible. Accordingly, it is not
clear if opponents of RE’s sector are blocking its development or not.
36
4. Challenges to Egypt's Energy Transition
4.1 Policy Gaps
To identify the key challenges to transition to RE in Egypt, this section present
some reflections related to theories discussed, as well as the overview of Egypt's
landscape and regime.
In general, the country’s profile illustrated that the GoE has relied on a number of
policy tools to promote RE; these set of tools are not contradictory to a great
extent. Nevertheless, the high subsidization of energy contradicts with energy
efficiency measures for instance.
The overall coherence of the targets, they could be considered coherent, the
regulations followed also are relevant to the overall policy objective that is
“reforming the sector to be “commercially oriented flexible structure” (NREA,
2012). However, whether these tools could achieve the broader goal of RE
transition, it is questioned for the following policy gaps and challenges:
Lack of a National Vision for RE Development
As a first step to RE transitions, governments should provide further support-at
least at the early stages of the process- i.e. drafting a realistic, science-based
vision. They are the main actors who have a higher organizational capacity, ability
to engage multiple stakeholders for setting both short and long term goals for
transition.
In Egypt's case, the announced targets for 2020 came as part of the government’s
so-called “vision” of supplying electricity to all consumers. Supplying electricity is
the key element of this vision; accordingly the GoE tools developed were
searching for suppliers. The GoE did not emphasize a broader understanding of
RE, did not draft a comprehensive strategy of how to shift the entire economic
activities to be aligned to a RE supply scheme.
It was not clear how the supply pattern will change from 1 percent reliance on
renewable energies to reach a 20 percent (or 10 percent, if hydropower excluded)
(DIE, 2012). In view of the high percentage of energy inefficiency, government
initiatives seem to be planned on an ad hoc basis.
37
Thus, Smil's argument applies to Egypt’s case; targets seem ambitious on the
short run, and lack clear vision on the long run. It could be argued that these
targets were not carefully planned without taking into consideration challenges that
may be encountered and the different stakeholders should be involved.
It is true that technological advancement pave the road for RE, however, policies
determine the benefits any country could reap from technological breakthroughs.
Targets alone are not sufficient to be considered a vision.
Lack of Complementary Strategies
RE industry cannot flourish exclusively away from other fields; it is linked to the
industrial capacities of countries and their ability to foster technological research
and development. For RE sector’s development, industrial as well as research and
development strategies are vital.
The study conducted by the German Institute for Development (DIE) reports that
the kind of research required for RE in Egypt is of an "adaptive" nature, which
means that the imported technological components need to be adjusted in order to
function efficiently in the Egyptian environment. For instance, CSP mirrors. Such
kind of adaptive research is almost nonexistent in Egypt. Accordingly, no sufficient
funds were allocated to serve this purpose (DIE, 2012).
Additionally, Egypt does not have a national curriculum aiming at developing
renewable energies, only ad hoc training workshops organized by NREA, along
with a number of on-the-job training sessions in the operation and maintenance of
wind energy technology (ILO, 2011:NREA, 2013). These training programs remain
limited to engineering and technological aspects but not the socioeconomic and
political issues (DIE, 2012); which indicates that policy makers view RE projects as
a pure technological matter.
In 2006, the Energy Research Centre (ERC) of Cairo University presented a study
to the Industrial Modernization Center (IMC), an action plan for developing RE
technological capacities in Egypt. The study highlighted 5 essential elements for
drafting an effective RE strategy (based on a proposed percentage of 16 percent
RE and 1.2 million squared meter of SWH by 2022; and 50 percent by 2050):
First: A tailored financial instrument to support RE technologies
38
Second: R&D program for developing RE components for local markets and for
exporting.
Third: A new feed in tariff for RE, with a permit to connect to the national grid.
Fourth: Market and infrastructure development .
Fifth: Information services, awareness and capacity building program (ERC, 2006)
By announcing 2020 targets in 2008 and the number of regulations that followed, it
is evident that the GoE has not given considerable attention neither to research
and development nor information services.
Lack of a Diversified Policy Toolkit
The lack of complementary strategies to 2020 targets indicated how limited the
number of policy tools/instruments pursued by the GoE was.
The overview of policies shows a higher reliance on treasure based policy tools
(financial incentives, eliminating custom duties, usufruct, PPAs...etc), and on
command and control regulations. However, the other two categories of the NATO
model could be considered significantly underutilized.
Diffusing information, for instance, is an effective tool used to raise awareness,
especially with regard to energy efficiency. However, it is not reported within the
Egyptian policy toolkit
In addition, an emphasis on market creation was demonstrated by the government
in many ways; yet, policies seemed to favor a certain scale of production: large
scale commercial production.
Insufficient support to the development of RECs and/or Entrepreneurial Activities
As discussed, RECs endeavors could boost the share of clean energies in national
energy mixes. Forming local communities trying to acquire off-grid installations for
instance or starting a small-scale business in RE requires an enabling legal and
institutional environment.
In view of the regulations previously highlighted, this scale of production is not
supported by the GoE; chosen policy tools neither encourage formation nor
construction of RECs. Favoring large scale investments and well established
suppliers reveals to some extent a shortsighted policy with more focus on one
scale of production.
39
Box (5): Tanweer El-Haiz Project
68 Solar panels were provided to El-Haiz village, located 420 km from Cairo. The
3300 inhabitants of the village suffered from severe energy shortage (only 3
hours per day), until an engineer from a local NGO initiated "Tanweer El-Haiz"
project. It has provided home solar systems for the village (Madad, 2014).The
project was co-funded by the Canadian Fund for Local Initiatives, Piraeus Bank,
Amaak Petroleum Company, the Egyptian Environmental Affairs Agency, and
Cairo Rotaract Club (Rotaract Cairo Royal, 2013)
In addition, with the information tool lacking, creating spaces for innovation are
missing.
It appears that the energy sector in Egypt is a closed sector, confined to certain
players i.e. large scale investors, foreign contractors and donors. In addition the
decision making power lies solely in the hands of MoEE; which functions in top-
down approach, not encouraging bottom up initiatives.
For instance, World Bank (WB) & International Finance Corporation (IFC) reported
on the difficulties facing Egyptian investors among 189 other countries. Findings
revealed that Egypt ranked 128th, on the ease of doing business index (WB-IFC,
2014), a relatively high percentage.
Largely, dealing with regulations such as construction permits, registering
property, protecting investors or paying taxes, remains a huge obstacle for
investors especially for new market entrants. Furthermore, findings point to a
common perception that only connected entrepreneurs are successful. What is
more, enforcing contracts and paying taxes were among the lowest scores, which
are central to planning and implementing projects (WB-IFC, 2014).
Accordingly, hurdles may be even more RE investors, especially if they are not
well established firms with established connections like SWEG. The GoE did not
provide more that GAFI’s single point of interface to tackle such challenge.
RECs and entrepreneurs could develop decentralized systems; the GoE could
benefit from entrepreneurs to support its plans of providing services for remote
communities, instead of seeking international fund.
40
Decentralized energy systems will help lessen the high degree of population
centralization. The KFW reported that the annual electricity generated of roughly
85 percent is concentrated around Cairo, only 15 percent is produced around
Aswan in the southern part of Egypt where hydropower is generated (KFW, 2006).
Lack of Policy Communication
In Egypt, there’s a sense of lack of government transparency, and distrust in the
government officials (DIE, 2012). For instance, IMF stressed the need for a
communication strategy to urge the public to support decisions as energy prices
reform. Among the indicators IMF recommended is government transparency, and
the explicit statement of energy subsidies in the budget with sufficient explanation
(IMF, 2013)
Egypt's budgetary reporting system during the period from 2009 (after the
announcement of 2008 RE targets and fossil fuels’ prices increase) until 2014,
consisted of very generic budget allocations and aggregated subsidy allocations
for all sorts of commodities. Some budgets are no longer available i.e. allocations
for the years 2009, 2010 and 2011 are not available (at least within online
resources).
In addition, the Minister of Finance announced an inevitable increase in the prices
of fossil fuels starting July 2014, stating that "a gradual decreasing of energy
subsidies is inevitable" (El Shorouk, 2014). Conversely, figures stated in the
planned budget of 2014-2015 do not reflect explicitly how the subsidies have
decreased.
On the contrary, figures indicate that fuel subsidies were increased by 0.07
percent more than FY 2013-2014, and electricity subsidies increased by 105.1
percent. 2014-2015 planned budget states that the government will decrease
allocations for energy subsidies gradually over a period of three to five years.
However, the government commits to protecting the poor and low income families
with respect to their mode of consumption (MOF, 2014).
Statements and announcements would seem contradictory for non-expert readers,
if not linked to the overall expenditures or the growth in demand that are missing in
41
the document, which may cause confusion and increased sense of distrust in the
government.
On the other hand, experts estimated 2013 subsidies for petroleum at EGP 150
billion, while this 2014’s budget subsidies were scaled back to EGP 100 billion
saving of EGP 50 billion (Khan & Milbert, 2014).
Budgetary reporting by the GoE without sufficient explanation make subsidies’s
allocations appear constant to certain extent as shown in figure (4) below.
Moreover, subsidies, grants, and social benefits were reported as lump sum in the
budget of 2011-2012 amounting to roughly EGP 153 million (MOF, 2012, 2013,
2014). Ensuring transparency is key element for the success of energy subsidies’
reform; IMF suggests that governments should disclose sufficient information on
how prices are formulated in annexes attached to budgets (IMF, 2013)
Fig. (4) Budget's Allocations
Additionally, the GoE only made official announcements but did not disseminate
sufficient information regarding the negative impact of the subsidies on the
economy (DIE, 2012). Along with the weak representation in the budget, the
degree to which the government will commit to RE is vague.
In addition to transparency, consultation with stakeholders is vital for discussing
different policy tools, challenges to investments, and potential incentive schemes.
This consultation would encourage the emergence of new players and ensure
policies' buy-in, promote RE as an alternative for traditional energy sources, and
encourage the formation of RECs. However, NREA reports do not indicate how
the policies and governmental initiatives were formulated. Also, public officials
0 20,000 40,000 60,000 80,000 100,000 120,000
2014-2015
2013-2014
2012-2013 Electricity Subsidy
Oil Subsidy
42
perceive the private sector as untrustworthy (WB-IFC, 2014). In view of the
absence of a vision, no information campaigns, and sense of mistrust,
communication appears challenging.
Weak Monitoring and Evaluation Mechanisms
Dii emphasized the need for coherent visions to implement RE projects. According
to DII a vision is targets clearly articulated, complemented with progress
measuring schemes (DII, 2013). Furthermore, monitoring and reporting on the
progress of the projects could help the government identify areas for
improvements and further requirements for these projects.
Unfortunately, reports provided by the GoE indicate a weak reporting system.
They neither provide a systematic assessment of the RE industries, nor reflect the
degree of coordination among different stakeholders.
What is more, ILO reports a lack of needs’ assessments with regard to the
development of the RE sector. Despite the need for technical and vocational
training, especially in maintenance and operation, there is no systematic collection
of data on the required skills. Also, linkages between environmental policy-making,
education, training, and policy-making were found missing (ILO, 2011).
Lack of Institutional Capacity
It is argued that Egypt's institutional capacity is crippled by the lack of coordination
between government bodies i.e. ministries and education agencies, also between
businessmen and environmental NGOs. A national coordination framework is non-
existent (ILO, 2011).
With regard to RE state actors, reports attribute constrained strategic decision to
the highly centralized nature of MoEE, in addition to the number of responsibilities
assigned to it. MoEE and its affiliated entities manage electricity distribution,
transmission, generation, and pricing, which leaves less room for other players to
step in (Magdeldin, Rizk & Trieb, 2013). For instance, the EEHC continues to own
over 90 percent of Egypt’s generated capacity (USAID, 2010).
As for NREA, some scholars suggested a legal unbundling of the planning and
development roles of NREA as conflicts of interest were expected to arise. NREA
43
is mandated to be both a national planner and a RE project developer (EL Sobki,
Woods & Sherif, 2009). Furthermore, NREA has a non-profit nature that involves
accepting low market or even negative returns (CDM-UNFCCC, 2006).
This is also supported by KFW's claim of a restricted technical and financial
capability of the NREA, where a high degree of bureaucracy is evident in Egyptian
state-owned enterprises i.e. lengthy authorization, and ordering procedures (KFW,
2009).
Weak Commitment to RE
The ERC 2006 action plan for RE stated that the success of the plan is highly
dependent on the support provided by the government and the existence of a
political will (ERC, 2006). Similarly, ILO attributes the responsiveness of
governments to the growing demand for a greener economy to the degree of their
awareness (ILO, 2011).
Bearing these two crucial aspects in mind, in addition to the aforementioned policy
gaps that persisted over a considerable span of time, it becomes clear that there is
a weak commitment shown by the GoE to developing RE sector in Egypt. Also,
pursuing a systematic approach to energy transition has been absent for a
longtime. The CREMP may indicate otherwise in the future, as the study of the first
phase renewed commitment to RE projects. However, the fact that the
government doesn’t have an action plan since 2006 ERC’s plan - that was not
completely streamlined in the GoE policies- indicates the opposite.
Such policy gaps exemplify GoE's priorities, and RE development does not seem
to be on top. Otherwise, it would have been strategically planned from 2008 at
least till 2011(the start of political instability).
44
4.2 Challenges to Energy Transition
Technical Challenges
Egypt is largely relying on imported RE technologies and components. Reported
technical challenges encountered within operating these technologies in Egypt, is
only regarding the lack of adaptive research required.
Intermittency of RE generated electricity requires the existence of efficient grids to
connect it to electricity networks (Hanfred & Tagliapietra, 2013) it needs to fit in
easily the additional load of RE generated electricity. The sites chosen for RE
projects were chosen within the vicinity of national grids. However, additional
energy loads require additional costs for reinforcing existing girds (El Sobki et al,
2009).
With regard to regional grids, Egypt has been part of multiple grids upgrading
projects. However, DIE reports that it is more difficult for Egypt to export energy
because of the depth of the Mediterranean (DIE, 2012), while DII predicts that the
population growth rate may not allow the country to export RE, it could achieve
self-sufficiency from RE generated electricity (DII, 2013).
Concerning power densities harnessed by RE, there were no specific challenges
reported to the projects in Egypt. RE projects' locations might have had an impact
on a satisfactory harnessing percentage of power.
The harnessing power of wind energy technology is reported as the highest in
Egypt, followed by solar water heating, PV installations and then CSP (ERC,
2006).
In general, the MENA region lacks a good quality of produced SWHs and the local
know-how of CSP components i.e. the mirrors, the parabolic, receivers, and heat
transfer fluids. However, the regional certification scheme may help overcome this
obstacle (REN21, 2013). Wind projects were also challenged by some
environmental factors like CSP, as shown in Box (5) below.
45
Economic Challenges
The demand for energy increases as long as the population continues to grow.
With the increasing demand, the economic burden of energy exacerbates; the
main challenges are:
First: Energy Subsidies
Egypt is one of the countries that highly subsidize fossil fuels and sell it for a price
that is significantly less than its actual price in international markets (ranked fifth
globally); such subsidies encourage increased rate of consumption (Davis, 2013).
Consumer subsidies reflected in national budgets as expenditures are fully
financed by governments. Subsides negatively impact national budget in various
ways; especially pre-tax2 consumer subsidies which have pervasive and impose
fiscal costs (IMF, 2013). The kind of subsidies provided by GoE could be
considered as pre-tax subsidies.
Oil exporting countries like Egypt are often obliged to increase subsidies during
periods of international prices of fuel increase (IMF, 2013). Such burden may
result in higher taxes (Davis, 2013). Not only is it a burden on national budgets,
but also they represent a misallocation of resources.
2 An approach to study different kinds of subsidies is termed the price gap approach; it
differentiate subsidies as follows; Consumer subsidy is the difference between the international cost and the cost paid by consumers. The producer cost comprises prices the suppliers have to pay, and it may be above the international prices Consumer subsidies are divided into a pre-tax and a post-tax. A pre-tax subsidy is the prevalent type of subsidy in the MENA region especially among oil exporting countries like Egypt. They are calculated as the difference between the international prices and the price consumers pay for fuels. Furthermore, a pre-tax subsidy may be incurred by state-owned enterprise (IMF, 2013)
Box (6): Environmental Difficulties Encountered in El Zaafrana Region
The high temperature of El Zaafrana region was reported as one of the key
challenges to higher electricity yields from the wind park. The summer season is a
high yield season; however, high temperature made operational conditions hard.
The desert sandy winds carrying salt from the Red Sea, increased risks of technical
failure (CDM-UNFCCC, 2006). Such difficulties emphasize the importance of
adaptive research to overcome factors leading to operational inefficiency, or any
factors that may pose additional maintenance costs.
46
Prior to 2014, energy subsidies were roughly EGP 114 Billion accounting for
almost 22 percent of the total subsidized commodities (Hanna, 2013). In 2007
energy subsidies were as high as 146 percent of the total spending on education;
and 440 percent of spending on health sector (Khattab, 2007). The planned
budget for 2014/2015, energy subsidies represent 106 percent of spending on
education, and 236 percent of spending on health (MOF, 2014).
Additionally, countries tend to overlook externalities resulting from subsidies in
calculating the overall value of subsides provided. For instance, the congestion of
traffic, increased rates of accidents, road damage, as well as health and
environmental degradation are among the common impacts of increased carbon
emissions (IMF, 2013). In Egypt, the annual carbon emissions increased from 154
million ton in 2006/2007 to reach 217.3 million ton in 2008/2009 (CAPMAS, 2013).
Such increase marks the high subsidization of fossil fuels in 2007. However, the
GoE remained reluctant to reform prices for a long period of time, also interrupted
by the political turmoil of 2011.
The Political Dimensions of Energy Subsidies
Reluctant or delayed subsidy reform was described by L. W. Davis as a freedom
constraint to governments' choices (Davis, 2013). Autocratic regimes often use
subsidies to serve their best interests; they provide substantial material benefits.
In Egypt, fossil fuels could be provided at a low cost; making them a suitable
commodity to be subsidized. Consequently, attempting to reform their prices in
1977 resulted in violence and protests (Ragab, 2010). In 1997, the GoE halved
food subsidies and subsidies on basic commodities, which sparked massive
protests by workers and students ended with almost 40 people killed and not even
suspended subsidies or a curfew ended the riots (The Economist, 1977)
On the long run, the people feel entitled to receive subsidies and it becomes
essential for the state's legitimacy (Khan& Milbert, 2014). Furthermore, subsidies
should be allocated in coordination with several ministries, and may be distributed
through other governmental bodies, which may create coordination problems.
Each institution may have its own political constituencies (DIE, 2012). In addition,
as allocating subsidies is a highly complex procedure, it may have contributed to
47
the institutional inadequacy of NREA and MoEE through increasing the
bureaucratic hurdles.
Who are the Real Beneficiaries of Energy Subsidies?
Country experience revealed that high income categories of the population usually
benefits more from energy subsidies (IMF, 2013); the poorest 20 of Egypt benefits
only from almost 3.8 percent of the total energy subsidy, whilst the richest benefit
from 33 percent (Aboueleinein, Laithy& Kheir El Dein, 2009). That was the case of
Egypt; in 2013, prices of subsidized cooking gas canisters were increased from 5
to 8 EGP (approximately from USD 0.73 to USD 1.17). Such decision would only
affect poorer households, who still rely on gas cylinders for cooking purposes.
Moreover, the estimated revenues raised from prices' increase were minimal
(Halime, 2013).
Prices increases in 2014 have triggered a debate on the real beneficiaries of
subsidized energy. Some estimated the increase of roughly 56 percent for the
poor households compared to 20 percent more bore by high income households.
Nevertheless, these percentages were contested, as the average consumption of
poorer households is equal to 2 percent, compared to 4 percent consumption in
richer categories (A. Ismael, 2014)
Subsidies are a Hindrance to RE Projects
Subsidies are a strong disincentive to adopting RE installations by costumers
(REN21, 2013). Furthermore, subsidies do not support energy efficiency
measures; instead, they sustain irrational consumers’ behavior (Hanfred &
Taliapietra, 2013).
For the supply side, one of the main obstacles to large-scale implementation of
wind energy projects in Egypt is the low price paid for wind generation (El Sobki et
al, 2009). The generated electricity is to be added to the national grid which is
mainly controlled by EEHC; the prices of electricity are set by the government with
the abovementioned degree of subsidization. Consequently, investors may not be
encouraged to invest in a low profit projects.
48
Reducing energy subsidies is a politically complex issue and needs a careful
pragmatic approach including increased public spending on health, education, and
social welfare programs for instance (REN21, 2013); prices' increase yields
expectations for wages increase (IMF, 2013). Furthermore, it is expected to spark
criticism by politically vocal groups such as industrial and middle class (IMF, 2013)
as the case of Egypt's protests in 1977.
Accordingly, gradual increases in prices and reducing subsidies will make them
more socially and politically accepted (DIE, 2012), also sharp increases may affect
only the budgets of the poor (IMF, 2013) as the 2013's experience with increasing
prices of gas cylinders.
Prices reform experiences depicts that; first: drafting long term sector reform plans
are important and has to be a product of a thorough consultation process with
stakeholders. Second: communication, transparency and dissemination of
information will help decrease public resistance. Third: phased price increases are
better than sharp increases. Fourth: governments should consider the efficiency of
state owned enterprises and make considerable institutional reforms, in addition to
decreasing producer's subsidies. And lastly: along with eliminating consumer
subsidies, governments should also apply measures to protect the poor. All should
be considered within an appropriate time frame (IMF, 2013)
Egypt has been reluctant to decrease energy subsidies for decades because of
political reasons. In 2014, some significant reductions have been made with an
announcement of gradual reform for fossil fuels prices' structure. Furthermore, the
government stressed upon increasing allocations for other welfare services.
However, other institutional reform plans were not evident, and the GoE still
subsidizes electricity with a rate even higher than 2013. Thus, energy efficiency
initiatives are jeopardized (taking into consideration that they are insufficient at the
first place).
With regard to the timing of reform, it could be considered as appropriate given the
economic hardships Egypt had to go through over the past few years. Also,
decreasing subsidies at this timing have benefited from the popularity of the new
president who has repeatedly pledged to serve the poor.
49
“President Sisi, taking advantage of the honeymoon period following his
election and the desire of many Egyptians for “stability,” has taken an
important step in reforming subsidies” (Khan & Milbert, 2014)
Despite the poor information provided by the planned budget document and the
generic nature of GoE's official statements about increased allocations to safety
nets. Furthermore, speculations were made regarding a potential spillover effect of
the increased prices on agricultural products.
The newly introduced increases did not cause massive protests. However, It is
worth noting that a) a new controversial protest law was put into force starting
November 2013, which enables authorities to ban protests, making it riskier to
protest ever since, and b) some newspapers reported public discontent, while
others reported a complete understanding of the new subsidies as part of the trust
the majority has in the new president (depending on the newspaper political
affiliation)
Second: Operation and Maintenance Cost
Defects were detected in some of the core components of El-Zaafrana Wind Park
by 2007. NREA was responsible for the maintenance of the project (KFW, 2009).
However, given the limited financial as well as institutional capacity of NREA as
highlighted before, it is expected that maintenance may not be done in a timely
manner, or could be below the quality needed.
Furthermore, KFW reported that the NREA does not have the capacity to
negotiate with equipment manufacturer, nor to resolve technical problems (KFW,
2009). The average maintenance cost for the first five years of operation is almost
USD 5 million annually, and almost USD 3.8 million for the years to follow, up to
21 years of operation (the expected lifetime of the farm) ( CDM-UNFCCC, 2006).
In addition, wind farms require operating costs; additional costs of connecting to
the grid (El Sobki et al, 2009)
50
Energy Efficiency Measures
The transport sector’s policies, as one of the sectors that consume a large share
of energy, are missing to a great extent in the MENA region (REN21, 2013). In
Egypt, only natural gas was considered to taxis. RE energy policies’ share
occupies the policy making agenda rather than energy efficiency. Industrial
heating was not streamlined in any targets despite the huge amount of energy
wasted in factories, and the success of El Nassr Plant pilot model.
All the relevant authorities' five-year plans or even longer-term plans are more
focused on RE. Energy efficiency measures were not promoted as national targets
or objectives (Georgy & Soliman, 2007). Moreover, based on ERC’s assessment
made in 2006, a 5.5 percent replacement rate of SWHs on annual basis will save
up to 4.9 Billion KWH in almost 9 years (ERC, 2006)
The increased degree of urbanization coupled with an increasing population with
the same pattern of consumption will make it challenging for RE to make a
difference.
Lack of Incentives to Local Input
The supply chain of RE components and the local the technological capabilities
are quiet weak. Most of projects' management and execution related activities are
implemented by foreign contractors and donors.
Potentially because RE projects are being implemented on a large scale, requiring
advanced technologies only available by international actors, who have
experience in the field. To reduce investment risks, an experience of at least 1,000
MW installed capacity is a precondition for local suppliers (DIE, 2012). For
instance, constructing El-Zaafrana Park contracted wind turbine suppliers who
have proven at least two years of experience and a minimum of 100
commissioned turbines of the type required (KFW, 2006). Accordingly, local
manufacturers do not have the capacity to compete with international suppliers.
They find minimal –if any- incentives by the GoE, which keep them blocked from
acquiring the required experience. The GoE could enables them and ensure their
involvement through policies, and quotas for local input.
51
That is necessary since the GoE has interfered in almost every aspect of the
public life, leaving a limited room for entrepreneurial activities to develop. Also, the
government institutional structure has proven challenging for partnerships with the
private sector. Furthermore, some degree of corruption persists, where business
managers feel obliged to provide informal gifts or payments (WB-IFC, 2014).
The limited and slow development of local markets does not encourage FDI. For
CSP to be a profitable business; it needs a momentous annual growth in the local
market. In addition, the quality of locally produced parts in Egypt was found to be
low. (DIE, 2012).
Political & Financial Instability
The Arab Spring has resulted in a halt of some investment plans (DIE, 2012).
Especially solar and wind power plants because of funding problems (Ernest &
Young, 2013). Egypt’s lack of stable, long-term, and transparent policies have
affected RE projetcs. Concessionary finance with long term-term, low-interest
loans has decreased significantly (REN21, 2013). Despite the complete reliance
on that kind of finance risk the stability of the sector, RE investments in MENA
countries rely largely on development banks fund (REN 21, 2013). As discussed,
most of the planned and implemented projects are large scale, foreign funded
projects.
FDI may not be accessible in times of political turmoil and constant changes of
governments. In addition, the security status of the projects will be questioned,
even though no damage has been reported to any of the existing RE
infrastructure.
52
In brief, this chapter has combined the overview of Egypt’s landscape and
identified how key players are few, and somewhat limited to government
institutions lacking capacity to manage Egypt’s transition. Moreover, the GoE
(pressured by the landscape) did not provide adequate attention to developing RE
and expanding the range of stakeholders involved, nor creating spaces for
innovation
With this over view, the role of coherent policies seemed a decisive factor in RE
transition of a highly centralized regime as Egypt, even more than technological
concerns. The matrix below summarizes this section’s main findings;
Table (4) : Findings’ Matrix
Level(s) of Analysis
Unit(s) of Analysis Existent/
satisfactory Weak/ to a
certain extent
Non- Existent
Landscape Level Energy Demand
Political Stability
Regime Level
Regulations
Actors(State &Non-State)
Infrastructure
Niche Level Policy Support to niches
development
Policy Analysis Criteria
A vision that is coherent and clearly articulated
The Degree of Coherence of Policy Goals
Consistent Policy Tools capitalizing on all government resources
Diversified policy toolkit
Political commitment
Support for REC to emerge
Global Transitions Challenges
Technical Challenges : Intermittency /Grid Connections
Common Challenge
Power Densities Common
Challenge
Spatial Requirements
Economic Challenges : Funding
Energy subsidies
Energy Efficiency Measures
Growing Population
53
5. Conclusion
Scholars have pointed out a number of considerations essential to comprehending
the specific nature of RE transitions, and designing policies accordingly. RE
transitions could not be fitted under one broad category of policy types. It is neither
entirely technological matter, nor only economic or social.
As theories do not always reflect reality as practical experiences do, empirical
evidences were also employed to serve answering the research question. The
theoretical framework designed for this study suggests a combination of aspects
related to RE transitions, managing transition, designing policies and some
practical aspects to be studied. Among the practical aspects: energy subsidies,
sufficiency of financial resources, and existing complementary policies i.e. RECs
or energy efficiency measures. Also, encouraging different scales of production,
technological and social innovation was found to boost RE development. In brief,
coherent, diversified, consistent and comprehensive policies are the key words for
RE transition management.
Applying to the case of Egypt, the political and economic landscape of the country
revealed a number of motives for change i.e. soaring economic indicators, high
level of unemployment, growing energy demand and lack of reliable supply of
energy. These factors have affected the existing regime.
The Egyptian regime is dominated by a highly centralized mode of government; a
well fare state that is run through formal institutions. A very limited number of non-
state players contribute to the scene, as opposed to the significant role played by
international organizations.
International actors are assuming the greater role in pushing RE transition forward.
They are the ones providing funds, technical expertise, RE components and even
support drafting strategic plans i.e. CREMP. However, their capacity to affect the
GoE’s decisions remains restricted to a certain extent. For one reason that is the
central role the government play in delivering public goods and services, and the
54
other that is the lack of institutional capacity which hinders the effectiveness of
some projects.
The key finding of this study could be considered the degree to which the
institutional setting and policy framework of Egypt are major challenges to RE
development. If the institutions lack the capacity to plan, monitor, coordinate and
collaborate for implementing projects, Egypt’s RE potentials will remain
underdeveloped.
Despite the existence of targets; endeavors to develp the RE field remain shallow.
For one reason is that 2020 targets were not adopted as part of a broader vision.
Another reason is that they are not supplemented with further strategies to ensure
their fulfillment. One could argue that the government was more concerned about
“what to do” leaving behind “how to do”.
What’s more, the absence of a national R&D strategy specifically for developing
the RE sector, is the best example. Findings revealed that RE core components
require adaptive research which is missing in Egypt.
Industrial development strategies to increase the local input in RE projects were
also absent. The GoE has resorted heavily to financial incentives, yet, no
awareness campaigns were made to promote RE, or energy efficiency.
No efforts reported to support the creation of think tanks or advocacy groups.
In Egypt, there’s a complete lack of support to RECs like Tanweer El-Haiz project,
or medium and small scale of production, such as the one implemented by Juwi. It
reflects how policy making is ignoring some of Egypt’s potentials.
Tanweer El Haiz specifically was initiated by only one well-informed individual. If
the society at large is informed, it could be a driver for change, and that will ensure
policies buy-in.
With regard to communication channels between the GoE and its citizens, the
government‘s transparency and its ability to communicate national plans are
considered weak. Given the long history of corruption, citizens find it hard to
55
believe what the government declares. On the other hand, officials do not diffuse
sufficient information.
Systematic collection of data and situation analyses are also missing. Accordingly,
there are no indicators developed to measure the progress of the 2020 plan and
even the master plan’s broad lines seem to overlook monitoring and evaluation. It
remains unclear-in view of the lack of efficient monitoring and evaluation
mechanisms- whether the government has the capacity, the motive and the will to
commit to its obligations.
Regarding the technical challenges, Egypt struggles with the common challenges
of global markets. The country does not own RE technologies, it produces
supplementary components and relies mainly on imported core parts. Therefore,
challenges are limited to Egypt’s capability to adapt the imported components to
the Egyptian environment and ensure operational efficiency.
On the other hand, economic challenges appeared more complicated. The costs
of integrating RE generated electricity to the national grid, RE components capital
costs, and costs of maintenance were considered relatively high.
Egypt’s number one economic obstacle is the high subsidies that burden the
government shoulders. Even though successive governments realized the
magnitude of such burden, policy makers feared similar protests as the 1977’s and
preferred to maintain their own political stability. In other words, eliminating
subsidies was the beast no one wanted. In 2014, energy prices were reformed
with a plan to gradually eliminate energy subsidies. However, the GoE still struggle
with communicating its reform policies to the public.
As for energy efficiency, it seemed more of an option proposed by the
government, rather than a necessity.
In conclusion, Egypt will remain dependent on international actors’ input of know-
how and financial resources for some more time. If policies persisted with the
same level of fragmentation, Egypt will play the recipient role of RE technologies
and will not be able to assume the role of RE exporter, and the energy crises may
even exacerbate.
56
Lastly, one could argue that most of the challenges projected, the GoE could
potentially overcome if it has the resources and the will. In the case of Egypt, there
is abundance of resources and untapped potentials. However, policy gaps made
slow down the pace of RE sector development. The question of the political
commitment is the trickiest; Egyptian decision makers seem to lack awareness,
commitment, and most important the will to develop RE projects.
In view of that, the study concludes that political commitment to RE is the synonym
for RE challenges in Egypt.
57
Declaration of Honor
I, Marwa Mostafa, herewith certify that in the course of preparing this Master’s
Thesis did not consult the help of another person or made use of a different source
other than the ones stated above. I have indicated the positions where I adopted the
exact or abstract content of a source and credited its origin. This document has
never been presented to any other examination board in this or any similar format.
I am aware of the fact that any false declaration will lead to legal consequences.
September 4th, 2014
Signature
58
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