provision of technical support/services for an … 8: forecasts of crude prices to 2030 (doe/iea)...

A project financed by the Ministry of Foreign Affairs of Denmark

Provision of Technical Support/Services for an Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for

Renewable Energy and Energy Efficiency

Country Report Egypt

September 2009, revised April 2004

Norsk-Data-Str. 1

61352 Bad Homburg, Germany

Tel: +49-6172-9460-103, Fax. +49-6172-9460-20

eMail: [email protected]

http://www.mvv-decon.com

Döppersberg 19

42103 Wuppertal, Germany

Tel: +49-202-2492-0, Fax: +49-202-2492-108

eMail: [email protected]

http://www.wupperinst.org

Economical, Technological and Environmental Impact Assessment of National

Regulations and Incentives for RE and EE: Country Report Egypt

Egypt.doc

Table of Contents Page

1. Project Synopsis 1

2. Summary of Energy Situation in Egypt 2

3. The Energy Policy Process in Egypt 3

3.1 Law 3

3.2 Presidential decree 4

3.3 Prime Minister decree 4

3.4 Ministerial decree 4

3.5 Egypt's Need and Motivation for Energy and Environment related Legislation 4

3.6 Towards Energy Legislation in Egypt 5

4. Comparison of Egyptian Practice with International Practice in Energy Efficiency 7

4.1 Strategy 7

4.2 Legal Reform 7

4.3 Price Reform 8

4.4 An Agency 9

4.5 Standards and/or Labels 10

4.6 Financial Incentives 11

4.7 Obligations 12

4.8 Audits and the Promotion of ESCOs 13

4.9 Transport and Spatial Planning 13

4.10 Information 14

5. Comparison of Egyptian Practice with International Practice in Renewable Energy 15

5.1 Targets and Strategy 15

5.2 Legal Reform 15

5.3 An Agency 16

5.4 Standards and /or Labels 17

5.5 Financial Incentives (Capital Support) 17

5.6 Feed-in Tariffs and Obligations 18

5.7 Information 19

5.8 Industrial Policy 19

6. Case Studies 20

6.1 Case Study on Energy Efficiency Obligation 20

6.1.1 Background 20

6.1.1.1 Description of Policy 20

6.1.1.2 Assumptions 20

6.1.2 Cost-Benefit Analysis 24

6.1.2.1 Scope of the Analysis 24

6.1.2.2 Cost for Energy Efficiency Technologies 24

6.1.2.3 Perspective of the Country 26

6.1.2.4 Perspective of the Utility 27

6.1.2.5 Perspective of the Electricity User 28

6.1.3 Conclusion - 32 -

6.2 Case Study on Competitive Bidding for Wind Energy - 33 -



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Table of Contents Page

6.2.1 Background and Context - 33 -

6.2.1.1 Promotion of Private Investment in Wind Energy in Egypt - 33 -

6.2.1.2 Scope of the Case Study - 33 -

6.2.2 Comparison of Policy Instruments for the Promotion of Wind Power - 34 -

6.2.2.1 General Context - 34 -

6.2.2.2 Competitive Bidding - 35 -

6.2.2.3 Feed-in Tariff - 36 -

6.2.2.4 Evidence Based Policy - 36 -

6.2.2.5 Result of the Comparison 46

6.2.3 Economic Cost-Benefit Assessment 50

6.2.3.1 Methodology Applied 50

6.2.3.2 Assumptions and Data Base 50

6.2.3.3 Result of the Assessment 55

6.2.3.4 Variation Gas Prices and Return on Equity Expectations 56

6.2.3.5 Carbon Credits 57

6.2.4 Conclusion 59

6.2.4.1 The Methodology 59

6.2.4.2 Policy instruments for wind 59

7. Institutional Reform - Some Possibilities 61

List of Annexes

Annex 1: Mission Report

Annex 2: List of Stakeholders

Annex 3: Seminar Programme

Annex 4: Data Matrix

Annex 5: Presentation on Methodology

Annex 6: Preview on Training

Annex 7: Energy Situation in Egypt

List of Tables

Table 1: Behavioural Model of Energy Efficiency Obligation and Associated Indicators, Risks and

Assumptions

Table 2: Cost Data for Energy Efficiency Measures

Table 3: Cost Benefit Analysis

Table 4: Behavioural Model of Competitive Bidding for Wind IPP and Associated Indicators, Risks

and Assumptions

Table 5: Behavioural Model of Feed-In Tariff for Wind IPP

Table 6: Criteria for Choice among Options

Table 7: Data for Wind Energy

Table 8: Data for Combined Cycle Gas Turbine (CCGT)



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Table 9: Wind Energy - Economic Assessment Criteria

Table 10: Wind Energy - Impact of Gas Prices and IPP Wind Return Requirements

Table 11: Wind Energy - Economic Assessment Criteria with Carbon Credits (Base Case)

Table 12: Wind Energy - Economic Assessment Criteria with Carbon Credits

Table 13: Categories of Customers

Table 14: The Kryamat Solar Thermal Project

List of Figures

Figure 1: The legislative Process

Figure 2: Energy Outlook

Figure 3: Country - Comparison of Total Unit Cost for EE Measures and Marginal Cost of Electricity

Supply

Figure 4: Utility - Comparison of Total Unit Cost for EE Measures and Marginal Cost of Electricity

Supply

Figure 5: Electricity - Comparison of Total Unit Cost for EE Measures and Marginal Cost of

Electricity Supply

Figure 7: US LNG Prices

Figure 8: Forecasts of Crude Prices to 2030 (DOE/IEA)

Figure 9: Derived Forecast of International LNG Prices

Figure 10: Forecast of Unit Costs for Wind Energy and CCGT-Natural Gas

Figure 11: Wind Energy Option - Net Cash-flow with Carbon Credits

Figure 12: Policy Cycle

Figure 13: Egypt's Future Energy Needs (Conservative Scenario)

Figure 14: Egypt's Future Energy Needs (Optimistic Scenario)

Figure 15: Oil Production in Egypt, 1990-2007

Figure 16: Natural Gas Production in Egypt, 1990-2007

Figure 17: The Current Electricity Market.

Figure 18: NREA and Private Sector up to 2020 Plan

List of Acronyms

RCREEE Regional Centre for Renewable Energy and Energy Efficiency

BRT Bus Rapid Transit

CCGT Combined Cycle Gas Turbine

CDM Clean Development Mechanism

CER Certified Emission Reduction

CFL Compact Fluorescent Lamp



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CNG Compressed Natural Gas

CTF Clean Technology Fund

DOE Department of Energy

DSM Demand Side Management

EBPM Evidence Based Policy Making

EE Energy Efficiency

EEHC Egyptian Electricity Holding Company

EETC Egyptian Electricity Transmission Company

EEUCPRA Egyptian Electricity Utility and Consumer Protection Regulatory

Agency

EHV Extra high voltage

EIA Energy Information Agency

EPC Energy Performance Contract

ESCO Energy Service Company

EU European Union

g gram

GCEEE Egyptian German High Level Joint Committee for Renewable Energy,

Energy Efficiency and Environmental Protection

GCMA Greater Cairo Metropolitan Area

GEF Global Environment Fund

GHG Green House Gas

GJ Giga Joule

GWh Giga Watt hours

HBRC Housing and Building Research Centre

HV High Voltage

IBRD International Bank for Reconstruction and Development (World Bank)

IDA International Development Agency



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IEA International Energy Agency

IISD International Institute for Sustainable Development

IPP Independent Power Producer

JICA Japanese International Cooperation Agency

kWh kilo Watt hours

LE Egyptian Pound

LNG Liquefied Natural Gas

LPG Liquefied Petroleum Gas

LRT Light Rail Transit

LV Low Voltage

MED-EMIP Euro-Mediterranean Energy Market Integration Project

MED-ENEC Euro-Med Project on Energy Efficiency in the Construction Sector

MENA Middle East and North Africa

MMBTU Million British Thermal Units

MOEE Ministry of Electricity and Energy

MV Medium Voltage

MW Megawatt

NET PV Net Present Value

NREA New and Renewable Energy Authority

OECD Organisation for Economic Cooperation and Development

OEP Organisation for Energy Planning

PPA Power Purchase Agreement

PSA Production Sharing Agreement

PURPA Public Utility Regulatory Policies Act

RE Renewable Energy

TBE Theory Based Evaluation



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toe tons of oil equivalent

UNDP United Nation Development Program

USAID United States Agency for International Development

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1. Project Synopsis

The "Regional Centre for Renewable Energies and Energy Efficiency (RCREEE)" was formally estab-

lished June 25, 2008 through the signing of the "Cairo Declaration of Intentions on Establishment of a

Regional Centre for Renewable Energies and Energy Efficiency (RCREEE)" by representatives of its

member states: Algeria, Egypt, Jordan, Lebanon, Libya, Morocco, Palestine, Syria, Tunisia and

Yemen. The overall objective of RCREEE is, through its interventions, to achieve:

a) rapid implementation of cost-effective policies and instruments for the increased penetration of re-

newable energy (RE) and energy efficiency (EE) technologies and practices in member countries;

and

b) increased market shares of companies and plants located in MENA-countries on the markets for

technologies and services related to RE and EE in the MENA and EU regions.

For the first five years of operation, RCREEE receives financial support from the Governments of

Egypt, Germany and Denmark. The European Commission (EC) supports RCREEE through two re-

gional programs: "MED-EMIP" and Phase II of "MED-ENEC". Member countries will contribute finan-

cially by increasingly co-financing the costs of the participation of national officials in RCREEE semi-

nars and workshops.

The present project is the first project support to RCREEE from the Danish Government. It is part of

RCREEE's overall effort of providing member state administrations with better information and new

planning tools and processes. It supports RECREEE in the development of a website which offers ac-

cess to a complete subject-ordered list of member state RE&EE laws and regulations, reviewed policy

documents, selected background and evaluation reports deemed to represent state-of-the art high

quality analytical work as well as discussion blogs on topics deemed to be of general interest for

RCREEE governments.

In parallel and supporting the above activities, the project has gathered the pertinent information on

EE and RE in each member country and made them available through the RCREEE website in an or-

ganised manner. Likewise the methodology on evidence based policy development and theory based

policy evaluation was discussed and extended in each country and their relevance and applicability il-

lustrated through case studies. On the basis of the country reports, a regional report was prepared to

allow policy makers and decision makers in all RCREEE member countries to see the status of their

EE and RE policies in a comprehensive regional context.

The activities were carried out by the project core team of four international experts assisted in each

country by a national specialist. Workshops were held by the national specialists at the end of the pro-

ject using the material and the methodological case studies developed throughout the project. The

national and regional reports were revised to take into account the comments received.

The following sections in this report reflect the impressions gained by the project team through the

discussions held during the course of the mission and all the information that has been available to the

team. The main purpose of this country paper is to stimulate new thought on EE and RE policy devel-

opment in Egypt.

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2. Summary of Energy Situation in Egypt

Over the past decade, Egypt has been moving away from being a net exporter of energy. The signifi-

cant reductions of net export in crude oil and petroleum products could only partly be offset by the in-

creasing exports of natural gas. Even under optimistic assumptions it is expected that by the year

2020, Egypt will need to import some 16% of the energy requirements.

The production of crude oil has declined from about 900,000 barrels per day in 1990 to some 750,000

barrels per day in 2007 and at the same time domestic consumption increased from 500,000 barrels

per day to 700,000 barrels per day. The production of natural gas increased to 45 billion cubic meters

in 2007, one third of this quantity was exported.

Electricity production is increasingly based on natural gas (CCGT-technology), while refineries are be-

ing upgraded to produce higher grades of fuel for transport purposes. 90% of generation capacity is

owned by the Egyptian Electricity Holding Company (EEHC), 9% by Independent Power Producers

and 1% is wind power generators owned by the New and Renewable Energy Authority (NREA). The

transmission system operator (EETC) acts as single buyer.

Energy Efficiency and the use of Renewable Energy Sources are regarded as important means to

stabilise the energy balance. NREA was established already in 1986 to promote renewable energy in

Egypt. Recognising the great wind power potential, NREA launched several wind power projects and

now has more than 430 MW installed capacity of wind power. Based on this experience the Supreme

Council of Energy in February 2008 approved a plan to satisfy 20% of the generated electricity from

renewable energy by 2020, including a 12% contribution from wind energy. This figure translates into

about 7200 MW of grid-connected wind farms and 8% contribution from other sources, mainly hydro

and solar energy.

The conditions for solar energy are excellent in Egypt with a radiation at most places well above 2,000

kWh per square meter and year. A first CSP project (140 MW) is under construction. The potential for

hydropower is fully utilised. Chapter 5 further discusses Egyptian practice in Renewable Energy in the

light of international experience.

The targets for energy efficiency which the government has adopted to be achieved by the year 2022

correspond to 20% of the final consumption in 2008. Industry has the highest efficiency potential,

which is about twice that of the transportation and the residential/commercial sectors each. The follow-

ing chapter 4 further discusses Egyptian practices in Energy Efficiency in the light of international ex-

perience.

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3. The Energy Policy Process in Egypt

Issuing legislation in Egypt follows defined processes; it is motivated by needs and that clearly the

case in energy related issues. The highest legislation level is the constitution, followed by laws, then

Presidential, Prime Minister and Ministerial decrees.

A draft for legislation is usually initiated/prepared by one or more stakeholders (government or non

government entities) in cooperation with other stakeholders; one of them, a governmental entity usu-

ally (lead/host), will be the formal umbrella for that draft legislation. Depending on the target of the

proposed legislation and its scope the required level of legislation is determined to be either a law or a

Presidential, Prime Minister or Ministerial decree.

3.1 Law

A law is issued after being discussed and ratified by the parliament; then a presidential decree is is-

sued to start the enforcement of the law. The following chart represents an outline for the procedure of

issuing a law; starting from possible stakeholders and ending up by issuing the law (a bottom up ap-

proach):

Figure 1: The Legislative Process

Stakeholders (NGOs, ministries, specialized committees, agencies, ..etc)

Process to issue a legislation in Egypt (Law)

a draft law

Ministry None ministerial Gov. entity

Shoura Assembly (discussions and ratification by members and specialized committees)

Mem

bers

of

Parl

iam

ent

Parliament (discussions and ratification by members and specialized committees)

President

A presidential decree issuing the law

Cabinet of ministers (internal discussions)

State Council(not a must)

• Different stakeholders work on preparing a draft for the law. Stakeholders can be one or more of the following, but not limited to: NGOs, ministries, specialized committees, none ministerial gov-ernment entities, agencies and similar.

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• The draft law is then presented possibly by a ministry or a none-ministerial governmental entity to the cabinet of ministers. It can be (but not necessarily will be) reviewed by the state council.

• Presentation of the draft law through the cabinet of ministers or directly from the president to the Shoura Assembly; were it is discussed by specialized committees; (Energy and industry commit-tee in case of an energy related law), the legislative committee as well as between the assembly members at large before it is ratified and sent to parliament (peoples assembly).

• The draft law in its approved form from the Shoura Assembly is forwarded to the parliament. A draft law can also be presented to the parliament by a group of its members, with a certain minimum number of parliament members required. In both cases the draft law is then discussed by specialized committees (Energy and industry committee in case of an energy related law), the legislative committee as well as by parliament members at large before it is ratified and sent for issuance through a presidential decree.

3.2 Presidential decree

A presidential decree is usually issued to address one or more of the following: • Issue of a law. • Formation of a governmental entity • Other issues.

An example of an energy related presidential decree was the establishment of the Egyptian Electric

Regulatory Agency and stating its mission. The presidential decree, usually addresses a large number

of stakeholders and target broad issues rather than details.

3.3 Prime Minister decree

A Prime Minster decree usually involves executive actions and addresses specific issues. An example

of that: is the appointment of the managing director of the Electric Regulatory Agency, another exam-

ple is the issuance of energy tariffs for end users supplied from state owned energy utilities.

3.4 Ministerial decree

A ministerial decree is usually the fastest regarding its issuance; after it is discussed by the different

stakeholders involved and after it has been reviewed by the legal department of the ministry. For a

ministerial decree, the scope of implementation, the group of activities and stakeholders it addresses

is usually very much focused. An example of that is the Ministerial decree for the enforcement of the

code of practice for energy labelling related matters.

3.5 Egypt's Need and Motivation for Energy and Environment related Legislation

Egypt's energy situation; past, current and future both on the supply and demand levels imply the

need to resort to renewable energies and energy efficiency, among a number of other resources, as a

first priority, to fulfil Egypt's energy needs over the next 15 years1. Figure 2 shows the ambitious aims

as of the time of the mission; they have since been further enhanced.

1 An energy strategy paper, prepared by the energy committee within the ruling party (National Democratic Party)

www.ndp.org.eg November 12007, NDP 9th general assembly.

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Figure 2: Energy Outlook

5 66 0

6 36 7

7 17 5

8 08 5

9 09 5

10 110 7

113

12 0

12 7

13 5

0

20

40

60

80

100

120

140

160

2006/ 07 2007/ 08 2008/ 09 2009/ 10 2010/ 11 2011/ 12 2012/ 13 2013/ 14 2014/ 15 2015/ 16 2016/ 17 2017/ 18 2018/ 19 2019/ 20 2020/ 21 2021/ 22

Fr om f uel pr oducts Fr om N.G. Fr om Hydr o Fr om Wind

Fr om Nuclear Local ener gy needs Local ener gy needs with ener gy ef f . Additional needed ener gy

Expected / Targeted Future Energy Status up 2022 (conservative)

Renewable - current 3000 MW and target 13500 MW (energy up 20%)

Nuclear up 4000-5000 MW

Reduce energy consumption by 8,3%

Retain Oil and NG levels of production

Additional energy needed to get from else

where (solar , bio-fuels,

interconnection & others)

3.6 Towards Energy Legislation in Egypt

Over the last three decades, a number of energy related activities towards resorting to the use of re-

newable energies and energy efficiency have taken place. These activities were manifested in some

of the following: • Carrying on a number of energy efficiency demonstration projects, leading to recommended en-

ergy strategies. • Proposed energy efficiency law. • Issuing few energy efficiency related codes. • Formulating a number of Ad Hoc Energy committees at ministerial levels as well as at NGO lev-

els. An example of that is the formation of: o The energy committee at the Federation of Egyptian Industries. o The Egyptian Energy Saving Council for Industry.

• Establishment of an energy planning organization which had great difficulties to full fill its mis-sion and eventually did not survive.

• Establishment of the New and Renewable Development Energy Authority. • Establishment of an electric regulatory Agency. • Formulation of a national energy committee. • Freeze and unfreeze energy prices. • Studies by national and international entities on Energy pricing and subsidies.

All of the aforementioned activities can be classified as stakeholders activities leading to the issuance

of a legislative document/action related to energy.

Most recently two distinct major activities evolved as follows:

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• The formulation of an energy efficiency unit at the cabinet of ministers; with the aim of coor-

dinating and stream lining national energy efficiency activities towards fulfilling the 8.3% re-duction in energy use by year 2022. That might evolve into the energy efficiency law and/or the establishment of an energy efficiency agency.

• Issuance of the proposed electricity law; (currently almost in front of the cabinet of ministers), which addresses a number of electricity related issues among which are efficient use of en-ergy and renewable energies.

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4. Comparison of Egyptian Practice with International Practice in Energy Ef-ficiency

Public policy intervenes to correct market failures, in the case of energy efficiency the most common

failures are: distorted energy prices, external costs, poor access to technical information, agent-

principal problems, budgetary constraints and excessive risk aversion, poor skills of investment ap-

praisal. Policy instruments are intended to correct or compensate for these distortions. The most

common among these instruments can be categorised as:

Corrective Measures

Price Reform

Institutional and legal reform

Labelling

Dissemination of information

Research, development and demonstration

Financial incentives

Support for energy service companies (ESCOs)

Compensating Measures

Standards

Mandatory measures (e.g. compulsory audits and management obligations)

Corporate agreements

Efficiency obligations

Transport and spatial planning

The following discussion of Egyptian practice as compared to international practice reflects this taxon-

omy.

4.1 Strategy

Strategy sets out objectives and targets and defines the combinations of policy instruments that are

expected to achieve the targets.

An 8.3% national energy savings target by the year 2022 has been set, corresponding to 20% of the

2007/2008 energy consumption. An energy efficiency unit in the cabinet of ministers has been estab-

lished to coordinate energy efficiency activities.

4.2 Legal Reform

The proper implementation of energy efficiency requires an energy efficiency law that justifies the pur-

pose of the activity, establishes a clear focus in government, assigns the responsibilities of actors, and

makes provision for an agency and specific instruments.

The following list contains the most frequently occurring provisions in such laws:

• Recognising energy efficiency as an appropriate subject of legislation and regulation

• Identifying and communicating in a policy document or national plan the principles of energy effi-

ciency policy

• Identifying through technical analysis the potential for saving and prioritizing the sectors with high-

est potential

• Defining policy interventions to promote energy efficiency e.g. fiscal and financial incentives, trad-

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able certificates, and regulations

• Drafting of legislation to implement policy interventions

• Setting penalties for default

• Creating institutional structures to promote energy efficiency

• Assigning staff in proper numbers and with proper qualifications to the institutions and ensuring

adequate finance for the institutions

• Drafting national programmes for short and long-term management of energy efficiency

• Assigning responsibility to promote energy efficiency at national, regional and municipal levels

• Monitoring and evaluating progress

There is no Energy Efficiency Law in Egypt at present. The UNDP / GEF project has proposed a draft

law, but it does not appear to have gained acceptance.

The draft Electricity Law contains a Chapter on Renewable Energy and Energy Utilization Efficiency

Improvement with some significant Articles that address cogeneration, DSM options including an obli-

gation on network licensees, standards and labelling. The provisions of the law are elaborated more

fully in the relevant sections below.

4.3 Price Reform

It is well established that energy demand is price sensitive, especially demand for electricity. The most

reliable results come from industrialised countries. Price reform will save large quantities of energy,

especially in the long-run and can make a substantial reduction in GHG emissions from countries with

distorted prices. Subsidies put a large strain on public accounts and weaken foreign trade balances.

They also tend to devastate the state-owned enterprises that are normally a victim of the practice.

Subsidies in Egypt are very large. They are made up of two main components; one is direct budgetary

subsidies made to compensate state enterprises for forced sales at low prices; the other is the prac-

tice of rolling up low cost own production with high cost supplies from foreign joint venture partners to

sell at low prices on the domestic market. The government sells its part of domestic production at be-

low-market prices to domestic consumers and purchases some of the share of the joint venture part-

ner at a much higher price specified in the production sharing contract price, again to sell at artificially

low prices in the domestic market. Only the second transaction appears in the budget and this is the

only recorded subsidy. The opportunity cost of the government's share in the PSA is an implicit sub-

sidy that is not recorded. Direct budgetary transfers for subsidies were 64.5bn LE in the 2007-2008

budget, up from 51bn LE in the previous year. In 2008-2009 the total fell to some 40 bn LE, because

of the fall in international prices. Indirect subsidies are probably comparable.

For several years, the government has planned to phase out energy subsidies, starting in 2004, when

electricity tariffs were increased for the first time since 1992. A number of Prime Ministerial Decrees

that have been issued between 2004 and February 2009 gradually increased energy prices for all

types of end users in an attempt to reach energy cost effective values. In February 2009 further in-

creases were frozen as an attempt to face the international economical crises, but it is expected that

by early 2010 the energy price increases will be resumed.

Petroleum product prices were also increased, including a 30-40 percent rise for high-octane gasoline

and a 46 percent rise for kerosene and diesel. To help compensate energy subsidies to transport, the

vehicle license fee was increased from a flat fee of LE 500 to 2 percent of the value of the vehicle. The

reforms were badly received by industry, and prompted concerns that the poor would be most affected

and that inflation would grow beyond the 14.4 percent mark recorded in 2008.

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In February 2009, this decision was largely reversed by Presidential Decree No. 446 on energy prices.

4.4 An Agency

Many countries have found it useful to establish a specialised institution to prepare initiatives, draft

regulations, monitor progress, ensure compliance, administer funds and perform other administrative

activities. It will not necessarily be the only institution with powers in the area. If fiscal incentives are

adopted then these will be managed through the office responsible for taxation, but there will still be a

need to confirm the technical acceptability of the investment. Compliance with standards for equip-

ment and boilers will normally be performed by special corps of inspectors already engaged in stan-

dards work. The regulator would normally enforce any specific obligation on electricity networks.

Despite the need to involve existing institutions, it is often considered useful to create a specialised

agency. This agency would typically have the following responsibilities.

• Developing and disseminating targeted information to specific categories of users

• Organising training; liaison with universities and professional bodies

• Developing energy efficiency standards

• Conduct of surveys; analysis of data and maintenance of database

• Conducting or managing programmes of certification and labelling

• Liaising with other state institutions (e.g. Taxation offices and inspectorates)

• Administering energy efficiency funds

• Specifying mandatory audits; certifying and/or licensing energy auditors

• Designing short-term and long-term energy efficiency programmes

• Monitoring, evaluating and reporting on the implementation state activities and private initiatives

• Designing and proposing new interventions as opportunities are identified

Legislation would probably be needed to establish such an agency and to specify its duties.

There is no energy efficiency agency in Egypt. Previously the Organisation for Energy Planning (OEP)

had some umbrella functions in the sector and was involved in the early work on appliance standards,

but it has been disbanded.

Government appears to favour the concept of a disbursed responsibility for energy efficiency within

relevant Departments guided by the Supreme Council of Energy supported by a small secretariat in

the Cabinet Office known as the National Council for Energy Efficiency. The Supreme Energy Council

was established in 1979, but was hardly ever convened. It has recently been revived and will take over

the strategic functions of energy policy. The members include all Departments with substantial inter-

ests in the energy sector.

This procedure reflects a common approach within the Egyptian administration to start with a small ac-

tivity and then subsequently to build up and strengthen the legal basis as experience is gained. A

somewhat similar process was adopted with the Regulatory Agency and with the New and Renewable

Energy Agency. It is possible, but by no means certain, that the National Council for Energy Efficiency

will evolve into a substantial agency with strong legal powers.

The Ministry of Industry has established by Decree a Committee on Energy Efficiency in Industry that

will exist for two years with the duty to assess the potential for energy efficiency and to review mecha-

nisms to realise that potential. The committee includes members from industry, academia and officials,

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which composition is rather novel in Egypt. This work will also inform the National Council.

4.5 Standards and/or Labels

The obligation on manufacturers and importers of equipment to label goods or to meet specified stan-

dards is a policy measure introduced to overcome the market failure caused by asymmetric informa-

tion. Potential users of equipment, faced with a choice of designs, may not have the skills and informa-

tion to understand the consequences of their choice. They may be tempted to choose low-cost equip-

ment with high energy consumption in preference to higher price options that perform better. Manufac-

turers may not have an incentive to provide this information if they think that their comparative market

advantages do not include greater efficiency than competitors. Labelling and standards are not exclu-

sive; goods can be obliged to meet a certain minimum standards and then labelled according to their

performance when it exceeds the standard. Labelling and standards both require testing facilities and

protocols; both require rigorous and competent enforcement.

Standards for refrigerators, washing machines, air-conditioners and water heaters have been devel-

oped by OEP under the UNDP / GEF projects and labels have been designed to indicate to which

class any appliance belongs. Testing laboratories for these appliances and for efficient lighting equip-

ment CFLs and electronic ballasts have been built with the support of the UNDP Energy Thematic

Trust Fund. A Ministerial Decree has been promulgated to implement the standards and labels. The

ownership of the testing laboratories, the testing of appliances and the issue of labels to models ac-

cording to their performance has now been assigned to NREA. Compliance at present is voluntary;

there is no systematic procedure to ensure compliance with labels and to detect fraud, but this will be

necessary when the scheme is made mandatory.

Article 55 of the draft electricity law obliges the competent Ministry to design policies aimed at expand-

ing the application of efficiency equipment and replacing low-efficiency appliance and equipment. Arti-

cle 56 of the draft electricity law also addresses this matter; it does not appear to add new regulation,

but simply confirms the application of the Ministerial Decree.

Standards for buildings are an important special case because:

• The rate of new building in developing countries is far higher than anywhere else in the world

• Buildings are large consumers of energy

• Buildings last for decades and will determine energy use for a very long time

• Large improvements in the energy efficiency of buildings can be achieved at low cost

• Developers will not normally make those improvements because of various chronic market failures

• The principal-agent dilemma is especially acute

In Egypt, the Housing and Building Research Centre (HBRC) of the Ministry of Housing has developed

energy efficiency building codes for residential and commercial buildings, in part with the assistance of

UNDP / GEF. It has also developed an energy efficiency building code for the administrative buildings

to improve energy efficiency in Egyptian governmental buildings.

The residential energy code specifies the minimum requirements to improve both thermal and visual

comfort in non-conditioned buildings as well as minimum energy efficiency requirements in condi-

tioned buildings. The codes specify separately the minimum energy performance standards for energy

using equipment and for the envelope.

The Residential Building Energy Efficiency Code is implemented by a Ministerial Decree issued in

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2006 by the Minister of Housing. The final draft of the Commercial and Administrative Buildings has

been presented for public review in 2008 and awaits implementation.

It is not clear whether the capacity of the Ministry to achieve regulatory compliance is sufficient and

this may be an area where further support is required.

4.6 Financial Incentives

Financial incentives can be separated into economic and fiscal incentives. Economic incentives are

aimed at encouraging investment in energy efficient equipment and processes by reducing the in-

vestment cost directly and fiscal incentives are those actions that reduce the cost indirectly through

the taxation system. Economic incentives can be further divided into investment subsidies and con-

cessional finance. Investment subsidies change the perceived cost of an investment and concessional

finance changes the financing conditions. Fiscal incentives differ from other financial incentives in

several ways. They do not need to be funded directly; they are funded indirectly in that they represent

a loss of revenue to the state budget. Generally they are available to all who qualify according to the

terms of the exemption; there is no application and award process. For this reason they are some-

times preferred as being less susceptible to corruption and to political manipulation. They can be

managed through the normal tax compliance regime. In middle income countries this approach is

generally only practical with companies.

A last instrument that might be included under this heading is feed-in tariffs for cogeneration. If the

feed-in tariff is above the opportunity cost of electricity then the instrument does really constitute an in-

centive. The incentive is funded by other consumers of electricity unless a special compensation is

paid from the state budget to the network. If the feed-in tariff is above the marginal cost of electricity at

subsidised fuel prices, but below the opportunity cost then it is simply a regulation to correct the mo-

nopoly purchasing power of the network and the distorted fuel prices. If the cogenerator is burning

subsidised fuel and also receiving an incentive through the feed-in tariff then the consequences de-

pend on the relative values of subsidies.

There does not appear to be any specific fund for energy efficiency in Egypt. The Committee on En-

ergy Efficiency in Industry has proposed the establishment of a Fund to provide financial incentives to

investment in energy efficiency. No decision has been taken. The logic of such a fund is that low en-

ergy prices prevent industry from making investments that would be cost-effective if prices were set at

opportunity cost. The state would also gain from such investments because it would reduce the vol-

umes of energy that the state must presently purchase at international prices to meet the demand for

fuel at subsidised prices. If a portion of the benefits to the state from each investment were returned to

the Fund it could maintain activities and even expand them. The idea is interesting, but it is a second-

best solution, because one subsidy is being compensated by another. The logic however is sound if

low prices persist.

The World Bank Group has recently created the Clean Technology Fund (CTF); this seeks to promote

scaled-up financing for demonstration, deployment and transfer of low carbon programs and projects

with a significant potential to reduce Green House Gas (GHGs) emissions. Egypt was an early appli-

cant to this fund and secured $300 million of financing (CTF Trust Fund Committee, 2009). None of

this seems to be allocated to energy efficiency, but to renewable energy and transport. The objectives

of these two programmes are described elsewhere in this report (Section 3.8).

The draft electricity law provides that holders of transmission and distribution licenses shall purchase

or pay the value of the surplus power from third-party cogeneration units and power from units running

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Egypt.doc

on recovered fuel energy with a capacity of less than 50 MW. The price to be paid for this power is to

be established by the Egyptian Electric Utility and Consumer Protection Regulatory Agency

(EEUCPRA ) established under the law.

4.7 Obligations

Another approach, which may be combined with incentives, is to oblige companies to undertake en-

ergy efficiency by mandatory measures. These can be multiple and include obligations to:

• To carry out audits at regular intervals

• To report to central government database and possibly to communicate audit results to the public

• To report energy consumption, saving measures and implemented measures

• To propose action plans to implement the energy savings measures identified in audits

• To carry out certain specified measures

• To appoint an energy manager

• Mandatory certification of auditors

• Mandatory comparison of operation and investment to reference values (norms, benchmarking)

Some, or all, of these requirements may be confined to large users and made conditional on crossing

a defined threshold of energy use.

Obligations can be voluntary. Two main sets of voluntary agreements have been introduced. The first

set comprises agreements between government and representative bodies of appliance manufactur-

ers to reach specified improvements in the performance of appliances; the approach has also been

extended to vehicles. The second set comprises agreements with individual industries to improve their

own on-site energy performance. Industry can have various motivations to participate in these agree-

ments. Appliance manufacturers may expect to persuade government to supplement their efforts with

instruments aimed at stimulating purchases by consumers. It may in some instances be a mechanism

to forestall regulation. This latter reason may also encourage participation in agreements to reduce

energy use in industrial processes. Such agreements, although voluntary, may also be a condition for

financial incentives.

We are unaware of any such measures in Egypt other than the voluntary labelling of appliances de-

scribed earlier.

In liberalised markets an alternative to promoting energy efficiency through state financial incentives

and funds is to place an obligations placed on suppliers. In this scheme a supplier or distribution net-

work manager scheme is placed under an obligation to demonstrate programs that save specified

amounts of energy related to their total supply volume. The supplier or network operator then builds

the costs into his cost-base; he then has the usual interest of a commercial company in keeping his

cost-base as small as possible. The requirement is enforced by the regulator; failure to comply may be

penalized in proportion to the deficit between the target savings for the supplier and the amount

achieved. Savings do not have to be made within the supplier's own area; they can be in fuel oil, coal

or transport fuels. Such schemes can be complemented by "white certificates". In this arrangement,

suppliers are obliged to demonstrate they either accomplished energy savings directly or have bought

certificates from others who can show they have made savings.

The draft electricity law in Article 55 makes provision for some such arrangement. The draft requires

owners of transmission and distribution licenses to prepare and conform to annual plan which has

been approved by the regulator to carry out projects or programmes in energy efficiency, especially in:

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Egypt.doc

• Management of demand for electric power

• Improvement of the electric power utilization efficiency

• Promotion of equipments used for renewable energy

• Raising consumer awareness with respect to power utilization efficiency

Under the law, the Agency shall ascertain to what extent the above have been achieved upon renewal

of the licence. This is a rather weak provision as it is only reviewed it appears on renewal of the li-

cence.

4.8 Audits and the Promotion of ESCOs

The original idea of an Energy Service Company or ESCO is that an entity other than the energy sup-

plier should identify, design, finance, supervise and commission energy efficiency projects for a client,

to be compensated by a share of the energy savings achieved over a defined period. The partition of

savings is determined by a special contract known as an energy performance contract (EPC). Actual

practice varies widely; some ESCOs will finance the project, others will organise finance. Implementa-

tion is not easy and there are relatively few successful examples. The name ESCO is sometimes also

given to companies that just provide consulting services, but do not enter into an EPC. It is important

to be clear what is meant, as the latter is a much easier exercise than the former.

Both USAID and UNDP in their energy efficiency projects have tried to promote ESCOs in Egypt. The

aim in both projects was to establish and demonstrate a business model where ESCOs helped clients

secure financing from commercial banks and eventually to create a self-sustaining market for ESCO

activity. The results were a little disappointing. Some ESCOs were established and a national associa-

tion for ESCOs was formed. Most of the ESCOs were small and under-resourced.

The prevailing large subsidies to energy reduce the benefits from investment and make it hard to find

projects that are attractive to both the ESCO and the client. Banks generally lend to companies on the

strength of their balance sheet not on a project basis and they have better connections with compa-

nies than do the ESCOs. Privatization of industry may encourage more interest in energy efficiency

because managers will be more strongly incentivised to improve the efficiency of the production proc-

ess and minimize cost of production than they would be under public ownership.

4.9 Transport and Spatial Planning

More than half of the global population now live in cities and according to UN Habitat, by 2030, it will

be 60 percent, (UN Habitat, 2008). Cities consume enormous amounts of energy and they have great

inertia; road systems and land-use decided now will influence energy use for a hundred years. In ur-

ban metropolitan areas, transport creates a third at least of total greenhouse gas emissions. Promo-

tion of public transport options and careful design of cities is critical for reducing emissions in cities.

The Greater Cairo Metropolitan Area (GCMA) has the largest share of population, economy, industry,

and human resources in Egypt. The population was 17 million in 2006 and given the rapid rate of ur-

banization is expected to reach 24 million in 2027. About 2/3 of all motorized trips in Egypt are made

by public transport; there are therefore significant opportunities to improve energy efficiency by shifting

from buses to a mass transit system. The government's vision for transforming the transport sector is

reflected in the Greater Cairo Urban Transport Master Plan developed by JICA and completed in

2003. The Master Plan aims to provide:

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Egypt.doc

• a safe and environment-friendly transport system that would significantly reduce carbon emissions

• an economically effective urban transport system

• equitable mobility.

The Government of Egypt is committed to low carbon transport strategy and has implemented several

measures to achieve this. Among them are:

• the preparation with the assistance of the World Bank of an Urban Transport Strategy for the

Greater Cairo Region that included short and medium-term investment plans;

• scaling-up the provision of incentives for the replacement of old public buses and private taxis with

a new fleet operating on compressed natural gas (CNG);

• completion of line 1 and 2 of the underground Metro and a commitment to complete line 3 by 2012

and line 4 by 2017;

• the identification and preparation for implementation of specific clean technology projects, including

implementation of a Light Rail Transit (LRT) and Bus Rapid Transit (BRT) systems as well acceler-

ated conversion of public buses and private taxis to CNG/hybrid technologies.

As noted earlier Egypt has been successful in its applications to the CTF and will use a part of the

funds assigned to continue with the work on transport and planning. The CTF resources ($100m) will

be complemented by IBRD ($150m), the private sector ($330m) and the Government's own resources,

(CTF Trust Fund Committee, 2009).

4.10 Information

Access to knowledge is costly and may impede an individual or company from undertaking activities in

energy efficiency. It is a legitimate role of government to generate and disseminate knowledge as a

public good. We interpret the term knowledge in this context very widely to include data, technical

guidance, research and demonstration.

Sporadic efforts have been made in the past along these lines, but have not been sustained. The en-

ergy efficiency project implemented by USAID in the 1980s and 90s produced many useful case stud-

ies and a wealth of excellent technical guidance notes, which seem no longer to be widely available.

This may be a consequence of the rather fluid nature of the institutional responsibilities for energy effi-

ciency in Egypt that have not allowed a single permanent centre of competence to emerge, to accu-

mulate knowledge and to deploy it effectively and in a sustained manner.

We are not aware of any research and demonstration projects in energy efficiency that have been

publically funded.

We understand that the Committee on Energy Efficiency in Industry plans to develop a data base on

industrial energy use including estimates of potential savings. The location of this data base is uncer-

tain, but the preference is for the Industrial Development Agency. The choice of the IDA is determined

by the fact that it has an existing interface with industry and can start rapidly. This is a sensible meas-

ure that should be encouraged.

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Egypt.doc

5. Comparison of Egyptian Practice with International Practice in Renewable Energy

This section attempts to compare the present status of renewable energy policy in Egypt with interna-

tional practice.

Public policy intervenes to correct market failures. In the case of renewable energy, the most common

failures are somewhat similar to those identified below for energy efficiency, but with a different em-

phasis. Distorted energy prices, unrecognised external costs, poor access to technical information all

play a part. There is however a significant difference. Many measures of energy efficiency are cost ef-

fective, but prevented by distortions of the conventional market. This is also true of some renewable

options, such as solar water heating. Many technologies are not cost-effective even if the distortions of

the conventional market are removed. They are justified by the external costs that they avoid, espe-

cially the external costs of GHG emissions. This means that they must be financially subsidised to fi-

nancial incentives of one sort or another are critical to renewable policy.

In addition to these general market failures there can be specific market failures for electricity gener-

ated from renewable energy that is fed into a national grid as electricity. Excessive and unjustified

costs of connection to the grid, inability to connect, disputes over responsibility for payment - these

can impede renewable deployment. They are not necessarily malign obstacles; the relationship be-

tween a national network with its own concepts of growth and independent generators of all sorts can

be difficult. It may affect renewable energy more because generation from renewable energy is fre-

quently site specific, i.e. it is located where the source is and when renewable energy is disbursed the

issues arise more frequently.

Policy instruments are intended to correct or compensate for these various distortions.

5.1 Targets and Strategy

Strategy sets out objectives and targets and defines the combinations of policy instruments that are

expected to achieve the targets.

The Supreme Council of Energy in February 2008 approved a plan to satisfy 20% of the generated

electricity from renewable energy by 2020, including a 12% contribution from wind energy. This figure

translates into about 7200 MW of grid-connected wind farms and 8% contribution from other sources,

mainly hydro and solar energy.

5.2 Legal Reform

The main legal elements in a policy to promote renewable technologies are a clear targeted strategy

or road map, a specialised agency to implement public activities and a support system specifically

aimed at allocating the extra costs of the technology.

There is no renewable energy law for Egypt as such, but there are some important provisions of the

draft electricity law that will determine how the next phase of renewable development proceeds. The

Law sets out the procedures for the construction of grid-connected renewable generators and the

compensation of EETC for purchase of power at higher prices than alternatives.

Article 45 of the Law sets out the process for the procurement of electricity generation plants using re-

newable energies. It provides for several options combining a competitive bidding system and a feed-

in tariff. Under the competitive bidding system NREA may call for tenders for the construction and op-

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Egypt.doc

eration of plant to sell electric power to the Egyptian Electricity Transmission at a rate proposed by the

regulatory Agency and approved by the cabinet. Alternatively EETC, in coordinate with NREA can call

for public tenders to build, own and operate plant under which arrangement the successful tenderer

will agree a power purchase agreement with EETC. It is intended, but not specified in the Law, that the

domestic content will be a part of the criteria for selection. It is also foreseen that investors may of their

own volition build plant and sell to EETC on the basis of a standard PPA of a take-or-pay character

valid for 15 years, approved and announced by the Cabinet. Article (46) requires the holders of li-

cences for transmission and distribution licenses to connect renewable generators to its own network

and to cover the corresponding investment needed for strengthening their networks.

Articles 47 - 50 provide for a fund, to be named the "Fund for Development of Power Generation from

Renewable Energies", established by and affiliated to the cabinet of ministers. The purpose of the

Fund is to compensate EETC for the purchase of electric power from the renewable generators. The

Fund will be financed mainly from allocations of the public budget of the State. The Fund's statutes

and governance are to be set by Decree.

5.3 An Agency A specialised institution to make research, prepare initiatives, draft regulations, monitor progress, en-

sure compliance, administer funds and perform other administrative activities can be useful in promot-

ing renewable technologies.

The Government of Egypt was quick to establish a specialised agency for renewable energy and this

has certainly helped in the creation of strong interest in commercial development.

The New and Renewable Energy Authority (NREA) was founded in 1986 to act as the national focal

point to introduce and promote renewable energy technologies for potential applications, particularly

generating electricity on a commercial scale together with the implementation of related energy con-

servation measures.

According to Law No. 102 of the year 1986 establishing NREA (Article 2), it practices its competence

in coordination with the entities concerned in the State, and whose activity is connected with the field

of the new and renewable energy, as follows:

• The assessment and evaluation of the new and renewable energy resources potential to plan for its

development and utilization within the framework of the general policy of the State in the field of

energy.

• To undertake and conduct the technical, economical and environmental studies and research nec-

essary to develop new and renewable energy resources utilization whether by itself or in coop-

eration with the scientific entities both locally and abroad.

• To determine the fields wherein it shall be a must to use the new and renewable energy resources

instead of the conventional sources, in coordination and in liaison with the State entities concerned.

The Authority shall be solely and exclusively entitled to ratify the alternatives of the engineering

systems for the said usage's, in such a way as to secure the achievement of their technical guaran-

tees.

• To undertake the implementation and execution of the projects related to the production and utiliza-

tion of the new and renewable energy as indicated under the previous item, whether by itself or in

participation with third parties, or to entrust the implementation and execution thereof, wholly or

partly, to third parties, whether for its own account, or for the account of third parties.

• To propose the Egyptian standard specifications for the new and renewable energy equipment and

systems, and to conduct the scientific tests to evaluate the performance of the equipment and sys-

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Egypt.doc

tems, both local and foreign, under the Egyptian prevailing conditions and to issue respective li-

censing certificates to that effect.

• To undertake and conduct the applied and practical experiments related to the new and renewable

energy technologies.

• The laying down and implement the training and promotional programmes that are necessary for

spreading and expanding the new and renewable energy utilization and application.

• The rendering of consultative services in the field of the new and renewable energy, and to provide

the technical know-how and expertise for the development of the national industries related to the

equipment thereof, and the respective programs.

• The implement ion all the agreements and protocols concluded by the State and the Public Au-

thorities with the foreign governments and international authorities in relation to the compe-

tence of the Authority, as well as to conclude agreements in the field of its own activity with similar

and analogous entities both locally and abroad.

Research on renewable energy has mainly been directed at wind and solar power. NREA also acts as

a developer; it owns and operates all existing wind farms in Egypt and is planning several more.

NREA is also effectively a regulator; it establishes rules and procedures for allocating land for wind

farms to developers and it acts as a national planning agency for renewable.

Clearly there are conflicts of interest in the discharge of these various functions. There are advantages

of having everything under one roof in the early days of development, but now, given the expected

rapid rate of commercialisation, it is no longer effective. There are many possible ways of restructuring

NREA; a sensible partition of duties would be to assign the regulatory role to the electricity regular and

to separate the rest of NREA into a commercial developer and an agency for research and promotion.

The latter function might well be combined with the duty of promoting energy efficiency. The commer-

cial arm might be kept in state ownership, though it would probably be better privatised.

5.4 Standards and /or Labels

Standards would be inappropriate for large developments in renewable energy. Commercial develop-

ers are well equipped to decide for themselves on efficient and effective specifications. There is a

good case for standards for small appliances such as solar heaters.

Egyptian Standards for solar water heating systems had been issued since 1987 in successive parts.

New standards have been issued in 2007 covering test methods for solar collectors and outdoor test

methods for solar heating systems performance characterization and yearly prediction of solar-only

systems.

5.5 Financial Incentives (Capital Support)

Many financial incentives have been used in different countries to promote renewable energy. Support

can either be offered to investment or to operation. Investment support for renewables is general de-

livered through the same type of instruments that are used to support investment in energy efficiency,

e.g. capital grants, tax exemptions, soft loans and loan guarantees. In the case of grid connected re-

newables it is possible also to offer support to operation either by allowing the electricity to be sold at

inflated tariffs or by obliging certain parties to purchase specified volumes. These instruments are to

some extent exclusive and are discussed together in the next section.

Existing wind projects in Egypt were financed with grants and low cost loans. Funds and technical as-sistance were provided by assistance were provided through mutual Governmental agreements by

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Denmark (180 MW); Germany (160 MW); Spain (85 MW) and Japan (120 MW). Meanwhile, several new wind farm projects are in various phases of preparation in cooperation with development partners.

NREA is qualifying the following wind farm projects as CDM projects:

• Zafarana 120 MW wind power plant project in cooperation with Japan.

• Zafarana 120MW wind power plant project in cooperation with Denmark.

• Zafarana 80MW wind power plant project in cooperation with Germany.

• Zafarana 85 MW wind power plant Project in cooperation with Spain.

• Gulf of El-Zayt 220 MW wind power plant Project in cooperation with Japan.

• Gulf of El-Zayt 200 MW wind power plant Project in cooperation with Germany, EC and EIB.

Within this context, the 120 MW wind farm project in cooperation with Japan was the first project regis-

tered in the field of wind power. The project was registered in 2007.

We note also that, NREA works as a facilitator and a supporting body for the private sector to invest in

renewable energy projects in Egypt. NREA aims to foster increasing private sector participation

through removing some of the main risks that can delay the investment decisions:

• Earmarking the most suitable locations for future development. More than 7600 square kilometers

of desert lands have been earmarked for future wind projects.

• All permits for land allocation are already obtained by NREA (such procedures are lengthy and

costly worldwide.)

• A Usufruct Agreements for project sites will be signed with the investor, where only the costs of al-

locating the lands and mines clearing preparing, will be paid back to NREA on installments after

operating the project, which will not affect the project's economics.

• Environmental Impact Assessment – EIA, including bird migration study will be prepared by NREA

in cooperation with international consultant.

Other advantages include:

• The ministry of finance has reduced customs duties from 5% to 2% for all renewable energy

equipment and spare parts, which would impact positively on the projects.

• The project company shall get license for power generation from Egyptian Electricity Regulatory

Agency.

• Signing long-term PPAs of 20-25 years.

• Central Bank of Egypt will guarantee all financial obligations of EETC under the PPA.

5.6 Feed-in Tariffs and Obligations

Grid connected renewable energy is rarely cost-effective in its own right. It must be subsidised if it is to

be developed by private industry. There are two main ways of delivering the subsidy. One is by offer-

ing higher prices than those available commercially; the other is by creating a second valuable good

that represents the value of the fact that the energy is generated from renewables. The second

scheme is operated by issuing certificates that certify the renewable origin and then obliging an identi-

fied group (normally suppliers) to buy them. This creates a market and therefore a price.

The offer of higher tariffs may be created by tendering a concession, it being understood that the con-

cession will be granted however the price achieved compares to market prices for electricity. This

stands in continuity with traditional processes of tendering large plants to IPPs; it allows secondary cri-

teria, such as percentage domestic content, to be added to the evaluation criteria. It has recently been

adopted by Denmark for large developments. Higher tariffs made also be operated by a feed-in tariff

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Egypt.doc

that is made available to any generator.

Certificate based schemes define a quantity of renewable electricity to be produced and market forces

identify a price that is unknown at the outset; feed-in tariffs fix a price to be paid for renewable electric-

ity, but it is unknown what volume will be offered.

In Egypt the intention at present is initially to use competitive bidding for large resources on land

owned by the state. The requirement for high domestic content will help support and develop the na-

tional wind industry. The competitive bidding should help reveal prices that developers will accept and

can inform the feed-in tariff that is proposed later for smaller projects.

5.7 Information

It is a legitimate role of government to generate and disseminate knowledge as a public good. The

main need in this respect is for data on the renewable resource. It makes no sense for every devel-

oper to make their own measurements of solar and wind data. The need is especially acute for wind

as the extent of the resource varies locally.

The wind resource in Egypt has been well studied. The New and Renewable Energy Authority (NREA)

has compiled a wind atlas for Egypt with the support of the Risoe National Laboratory. A Wind Atlas

for the Gulf of Suez was published in 1996 and updated in 2003. A Wind Atlas for the whole country

was complied in 2005. Developers would probably wish to make their own measurements before

committing capital and it is in the interests of NREA that they should do this in order to ensure that the

technical risk in this respect lies with the developer. The Atlas though represents an excellent source

of basic information for potential investors.

The Egypt Solar Radiation Atlas was issued in 1992; it comprises a typical meteorological year data

and maps showing that Egypt enjoys high rates of solar radiations. The annual global radiation from

north to south is between 1900 -2600 kWh/m2/year and the direct solar radiation ranges between

2000-3200 kWh/m2/year.

5.8 Industrial Policy

It is important that countries develop their own capacity to manufacture and / or assemble renewable

technologies in parallel with the investment process. This can be done by targeted research, by grants

to appropriate industries and by local manufacturing obligations in tendering.

It is intended, but not specified in the Electricity Law, that the domestic content will be a part of the cri-

teria for selection among competing bids for power plant concessions.

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6. Case Studies

6.1 Case Study on Energy Efficiency Obligation

6.1.1 Background

6.1.1.1 Description of Policy

The draft electricity law in Article 55 makes provision for the holders of transmission and distribution

networks to implement energy efficiency as a condition of their licence. The draft law requires owners

of transmission and distribution licenses to prepare and conform to an annual plan, which has been

approved by the regulator, to carry out projects or programmes in energy efficiency, especially in:

• Management of demand for electric power

• Improvement of the electric power utilization efficiency

• Promotion of equipment used for renewable energy

• Raising consumer awareness with respect to power utilization efficiency

Under the law, the Regulatory Agency shall ascertain to what extent the above have been achieved

upon renewal of the licence. This is a weak provision as it is only reviewed it applies only on renewal

of the licence. A closer regulation of compliance is desirable.

6.1.1.2 Assumptions

Given the tentative nature of the existing draft law, we have made, for the sake of this example, some

assumptions regarding the precise conditions that might be imposed by the regulator.

We assume:

• That network operators are obliged to demonstrate cumulative annual energy savings equal to

(say) 160 GWh per year in the first instance through the implementation of rolling plans of their de-

sign to be evaluated annually,

• That they have to demonstrate compliance with this obligation annually (not apparently foreseen in

present draft),

• That the energy saved will be imputed by the regulator from the activities that they have conducted

and adequately documented,

• Penalties will be imposed annually on deficient licence holders (not apparently foreseen in present

draft).

The behavioural model that underlies the expectations of this instrument is then as shown in the fol-

lowing matrix.

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Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Egypt

Egypt.doc

Table 1: Behavioural Model of Energy Efficiency Obligation and Associated Indicators, Risks and Assumptions

Behavioural model

Indicators

Risks Assumptions Input Output Outcome Impact

Regulator prepares and

publishes consultation

paper with licence

holders and other

stakeholders.

• Time to prepare

documentation and

technical advice ($).

• Responses from li-

cence holders and

other stakeholders

(#).

• Sensitisation of

stakeholders (?).

• Improved instru-

ment (?).


stakeholders (?).

Regulator refines and

publishes final provi-

sions. Requests plans.

• Time to prepare

documentation and


• Licence holders

prepare plans

(Y/N).

Regulator reviews

plans.

• Official time and


• Decision on ac-

ceptability (Y/N).

• Accepted plans in-

corporated into

business plan (Y/N).

• Regulator is less in-

formed than licence

holders and allows

weak plans to pass.

Rejected plans revised

and eventually ac-

cepted.



• Decision on ac-

ceptability (Y/N).

• Accepted plans in-

corporated into

business plan (Y/N).

• Licence holders

obliged to incorpo-

rate efficiency tar-

gets into thinking

(?).

Plans implemented and

reported at end of year.


technical advice to

monitor and evalu-

ate ($).

• View on compliance

of results (Y/N).

• Investments and

other activities im-

plemented ($).

• Efforts made,

costed and docu-

mented (?).

• Cost-effective sav-

ings in energy and

CO2 emissions (GJ

and mt).

• Imputed relation-

ships do not hold in

practice.

• Regulator has the

capacity to analyse

long complex and

detailed compliance

reports.

Efficiency and effec-

tiveness of regulation

analysed by regulator.


technical advice to

monitor and evalu-

ate ($).

• Revised rules (Y/N). • Regulated subjects

adjust programmes

(?).

• Better compliance

and more cost-

effective savings

(GJ and mt).

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Behavioural model

Indicators

Risks Assumptions Input Output Outcome Impact

Penalties applied

where appropriate.

• Revenue received

($).

• Stringency of pro-

gramme empha-

sised among all

regulated subjects

(?).

Cycle repeated to end

of licence period.


technical advice to

monitor and evalu-

ate ($).

• Annual plans more

rigorous and con-

trols more func-

tional (?).

• Investments and

other activities im-

plemented.

• Regulated subjects

comply more effec-

tively (?).

• Savings in energy

and CO2 emissions

(GJ and mt).

• Imputed relation-

ships do not hold in

practice.

• Regulated subjects

identify and exploit

weaknesses.

• Regulator has the

capacity to analyse

long complex and

detailed compliance

reports.

Final evaluation at end

of licence period.


technical advice to

monitor and evalu-

ate ($).

• Opinions on com-

pliance that are in-

troduced into nego-

tiations on licence

renewal (Y/N).

• Poorly performing

licence holders dis-

advantaged in li-

cence renewal (?).

• Compliance re-

quirements taken

sufficiently seriously

to affect licence re-

newal.

Report by regulator on

the effectiveness of the

obligation.


technical advice to

monitor and evalu-

ate ($).

• Better understand-

ing of the costs,

benefits and poten-

tial of the instru-

ment (Y/N).

• Well documented,

cost-effective sav-

ings in energy and

CO2 emissions (GJ

and mt).

• Improved manage-

ment of networks

(?).

Note on indicators: • inputs, i.e. the financial, human, technical or organizational resources used in the endeavour • outputs are objectively verifiable indicators that demonstrate the progress made in implementing the measures • outcomes are the immediate effects on the regulated subject • impacts are direct measurements of the improvements that the programme is designed to bring about

- 23 -


Egypt.doc

Note on symbols: • $ indicates indicator is measured in financial terms • # indicates indicator is measured in numbers • Y/N indicates indicators is a yes or no observation • ? Indicates an indicator that is intrinsically hard to quantify and measure, but upon which a qualitative judgement may be formed

- 24 -



Egypt.doc

6.1.2 Cost-Benefit Analysis

6.1.2.1 Scope of the Analysis

The cost-benefit analysis that is described in this section draws upon the indicators identified in the

preceding analysis. It is a very simplified indication of how such an exercise should be conducted, the

data required and its treatment; it is based loosely on the evaluation of the UK energy efficiency obli-

gation, (Lees, 2008)2.

In order to make a complete evaluation of the economic benefits of an energy efficiency obligation, it is

necessary to estimate the total cost of the measures and how they are allocated among suppliers,

customers and possibly other parties (e.g. government, municipalities). The total cost reflects the ac-

tual cost of the energy efficiency measure including installation as well as the indirect costs of the en-

ergy supplier such as marketing, monitoring, reporting and administration.

6.1.2.2 Cost for Energy Efficiency Technologies

The UK experience indicates that innovative ways of supporting energy efficient products, especially

appliances, by subsidising energy efficiency components during the manufacture of the product has

greatly reduced the overall subsidy levels required to stimulate the purchase of the energy efficient

product. The traditional DSM methodology of identifying separate contributions of suppliers and cus-

tomers to the cost of the measure at the point of sale is no longer sufficient.

Table 2 below is an indication of the kind of measures that the utility might undertake to meet its obli-

gation, of the cost and impact of the individual measures and the accumulated consequences. By cost

in this context we mean the cost to the utility of the promotional effort required to create the specified

level of activity. This can be delivered through publicity, grants, loans or whatever instrument the utility

thinks favourable.

The costs and performance indicators have been proposed by comparison with experience elsewhere.

They are not expected to be accurate, but are believed to be sufficiently close to give some idea about

the cost-effectiveness of the instrument in the Egyptian context. The costs are extremely hard to as-

sess, for example with cold appliances the cost to be estimated is the cost of upgrading from a less ef-

ficient appliance to a more efficient appliance averaged over a likely set of appliances in use by the

target group. This analysis needs to take into account the great leverage that can be obtained by sup-

pliers working with manufacturers and accepting part of their costs/risks. As noted, we have based our

assessments on the figures used in the UK evaluation, very roughly adjusted for Egyptian circum-

stances, e.g. smaller and less efficient appliances. As a start we have assumed that the utility pays

one half of the total project costs, so the costs to the customer would be identical. It is recommended

that an appropriate national agency repeat and expand this exercise in more detail in order to give

some guidance to utilities as to what is expected from the obligation.

The entry "deadweight" in the Table indicates the percentage of customers taking up options who

would anyway have invested. The impacts from this group cannot be assigned to the programme, but

the costs are costs to the programme. It is always a difficult figure to assess. The value of 20% is

characteristic of US DSM programmes and also of UK experience in the implementation of its obliga-

tion. It is logical that a utility should focus its efforts under an obligation on low income customers, be-

2 Lees, E. (2008). Evaluation of the Energy Efficiency Commitment 2005-08. London: Report to the Department of Energy

and Climate Change.

- 25 -



Egypt.doc

cause these customers will normally pay concessionary tariffs and therefore the loss of income to the

utility is minimised. The danger of "deadweight losses" or "free-riders" is also reduced because this of

class of consumer is least likely to make the investments on their own account.

Table 2: Cost Data for Energy Efficiency Measures

General Data for the Analysis

The general data used for the analysis are:

For the residential users the tariff scheme considers 6 classes, based on the average monthly con-

sumption. For the lowest tariff class (up to 50 kWh per month) the tariff is 0.05 LE / kWh), and for the

highest tariff class the tariff is 342 LE / MWh (for consumptions of more then 1000 kWh / month).

The analysis assumes that the utility will be responsible for 50 % of the total cost for the EE measures.

This means, the utility implements a grant programme to induce the consumers to use certain types of

equipment.

The analysis should be considered as an economic analysis, because no taxes are included. Another

important aspect is not explicitly taken into account is the commercial electricity supply cost for the util-

ity.

The analysis considers the following perspectives:

• Perspective of the whole country:

In this case the alternatives to be compared are

- Cost for a new gas fired power station (CCGT unit)

- Total cost for the energy efficiency measure

- 26 -



Egypt.doc

• Perspective of the utility:


- Cost for a new gas fired power station (CCGT unit)

- Total 50% cost for the energy efficiency measure, which have to paid by the utility

• Perspective of the electricity user (residential sector):


- Tariff according to the consumption class

- Total 50% cost for the energy efficiency measure, which have to paid by the utility

For the three perspectives the assessments are given in Table 3, (a) - (c)

6.1.2.3 Perspective of the Country

The perspective for the country is illustrated in Figure 3, the respective data are given in Table 3 (a). It

can be easily seen that the considered energy efficiency measures are cost effective because the unit

costs are lower than the marginal cost of electricity supply. Under the national perspective (consider-

ing 100% of the costs for the EE measures, the average cost is 0.024 Euro/kWh, while the marginal

cost of electricity supply is 0.0502 Euro/kWh. This means, that all measures are cost efficient.

Figure 3: Country - Comparison of Total Unit Cost for EE Measures and Marginal Cost of

Electricity Supply

0.00

0.01

0.02

0.03

0.04

0.05

0.06

Insula

tion o

f

hot w

ate

r

tanks

Com

pact

fluore

scent

lam

ps

Refr

igera

tors

Fridge

freezers

Fre

ezers

Washin

g

machin

es

Sola

r w

ate

r

heatin

g

Energy efficiency measure

Eu

ro-c

en

t / kW

h

EE measure

Supply cost

The economic internal rate of return for the considered EE programme amounts to 17%, and the eco-

nomic NPV amounts to 3.3 million Euro.

- 27 -



Egypt.doc

6.1.2.4 Perspective of the Utility

The average cost to the utility of electricity saved (50% of the total cost for the respective EE meas-

ure), in our indicative example, is 0.012 Euro/kWh. The gain to the utility from the programme is calcu-

lated as follows:

Gain = Supply Cost - Lost Revenues - Cost of Measure

As we do not know the financial supply cost of the utility we cannot judge the return to the company. If

the supply cost were the marginal economic cost of supply (shown in the Figure) then it is fairly clear

from inspection that the quantity "Supply Cost - Lost Revenue" is large for the consumers on low tariffs

and generally exceeds by a comfortable margin the cost of the measures. This is not true in the case

of the consumers on higher tariffs.

We know that the financial supply cost of the utility is well below the marginal economic cost so the

quantity "Supply Cost - Lost Revenue" is less than appears from the diagram. We can deduce that the

utility probably has little or no interest in applying its obligation to consumers on high tariffs, but may

(we cannot be sure) gain financially from targeting consumers on low tariffs.

In a certain sense this analysis is academic, because the utility has an obligation and is required to

perform it, but it is useful nevertheless to know how the implementation of that obligation impacts on

its own finances and that the utility might not have a financial benefit from actions which are fully justi-

fied under an economic perspective.

Figure 4: Utility - Comparison of Total Unit Cost for EE Measures and Marginal Cost of Elec-

tricity Supply

0.00

0.01

0.02

0.03

0.04

0.05

0.06

Insula

tion o

f

hot w

ate

r

tanks

Com

pact

fluore

scent

lam

ps

Refr

igera

tors

Fridge

freezers

Fre

ezers

Washin

g

machin

es

Sola

r w

ate

r

heatin

g


Eu

ro-c

en

t / kW

h

EE measure

Supply cost

Tariff-low

Tariff-high

- 28 -



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6.1.2.5 Perspective of the Electricity User

For this case study it is assumed that the electricity user pays 50% of the cost for the different EE

measures, the electricity utility will pay a subsidy to cover the remaining costs. The electricity con-

sumer compares these costs with the electricity tariff, applicable for the respective consumption levels.

The situation is illustrated in Figure 5.

Figure 5: Electricity - Comparison of Total Unit Cost for EE Measures and Marginal Cost of

Electricity Supply

0.00

0.01

0.01

0.02

0.02

0.03

0.03

0.04

0.04

0.05

0.05

Insula

tion o

f

hot w

ate

r

tanks

Com

pact

fluore

scent

lam

ps

Refr

igera

tors

Fridge

freezers

Fre

ezers

Washin

g

machin

es

Sola

r w

ate

r

heatin

g


Eu

ro-c

en

t / kW

h

EE measure

Tariff-high

Tariff low

From this Figure 5 it can be seen that nearly all of the EE measures are cost efficient for the electricity

user for the two tariff levels considered. Only the solar water heater is not cost efficient for the lower

tariff.

The decision situation for the electricity user depends on the tariff level:

• Low tariff: Considering the low tariff, the whole EE programme would be of interest, the IRR would

be negative and the NPV would be -3.47 million Euros. If the solar water heater would be excluded

the IRR would amount to 6%.

• High tariff: Considering the high tariff, the whole EE programme would be of high interest for the

electricity consumer, the IRR for the user side amounts to 61% and the NPV would amount to

14.23 million Euros.

- 29 -

Economical, Technological and Environmental Impact Assessment of National Regulations

and Incentives for RE and EE: Country Report Egypt

Egypt.doc

Table 3: Cost Benefit Analysis

a) National Perspective

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b) Utility Perspective

- 31 -



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c) Electricity Consumer Perspective

- 32 -



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6.1.3 Conclusion

The conclusions from this case study are:

Methodology

The case study demonstrates the advantages of developing deconstructed versions of policy prescrip-

tions as an aid to analysis and to stimulate focused debate among stakeholders.

In the case of the energy efficiency obligation the deconstruction reveals the complexity of the interac-

tions among different tariff groups and the interest of the state, the user and the utility. This under-

standing helps to frame the definition of the policy instrument and the cost-benefit analysis.

Economic Assessment

The economic assessment shows that under our assumptions, the results of an efficiency obligation

are likely to be positive for the country (economic analysis).

The utility may or may not benefit in commercial terms; the outcome depends on a subtle balance be-

tween the costs of supply and the lost revenues from the users that it manages to target. If the utility

benefits from a subsidised supply of fuel then its financial gain may be small or negative. Strictly, this

does not matter as the regulation imposes an obligation on the utility that it must meet.

What is clear is that the utility should focus its efforts as far as practical on consumers enjoying con-

cessionary tariffs, where its lost revenue is least.

The practical limit on this focus is that there must be a financial incentive for the user. Most of the effi-

ciency measures studied provide, with our assumptions, some gains to consumers, but not solar heat-

ing. If the utility is required to include some solar heating in its portfolio then it needs to target high in-

come consumers.

Overall the analysis illustrates neatly the advantages of the obligation at a national level and the stra-

tegic interest of the utility in balancing its programmes against user groups according to the lost reve-

nue and the residual incentive. Once the economic feasibility of EE measures is proven, it is neces-

sary to develop and appropriate incentive scheme (tariffs and grants) so that for each party (user &

utility) there will be a gain in implementing the EE programme.

- - 33 - -



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6.2 Case Study on Competitive Bidding for Wind Energy

6.2.1 Background and Context

The purpose of this note is to demonstrate the processes of evidence-based policy making (EBPM)

and theory-based evaluation (TBE). These techniques are well-known in the literature and have been

widely applied, but not generally to technical areas of policy such as energy efficiency and renewable

energy. There is potential for application in these areas because the methodologies provide a system-

atic basis for analysis and debate among stakeholders around a common and clear statement of the

policy intervention that can be maintained and improved throughout the project cycle from formulation,

through implementation, monitoring and evaluation.

The basic expression of this methodology is the behavioural model that underlies our understanding of

the reaction of stakeholders to the policy instrument.

The example that we choose in this case for illustration is the analysis of competing instruments for

the promotion of wind energy in Egypt.

6.2.1.1 Promotion of Private Investment in Wind Energy in Egypt

Egypt has a very fine wind potential, especially around certain areas of the Red Sea. Much of this land

is in government hands so the possibility exists to develop the resource through the deployment of

large, contiguous wind arrays.

There are also somewhat less favourable sites elsewhere in Egypt where smaller developments would

be possible and where the land is presently in private ownership.

Two policy instruments for developing private investments in wind energy are considered in our analy-

sis:

• Competitive Bidding for concessions based on power-purchase agreements negotiated through

tender,

• Standard power-purchase agreements based on a feed-in tariff.

6.2.1.2 Scope of the Case Study

This Case Study considers two policy instruments to promote wind power. One is a system of com-

petitive bidding of specific favourable sites. The other is the adoption of a feed-in tariff at a predeter-

mined rate.

The case study applies the concepts of evidence based policy formulation and theory based evalua-

tion with the intention to demonstrate how these techniques can clarify analysis. The study covers the

following three aspects:

• Evidence based policy preparation: For both policy instruments behavioural models are developed

and the respective expected impacts are analysed.

• Economic assessment of the wind energy option: An economic assessment of wind energy for

Egypt is presented indicating the main factors determining the economic viability of this option.

• Conclusions regarding the utility and application of the methodology and to some extent the sub-

- - 34 - -



Egypt.doc

stance of the policy instruments analysed.

6.2.2 Comparison of Policy Instruments for the Promotion of Wind Power

6.2.2.1 General Context

6.2.2.1.1 Specification of the Alternative Policy Instruments

For the following analysis the following simplifying assumptions are made:

• The objective of the Egyptian Government is to develop the wind power use of a well specified

geographical area with an estimated wind power potential of 250 MW.

• For this area wind data are available and are made available to interested wind developers, but the

Egyptian Government does not assume responsibilities.

• The two options are:

- Competitive bidding for the whole area offering 250 MW. The Egyptian Government would se-

lect the most attractive bid with the lowest tariff requirement.

- The geographical area is separated into 10 similar lots offering a wind energy potential of about

25 MW with a predetermined feed-in tariff

For these two policy option the policy instrument and the concession awarding procedure are elabo-

rated below.

6.2.2.1.2 Wind Policy Objectives

The objectives of the Egypt Government in developing the wind power potential of the country are:

• Optimal development of the resource,

• Lowest cost and most manageable grid extension,

• Minimal administrative costs,

• Surprise-free procedures,

• Strong competitive pressures for cost reduction on manufacturers,

• Maximisation of local content and development of local manufacturing capability,

• Lowest project price,

• Predictability of generation.

In achieving these objectives the government would need to consider how stakeholders will adapt to

specific instruments. These concerns can be expressed through subsidiary objectives:

• Transparent and non-discriminatory allocation of sites,

• Clear criteria for choice among offers,

• How developers will manage risks in the electricity market,

• How developers will manage risks in the certificate market.

- - 35 - -



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6.2.2.1.3 Assumptions

We assume in both cases that the certificates of emission reductions (CERs) issued under any CDM

certification process are assigned to the developer. It does not significantly affect the analysis if they

are assigned to other parties. The overall economic advantage of wind power is unaffected by the al-

location of costs and benefits to different parties. The allocation will determine whether the different

parties will see a benefit for them as individual entities. The developer will be rewarded by a combina-

tion of the PPA and carbon credits. If he receives the carbon credits then the PPA will be lower.

The assignment of the carbon credits should be to the party that perceives the highest value and/or

lowest risk. The optimal allocation of CERs will depend on circumstances. It might be best to attribute

them to the developer if it is a large scale plant done by major players on the world scale who would

be better able to market the certificates than the state. For smaller projects, the state may be able to

consolidate the CERs and manage things better.

6.2.2.2 Competitive Bidding

6.2.2.2.1 Specification of the Option

For the forthcoming discussion of the two options, it is necessary to specify the competitive bidding

option (even to simplify the option certain extent for the transparency of the discussion):

• Egypt will make available government owned land as the basis for a concession (for example 250

MW) for wind energy supply,

• The concession will be auctioned in a two-stage procedure (pre-qualification and competitive bid-

ding),

- Pre-qualification: The admission criteria will be proven experience and financial capacity,

- Competitive bidding: Selection of the most attractive bid.

• For the bid-evaluation there will be:

- Bid acceptance criteria: The qualification of the bidder is acceptable

- Ranking criteria: A set of ranking criteria based on the electricity sector policy options will be

applied.

• Concession negotiation with the first ranked bidders: With the winner the conditions of the conces-

sion contract, the tariff and other technical conditions will be negotiated (concession contract and

long-term PPA).

• Project implementation and monitoring: The Egyptian Government will carefully monitor the project

implementation.

• In parallel the next competitive bidding round can be launched.

6.2.2.2.2 Advantages

This option has the following advantages:

• Low bid preparation effort: The basis for the tender is are the delimitations of the concession

area and the available data regarding the wind potential

• Site development: The burden and responsibility of the site development remains with the inves-

tor.

• Market response: The Government receives and immediate response from potential investors.

• Integration into the national electricity system: The feed-in point is defined.

- - 36 - -



Egypt.doc

6.2.2.3 Feed-in Tariff

6.2.2.3.1 Specification of the Option

• The Government determines the feed-in tariff, which offer attractive development potentials and

should provide incentives for the development of pilot projects.

• The Government develops a comprehensive legal and contractual framework of feed-in tariffs and

the technical and contractual conditions to be applied.

• The feed-in tariff will be guaranteed in form of long-term power purchase agreements (PPA).

• Investors will evaluate the available information and will develop their sites. In the general case,

sufficient sites are available so no competition for specific sites is expected. In the specific case of

the 10 x 25 MW blocks, the concessions will be auctioned.

• The investment proposals will be evaluated according to well specified criteria, which are known to

all interested parties.

• Preparation of the following generation of wind projects: Based on the gained experience the Gov-

ernment will revise the feed-in tariff and conditions for the next-generation wind projects.

6.2.2.3.2 Advantages of this Option

The advantages of this options are:

• Programme administration: Once the general conditions and the feed-in tariff are defined the

programme management and transaction costs are low.

• Entrepreneurial freedom: The investors know the conditions and have the maximum freedom to

invite partners and to develop projects.

• Market response: The attractive feed-in tariff and the legal and contractual framework facilitate the

development of the project.

• Participation of national investors: The feed-in tariff offers also for national investors good busi-

ness opportunities because all sizes of wind parks can be developed.

6.2.2.4 Evidence Based Policy

We specify the behavioural models for these two policy instruments as a form of logical framework in

which the successive steps of policy implementation are shown in the first column and then in subse-

quent columns are listed various indicators, risks and assumptions. The successive steps of the policy

may or may not specify recognisable behavioural assumptions; it depends very much on the type of

policy investigated.

The indicators that we adopt are measures of input, output, outcome and impact. By these terms we

mean the following:

• Inputs are the financial, human, technical or organizational resources used in the endeavour,

• outputs are objectively verifiable indicators that demonstrate the progress made in implementing

the measures,

• outcomes are the immediate effects on the regulated subject,

• impacts are direct measurements of the improvements that the programme is designed to bring

about.

- - 37 - -



Egypt.doc

The behavioural model is a formal description of the process of implementation, the concerns to be

raised at each stage and the measures that are to be adopted to make everything is working as ex-

pected. It provides a structure for the analytical steps and indicates the evidence that should be

sought at each stage to support assertions or on which to found analysis. It allows the issues that

might affect implementation to be identified and it allows different stakeholders to debate around a

clear and concrete representation of the policy. In later stages it serves as the basis for monitoring and

evaluation.

Behavioural models for the two policy instruments considered here are shown in Tables 4 and 5.

38



Egypt.doc

Table 4 Behavioural model of competitive bidding for wind IPP and associated indicators, risks and assumptions

Behavioural

model

Indicators

Input Output Outcome Impact Risks Assumptions

• Transmission

company pre-

pares network

expansion plan;

agrees priorities

with regulator

• Time of officials

and Transco

staff ($)

• Transmission

expansion plan

and agreed re-

quirements and

restraints in de-

velopment of

wind site

• Prepare and

publish request

for proposals

including re-

quirements for

domestic con-

tent.


to prepare RFP

($)

• Consulting con-

tract to assist

($).

• Documents

prepared (Y/N).

• Foreign and

domestic inves-

tors and manu-

facturers per-

ceive profitable

opportunities.

• Number of pro-

spective inves-

tors that request

bid documents

and seek to

prequalify (#)

• Sufficient local

capacity to al-

low multiple

competitive

bids.

• Bidders arrange

consortium with

local partners.

• Consortia

formed (#)

- 39 -



Egypt.doc

Behavioural

model

Indicators


• Prepare and

submit prequali-

fication


to assess sub-

missions ($).

• Possibly con-

sulting advice

($).

• Number of bids

submitted: value

of domestic

content ($).

• Some exposure

of a range of

domestic inves-

tors (?).


some foreign in-

vestors to pros-

pects (?).

• Qualified bid-

ders appoint

agent for meas-

urement

• Agent ap-

pointed. Meas-

urements com-

pleted on

schedule (Y/N).

• Bidders will co-

operate on

measurement

• Bids prepared

submitted and

evaluated.

• Competitive

bidding pro-

motes low cost.


to assess sub-

missions and

prepare con-

tract ($).

• Possibly con-

sulting advice

($).

• Winning bid se-

lected (Y/N).

• Number of bids

submitted.

• Terms of pro-

posed PPA (#).

• Value of domes-

tic content ($).

• Some exposure

of a range of

domestic inves-

tors (?)


some foreign in-

vestors to pros-

pects ($).

• Bids are higher

than expected.

• Bidders dis-

count value of

CERs.

• Risk assessed

as moderate.

• Winner deposits

commitment fee

/ performance

bond.

• Winner with-

draws. Risk as-

sessed as low.

- 40 -



Egypt.doc

Behavioural

model

Indicators


• Selected bid is

constructed and

commissioned.

• Construction

schedule is ob-

served because

of contract pen-

alties.

• Power plant

commissioned

(Y/N).

• Winner with-

draws. Risk as-

sessed as low.

• Time overruns.

Risk assessed

as moderate.

• Plant operates

with high avail-

ability because

of contract pen-

alties.

• Nominal cost of

balancing

power ($)

• Time to monitor

and evaluate

plant perform-

ance ($).

• Volume of elec-

tricity generated

(GWh).

• Volume of fuel

purchased for

power plant

(GJ).

• Financial cost of

power acquired

by Transco un-

der PPA ($).

• Value of gas

saved at oppor-

tunity cost ($).

• CO2 emissions

are reduced

from baseline;

gas burn is;

domestic manu-

facture is

strengthened;

net cost to

country is ac-

ceptable.

• Time to monitor

and evaluate

plant perform-

ance ($).

• Value of domes-

tic content ($).

• Volume of CO2

emission reduc-

tion (mt).

• Value of carbon

emission reduc-

tions ($).

• Net cost of pro-

ject ($).

Note on symbols: • $ indicates indicator is measured in financial terms • # indicates indicator is measured in numbers

- 41 -



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• Y/N indicates indicators is a yes or no observation

- 42 -



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Table 5 Behavioural model of feed-in tariff for wind IPP

Behavioural

model

Indicators


• Prepare legisla-

tion and regula-

tions necessary

to implement

FIT


and legislature

($)

• Published law

and regulations

(Y/N)

• Possible delays

in finding legis-

lative time

• Transco and

Regulator col-

laborate to de-

fine terms and

conditions to

ensure optimal

development of

sites


and Transco

staff ($)

• Conditions de-

fined (Y/N)

• Supplementary

conditions

added to appli-

cations for FIT

• Control of de-

velopment will

be difficult

• Regulator and

Ministry col-

laborate to

specify re-

quirements for

local content


in Ministry and

Regulator ($)

• Requirements

defined (Y/N)

• Supplementary

conditions

added to appli-

cations for FIT

• Status of local

manufacturers

in negotiations

enhanced

• Insufficient local

capacity; may

be a restraint

on competition

• Monitoring local

content may be

problematic

- 43 -



Egypt.doc

Behavioural

model

Indicators


• Explain and

promote con-

cept; foster

stakeholder

groupings - ex-

perts, landown-

ers, municipali-

ties, etc


in Ministry and

Regulator ($)

• Promotional ma-

terials, meetings

(#)

• Sensitised

stakeholders;

awareness of

opportunities (?)

• Stakeholder

bodies (#)

• Local and for-

eign investors

develop pro-

jects and made

preliminary ap-

proach to regu-

lator

• Time to prepare

feasibility stud-

ies ($)

• Consulting

support ($)

• Feasibility stud-

ies (#)

• Consortia

formed (#)

• Tariff set at lev-

els that pro-

mote too much

or too little in-

terest

• Local investors

feel comfortable

with technical

commercial and

financial issues

and with operat-

ing on the car-

bon market

• Detailed meas-

urements of

wind resource

performed

• Time of special-

ised consult-

ants ($)

• Wind regime de-

fined (Y/N)

• Costs of acquir-

ing data seen

as prohibitive

• Final project

form defined; fi-

nance ar-

ranged; land

rights acquired.

Submitted to

regulator

• Time of consor-

tia and consult-

ants ($)

• Final project

specification

and implemen-

tation arrange-

ments (#)

• Projects author-

ised (#)

- 44 -



Egypt.doc

Behavioural

model

Indicators


• Auction of con-

cession where

there are com-

petitive bids


in Ministry and

Regulator ($)

• Winning bid se-

lected (Y/N)

• Projects author-

ised (#)

• Transco adapts

network expan-

sion plan to

cope with timing

and nature of

developments


in Ministry and

Regulator ($)

• Expansion plan

revised (Y/N)

• Authorised pro-

jects con-

structed and

commissioned

• Construction

schedule ob-

served because

of commercial

interest of

owner

• Equipment,

construction

costs, supervi-

sory costs ($)

• Completed plant

(Y/N)

• Power plant

commissioned

(Y/N).

• Developers

may delay or

withdraw for fi-

nancial or tech-

nical reasons –

little means of

control

• Plant operates

with high avail-

ability because

of commercial

interest of

owner

• Nominal cost of

balancing

power ($)

• Electricity gen-

eration (GWh)

• Fuel displaced

(GJ)

• Volume of elec-

tricity generated

(GWh).

• Volume of fuel

purchased for

power plant

(GJ).

• Financial cost

of power ac-

quired by

Transco on

terms of FIT ($).

• Value of gas

saved at oppor-

tunity cost ($).

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Behavioural

model

Indicators


• CO2 emissions

are reduced

from baseline;

gas burn is re-

duced from

baseline; do-

mestic manu-

facture is

strengthened;

net cost to

country is ac-

ceptable.

• Time to monitor

and evaluate

plant perform-

ance ($).

• Value of do-

mestic content

($).

• Volume of CO2

emission reduc-

tion (mt).

• Value of carbon

emission reduc-

tions ($).

• Net cost of pro-

ject ($).

• CO2 emissions

are reduced

from baseline;

gas burn is re-

duced from

baseline; do-

mestic manu-

facture is

strengthened;

net cost to

country is ac-

ceptable.

Note on symbols: • $ indicates indicator is measured in financial terms • # indicates indicator is measured in numbers • Y/N indicates indicators is a yes or no observation

46



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6.2.2.5 Result of the Comparison

Through consideration of this deconstructed specification of the policy instrument we can begin to as-

sess the merits of each instrument according to the objectives of the policy. The results of this com-

parison are shown in Table 2-3.

This case study is intended purely as an indication of the policy process and its relationship to evi-

dence and analysis. It is not intended to provide a definitive answer to the question of what policy in-

strument is desirable.

It does show that either instrument can be elaborated to provide a convincing option for implementa-

tion; it identifies some of the issues that need further exploration and some of the risks that need to be

managed before implementation is initiated.

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Table 6: Criteria for Choice among Options

Criterion Competitive Bidding Feed-in Tariff

Key objectives

Optimal development of the re-

source

Letting a large concession as a whole should reduce the dan-

gers of interference from sub-optimal location of turbines.

Uncoordinated development of sites could limit production from

the combined area. Might be avoided by detailed monitoring by

regulator, but at considerable effort.

Lowest cost and most manage-

able grid extension

A large concession in common ownership should ease the

problems over locating, sizing and timing grid interconnections.

Feed-in tariffs create a high degree of unpredictability in de-

mand for network reinforcement. Where projects are small, as

is the case with most existing feed-in systems, this may not be

a problem, but in the development of a large resource in

piecemeal fashion it might be difficult to manage.

Minimal administrative costs

These are significant in terms of preparing tender documents

and evaluating bids. Small in comparison to the project size.

There is a substantial effort required to provide the legislation

and regulation required to implement the policy. Subsequently

costs are low as tariff is for a standardised product.

Surprise-free procedures

There is the danger of withdrawal of the preferred bidder at a

late stage. The likelihood can be reduced by clear specification

of objectives and conditions and by consistency in negotiation.

In the event of such a withdrawal the bidder should forfeit

commitment fees and negotiations begun with the bidder next

in line.

Surprises can originate from unexpected responses to tariff

levels especially at early stages (see above).

Strong competitive pressures

for cost reduction on manufac-

turers

A concession implies a quota of output fixed within a narrow

range. There is some evidence that in quota systems because

the volume of turbine sales is fixed manufacturers are not moti-

vated to cut prices to extend sales. The value of this argument

in Egypt is debatable, because manufacturing technology is de-

termined by international costs and markets.

A feed-in tariff is alleged to encourage price cutting to encour-

age higher volumes of sales at lower costs in turn leading to

lower costs through higher volumes. There is some evidence

that this has happened on European markets, but the rele-

vance of this to the Egyptian case is low.

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Maximisation of local content

and development of local manu-

facturing capability

This is easily incorporated into the concession bidding. A lower

limit can be set and a clear weighting applied to content above

that limit. Monitoring of compliance is relatively straightforward

because there is just the single project to monitor. Penalties for

non-compliance can be exacted.

A lower limit of local content can be set as part of the regula-

tion. It would be more difficult to provide incentives to exceed

the limit. Compliance would be more cumbersome because of

the larger number of projects, but not impossible.

Lowest project price

Tender of a concession should ensure that the lowest cost and

most efficient operator wins the project and offers the lowest

price electricity.

There is a significant problem in determining the level of feed-in

tariffs. Feed-in tariffs if set too low will mean that no projects

are offered and if set too high will mean that many are offered

and the output is costly. Over time, by trial and error this can be

corrected.

Predictability of generation

Saving major failings of the bidding system the predictability of

the timing of generation additions should be good. The worst

scenario is that no bids are received, which is unlikely. If the

preferred bidder withdraws, there will be the next best candi-

date. Large commitment fees should be paid on contract set-

tlement and penalties for delays.

The development is less predictable; it depends upon how at-

tractive the feed-in tariff is.

Subsidiary Objectives

Transparent and non-

discriminatory allocation of sites

This is not an issue for the competitive tender, because the site

is allocated to the preferred bidder.

It is not obvious how to offer sites under a feed-in tariff. First-

come first served would be very hard to administer objectively

and transparently in conjunction with necessary technical quali-

fications. Offering a site to the best technical proposal would

equally be difficult; it would require penalties linked to deficient

performance to avoid spurious technical claims. Auctioning the

sites would seem to be the best option. That would entrain

considerable administrative costs, but would bring with it some

of the advantages of the competitive bidding process.

Minimise data acquisition costs Competitive tender allows bidders to appoint a joint agent for

measurement.

Under FIT a joint agent is less feasible. Data costs may be

higher.

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Criteria for choice

It may be difficult to choose among competing offers unless the

technical criteria and weighting of criteria are carefully consid-

ered and designed. This can be done. One option would be a

base requirement in terms of peak capacity, load factor, do-

mestic content with the decision based on the PPA (evaluated

according to a specified formula) adjusted by marginal im-

provements in terms of the base criteria.

There is no problem of this kind. Proposals need to be

screened for environmental, planning and technical acceptabil-

ity, but nothing else.

Risk for developer in electricity

market

The developer faces no market risk for electricity; in the tender

he proposes a PPA and that will be in force throughout the du-

ration of the project.

There is no electricity market risk for a developer in a feed-in

tariff. Income is assured over the lifetime of the project.

Risk for developer in certificate

market

The project will only be financially viable with large financial

subsidies from the carbon emission reductions. The future

value of these is unknown and is a significant risk to the devel-

oper. A large developer with a large portfolio of plant and ex-

perience in the carbon market and strategies for that market,

may perceive this risk less highly than a smaller developer un-

der the feed-in tariff scheme.

Unless the GoE proposes to take on the market risk of the

CERs by offering a high feed-in tariff and keeping the CERs,

the developer under the feed-in tariff is exposed to the same

risks as for the concession. The smaller projects under the

feed-in tariff may imply smaller companies to develop them and

consequently less experience of the carbon market and less

willingness to be exposed to that uncertainty.

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6.2.3 Economic Cost-Benefit Assessment

6.2.3.1 Methodology Applied

To illustrate the importance of a reliable and transparent regulatory framework upon the decision of

private wind developers and upon the Egypt economy, an economic assessment of the wind energy

option will be presented.

The economic assessment of the wind energy option compares two alternatives to produce electric-

ity in Egypt:

• Combined Cycle Gas Turbines (CCGT) using natural gas,

• Wind energy.

The key parameters for the assessment are:

• Wind energy investment costs and potential wind energy production

• Investment costs for CCGT and performance data,

• Cost for natural gas,

• Return on equity requirements of independent power producers (IPP) for wind energy and CCGT

developers,

• Opportunity costs for capital in Egypt.

In the following sections the data base and the results of this comparison are presented. The presen-

tation makes reference to a similar study, which are recently executed by the International Institute for

Sustainable Development (IISD)3.

The considered planning period is 2010 till 2030. The general parameters are:

For the required return on equity the following assumptions were made:

• Wind energy developers: Considering the uncertainties related to wind energy in Egypt the devel-

opers will require a return on investment of 20%,

• CCGT developers: The investment in new CCGT units in Egypt is considered as a reliable busi-

ness, therefore a return on investment of 10% is considered as satisfactory.

Opportunity costs of capital in Egypt: 10%.

It has to be taken into consideration that the assessment is done in constant prices; this implies that

the stated interest rates are real values. Only for natural gas a price increase is considered over the

planning period.

6.2.3.2 Assumptions and Data Base

3 International Institute for Sustainable Development (IISD): Clean Energy Investment in Developing Countries - Wind Power

in Egypt / Draft for discussion (April 2009).

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6.2.3.2.1 Wind Energy

The data used for the assessment of the wind energy option are shown in Table 7. In this table a dif-

ference is made between the cost of the wind energy supply to be under the responsibility of the wind

energy IPP and the cost for stand-by capacity to be covered by the Egyptian electricity sector (or

CCGT IPPs).

Table 7: Data for Wind Energy

These assumptions are in accordance with the IISD Study:

• Investment costs: 1500 USD/kW,

• Cost for back-up: 600 USD/kWh and 330 USD/kW,

• Capacity factor: 45%, which corresponds to the expected operation condition of new wind energy

parks in Egypt,

6.2.3.2.2 Opportunity Costs for Natural Gas

Recent Price Development for Natural Gas

There is a surplus of natural gas in Egypt. The opportunity costs is thus the net value of export, more

specifically, as there is limited gas pipeline capacity for export, it is the net value of export as liquefied

natural gas (LNG). The prices do change quite significantly, as can be seen in Figure 6.

The cost for liquefaction has to be taken into account to determine the opportunity cost of Egypt's

natural gas. The resulting opportunity costs for Egypt's natural gas are in the range of 2.5

USD/MMBTU to 11.5 USD/MMBTU.

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Figure 6: US LNG Prices

Source WTRG Economics

Price Forecast Based on Crude Oil Prices

The US Department of Energy/Energy Information Agency has produced long-term forecasts of crude

and petroleum product prices to 2030 (EIA, 2009). This is an authoritative source; it may not be right,

but a great deal of effort and analysis has gone into its creation and it is a reasonable source to adopt.

The Figure 7 shows the forecasts of crude prices in real and nominal terms to 2030.

It is statistically clear that fuel prices are strongly correlated over the medium term. We use a formula

to describe a plausible relationship between LNG prices and crude oil prices. This formula is derived

from regression studies of the price of LNG in the Mediterranean basin. We recognise its limitations

and we accept that the nature of the long-term correlation between gas and crude is not clear, but it

offers a starting point to forecast LNG prices.

The formula we use is: y = 0.0805 x + 2.852

Where, y = LNG price in $/MMBTU and x = price of crude in $/tonne

This procedure gives a central case for LNG as shown in Figure 4-2. (Note: 1 MMBTU = 1.05 GJ).

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Figure 7: Forecasts of crude prices to 2030 (DOE/IEA)

0

20

40

60

80

100

120

140

160

180

200

2010 2015 2020 2025 2030

$/bbl Crude Oil (weighted

average) 2007 US$/bbl

" nominal prices

We propose to use real 2007 prices for the cost benefit analysis to avoid having to link the power pur-

chase agreement to inflation.

For the economic assessment the following prices are used:

• 2010: 8.5 USD/MMBTU

• 2020: 18.0 USD/MMBTU

The price development 2010 to 2030 was determined by linear interpolation.

Figure 8: Derived forecast of international LNG prices

0

2

4

6

8

10

12

14

16

18

20

2010 2015 2020 2025 2030

$/MMBTU

LNG 2007 US$ /

MMBTU

" nominal $/MMBTU

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Netbacks

The financing of LNG trains is complex. We make a very simple calculation here as a basis for further

reflection.

According to the IEA in 2003, a single LNG chain involves investment of around $5 billion for a typical

6.6 million tonne two-train project, (IEA, 2003). Assuming price escalation to 2009, this indicates a

value of about $6.5 billion, or roughly $1000 per 1 t/yr. Discounting at 15% over 20 years gives an an-

nual payment of $160 / t / yr, or a contribution of $200 / tonne to the price of LNG.

The calorific value of natural gas is about 44 MMBTU / tonne, so the contribution of capital to the long

run marginal cost of LNG is around $3.6 / MMBTU.

Losses of gas in processing (as fuel) are about 8%, say $0.3/MMBTU (this is based on the opportunity

cost of gas so implies iteration). The cost of transport to a European market and the cost of transport

of natural gas to the burner tip in the power station we have not estimated and we consider that the

net sum of these will be small compared to the uncertainties elsewhere in the calculation.

On this basis, if Egypt were faced with the choice of building a new LNG export train or burning the

gas in a power station, the opportunity cost of gas would be the international market price less about

$4 / MMBTU, ~= $3.6 + $0.3.

But domestic demand for gas in Egypt is growing and it s not certain that Egypt will build more LNG

trains. At present Egypt is obliged to buy natural gas from its joint venture companies at a price that

reflects international market prices. The is no reason why the JV partners should net out the liquefac-

tion costs, because the opportunity cost to them is the sales price fob and this is the basis on which

they presumably sell to Egypt. In this case the opportunity cost of gas to Egypt is related to the inter-

national fob price.

If domestic demand were to fall below the Egyptian share of production (which maybe unlikely) then a

similar argument would hold. As no new capital is involved, the opportunity cost of gas to Egypt is

again related to the fob international price.

We can conclude that the opportunity cost of gas to Egypt is between the international fob price and

that price less $4 / MMBTU and that probably it is closer to the international price. This therefore is the

value that we adopt.

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6.2.3.2.3 Combined Cycle Gas Turbine (CCGT)

The key-data for the CCGT alternative are given in Table 8. For the gas prices between 201 and 2030

a linear interpolation is used.

Table 8: Data for Combined Cycle Gas Turbine (CCGT)

6.2.3.3 Result of the Assessment

Figure 9 shows the projection of units cost for the two energy supply alternative. The increase in

CCGT unit costs is due to the assumed price increase (in real terms) for natural gas.

In addition to the base case, two price variations are considered:

• 30% higher gas prices

• 30% lower gas prices

With these projections of the unit costs it is possible to determine economic assessment criteria (the

cost of the CCGT-Natural gas alternative is the benefit of the wind power alternative). The results are

given in Table 9.

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Table 9: Wind Energy - Economic Assessment Criteria

In the base case the wind power alternative is not economically viable. Under the assumptions of 30%

higher natural gas prices, the wind option would be economically feasible.

Figure 9: Forecast of Unit Costs for Wind Energy and CCGT-Natural Gas

0

2

4

6

8

10

12

14

16

18

20

10

20

12

20

14

20

16

20

18

20

20

20

22

20

24

20

26

20

28

20

30

Years

Co

sts

(U

S-c

en

t/k

Wh

)

CCGT-Gas

CCGT-Gas - High

CCGT-Gas - Low

Wind

6.2.3.4 Variation Gas Prices and Return on Equity Expectations

To illustrate the impacts of the stated assumptions a sensitivity test was prepared:

• Wind energy - Required rate of return between 10% and 20%,

• Price for natural gas in 2010: The price was varied between 4.0 and 12.0 USD/MMBTU

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Table 10: Wind Energy - Impact of Gas Prices and IPP Wind Return Requirements

(NPV in USD per installed kW wind capacity)

The conclusion of this assessment is:

• Under the assumed long-term projection of the Natural Gas in 2030 of 18.0 USD/MMBTU the wind

energy option could be a very attractive for Egypt. The open issue is the level of gas prices in 2010.

• The key-issue is the return in investment expectation for wind energy. By developing an appropri-

ate and reliable legal and institutional framework for Wind Energy (reducing the return require-

ments from 20% down to 14% or 12% the economic viability of the wind energy option is secured

over a wide range of possible 2010 gas prices.

6.2.3.5 Carbon Credits

The economic rate of return on the investment is increased when we account for the economic bene-

fits of generating less greenhouse gases and in particular less carbon dioxide. This can be put in eco-

nomic terms by assuming a value for the reductions in carbon monetised by selling the certificates that

certify the reduction (CERs) on the appropriate exchange.

The certificates may be assigned to the developer or to the state. If they are assigned to the developer

then the PPA would be adjusted accordingly to bring the expected rate of return on capital back to the

required level. The CERs carry a risk, as their future value is not known. The optimal assignment of

CERs will depend on which partner can best manage that risk. This will vary from development to de-

velopment. If the developer is large and has a big portfolio of credits it may be best to add them to that

portfolio. In other circumstances the developer may be unwilling to accept the risk and would therefore

demand a disproportionately higher PPA and a better result might be obtained if the state took the

CERs.

The assignment does not affect the economic assessment of the project as a whole. The Table 11

shows the situation for two price levels for the carbon credits (20 and 50 USD/t CO2) and Figure 10

shows the economic net cash-flow for the wind option (based on one kW installed wind capacity.

The price level of 20 USD/ t CO2 would not be sufficient to achieve an economic feasibility of the wind

energy option for Egypt.

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Table 11: Wind Energy - Economic Assessment Criteria with Carbon Credits (Base case)

Figure 10: Wind Energy Option - Net Cash-flow with Carbon Credits

-5

-4

-3

-2

-1

0

1

2

3

4

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

Years

Net

cash

flo

w (

US

-cen

t/kW

h)

Base case

Carbon credit (20 USD/tCO2)

Carbon credit (50 USD/tCO2)

In Table 10 the NPV for a range of 2010 gas prices and IPP wind return requirements was given. It is

of interest to illustrate the importance of carbon credits for one of these different cases. This is done in

Table 12 for IPP Wind Return Requirement - 16 % and a gas price for 2010 of 8.5 USD/MMBTU.

Considering this specific case, it can be seen that with a carbon credit of 20 USD / t CO2 the wind en-

ergy option would be highly attractive for Egypt and would offer a sufficiently high return for the IPP

developer.

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Table 12: Wind Energy - Economic Assessment Criteria with Carbon Credits

(IPP Wind Return Requirement - 16 % / gas price 2010 - 8.5 USD/MMBTU)

6.2.4 Conclusion

6.2.4.1 The Methodology

The case study demonstrates the advantages of developing deconstructed versions of policy prescrip-

tions as an aid to analysis and to stimulate focused debate among stakeholders.

It demonstrates the approach for the case of two policy options for wind and shows how the options

can then be analysed in the light of the policy objectives to form the basis for decision.

The study then demonstrates the linkage between this deconstructed specification and detailed eco-

nomic analysis.

6.2.4.2 Policy instruments for wind

It is beyond the purpose of this illustrative case study to draw definitive conclusions regarding the wind

energy option for Egypt and the involvement of private wind IPPs.

Some interesting aspects of the study are:

• Competitive bidding: The start of the tendering and bidding process might not require an elabo-

rated legal and contractual framework and business negotiations might be initiated very fast.

This policy option is appropriate for big wind parks on land that can be legally tendered as a single

concession.

Without a reliable sector strategy (development of the transmission network and required back-up

capacities) and stated sector policy objectives and legal / contractual framework, the negotiations

can be at risk.

• Feed-in tariff: The up-front efforts of this policy option are high because the appropriate feed-in

tariff has to be determined and the legal and contractual framework has to be developed.

There is some risk in the early stages that tariffs may be set too high or too low as there is little ba-

sis on which to proceed.

The standardised nature of the transaction makes it appropriate for small sites spontaneously of-

fered by developers.

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• Economic and commercial viability:

- The wind energy option can be economically justified, but the assessment shows that the main

issues are the opportunity cost of fuel and the return on equity requirements of the wind IPPs.

The wind energy option is only an economic viable option (considering the national perspective)

under quite restrictive conditions, namely:

- A power purchase agreement that is based on the opportunity costs of alternative supplies of

electricity,

- Sufficiently low perception of risk by the developer to bring discount rates down to say 16%

- Quite large credits for the carbon emissions that are avoided (higher than $20 / tonne)

- The commercial viability depends very much upon the offered / permitted return on investment

for the wind IPP. By establishing a reliable regulatory framework the perceived risk can be sig-

nificantly reduced so that a return requirement of 16% will be acceptable for wind IPPs.

- If the Government decides to hand over the certificates of CO2 emission reductions to the wind

IPP they will be part of the equity remuneration.

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7. Institutional Reform - Some Possibilities

The policy cycle is shown in the following figure.

Figure 11: Policy Cycle

formulate

Implement

monitorevaluate

reformulate Theory

Model

Indicators

Foresight Evidence

There are institutional needs at all stages of this cycle.

Decision making proceeds through the general processes available in the executive and legislative

branches of government. Normally policy briefs will originate from the executive and be elaborated by

Ministerial departments often with analytical support from agencies of government and paid consult-

ants and in consultation with other stakeholders. Primary legislation is debated and finally sanctioned

by the legislature. In many countries Ministerial Decrees are used to elaborate on primary legislation.

This structure needs to be properly serviced with evidence and analysis if it is to work well. There is a

need for an institution, or perhaps several, to gather and maintain evidence and to carry out analytical

work that feeds into the formulation of policy and later guides the monitoring and evaluation and re-

formulation of policy. Foresight studies are a part of the evidence that should be considered in policy

formulation and these should take into account the evolution of global trends and policies in energy

and the environment, but also of trends beyond these disciplinary frontiers.

Implementation of policy may be conducted by Ministerial departments or nominated agencies. In de-

veloped countries, implementation is often assigned to specialist agencies. In developing countries it

is more common that policy is implemented by the Ministry. Implementation will often be demanding of

resources, this may be the case for some market based instruments as well as the majority of regula-

tions.

In Egypt the decision-making structure for energy policy has been strengthened by the revitalisation of

the Supreme Council of Energy. The Supreme Energy Council was established in 1979, but was never

convened. It has recently been revived and will take over the strategic functions of energy policy. The

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Egypt.doc

members include all Departments with substantial interests in the energy sector.

It is less clear that Egypt possesses a stable structure for accumulating a reliable basis of evidence,

analysis and foresight on which to base policy and upon which to test a range of policy instruments.

This function was originally to be performed by the Organisation for Energy Planning (OEP) which was

intended to service the Supreme Council. As the Council never functioned the OEP was left without a

role; it was passed around among Ministries and eventually disbanded. Much good work is carried out

within particular agencies and institutions at the regulatory and operating levels, but a coordinating

view at policy level appears to be lacking.

The Supreme Council will now be supported by a small secretariat in the Cabinet Office known as the

National Council for Energy Efficiency. There could be a case for strengthening this body and making

it the analytical centre for energy policy. The access to all relevant Ministries and to a forum for inter-

Ministerial conflict resolution offers a unique opportunity for developing cohesive and sustainable pol-

icy.

An important priority of such a centre should be to examine possible redistributive mechanisms to ac-

company price reform. The Supreme Council, uniting all relevant Ministries, is the proper forum to

elaborate a practical and operational policy for domestic price reform. This would constitute the single

most effective instrument to promote both renewable energy and energy efficiency. All other instru-

ments of intervention will be only partly effective when introduced into a regime of persistent subsidy.

There is a great deal of analysis that suggests energy tariffs are largely regressive and benefit the rich

more than the poor. The key to price reform is to ensure that monies saved by reducing subsidies are

redistributed in ways that benefit the poor and there is now considerable experience of how this can

be done.

There is a gap regarding the institutional capacities for renewable energy and energy efficiency poli-

cies in Egypt. Whereas capacities for renewable energies are well developed, there is a lack of suffi-

cient administrative structures for energy efficiency policies.

The New & Renewable Energy Authority (NREA) was already established in 1986. NREA's mission is

to promote renewable energies and to assist in the development of a national plan for renewables.

With its 996 staff (data according to NREA annual report 2007/2008) it is well equipped. NREA will be

a key player for the implementation of the ambitious government target of 20 % of electricity from re-

newable energy by 2020 including 12 % grid-connected wind power (7200 MW). NREA will also de-

velop its own projects. Until 2020, it is anticipated that about 400 MW per year will be undertaken by

the private sector and NREA will carry out about 200 MW per year.

NREA has done a very good job in setting renewable energies on the political agenda in Egypt, raising

awareness and implementing first projects. It is also a developer; it owns and operates all existing

wind farms in Egypt and is planning several more. It is also effectively a regulator; it establishes rules

and procedures for allocating land for wind farms to developers and it acts as a national planning

agency for renewable. There are conflicts of interest in the discharge of these various functions. There

are many possible ways of restructuring NREA; a sensible partition of duties would be to assign the

regulatory role to the electricity regular and to separate the rest of NREA into a commercial developer

and an agency for research and promotion. The latter function might well be combined with the duty of

promoting energy efficiency. The commercial arm might be kept in state ownership, though it could

also be privatised.

With its testing certification activities NREA is also of importance for energy efficiency and improved

efficiency of energy use in Egypt. NREA operates the testing laboratories for standards for refrigera-

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tors, washing machines, air conditioners and electric water heaters. But unlike in the field of renewable

energies NREA is not responsible for developing policies for energy efficiency and carrying out pro-

jects to contribute to fulfil the 8,3 % reduction target of the predicted energy consumption for 2020.

There is no energy efficiency agency in Egypt. Previously the Organisation for Energy Planning had

some functions in the sector and was involved in the early work on appliance standards, but it has

been disbanded. Government appears to favour the concept of a disbursed responsibility for energy

efficiency within relevant Departments guided by the Supreme Council of Energy supported by the Na-

tional Council for Energy Efficiency. This seems to be a weak solution, but it reflects a common ap-

proach within the Egyptian administration to start with a small activity and then subsequently to build

up and strengthen the legal basis as experience is gained. It is possible that the National Council for

Energy Efficiency will evolve into a substantial agency with strong legal powers. In our view a strong

agency is justified, combining the analytical functions of the National Council with the operating func-

tions of NREA in energy efficiency and holding responsibility for implementing other instruments.

Among the instruments that might merit consideration is a revolving Fund to provide incentives for en-

ergy efficiency. The subsidies to energy are so large that the government budget benefits considerably

when a user invests in efficiency. Part of the gain to the budget can be used to replenish the Energy

Efficiency Fund as it is disbursed. This idea is being studied by the Committee on Energy Efficiency in

Industry established by Decree of the Ministry of Industry. The administration of such a Fund would fall

naturally within the purview of the agency that we propose.

Implementation of regulations on energy efficiency is not an easy task and developing countries as a

class experience difficulties in this respect. Standards and labels for appliances are especially de-

manding of resources to monitor compliance. Compliance with the appliance standards in Egypt at

present is voluntary and there is no systematic procedure to ensure compliance with labels and to de-

tect fraud. This will be necessary when the scheme is made mandatory. The regulations for buildings

are mandatory, but it is not clear whether the capacity of the Ministry of Housing to achieve regulatory

compliance is sufficient. There has been much work done in industrialised countries on methods of ob-

taining acceptable regulatory compliance at reasonable cost and this may be an area where technical

cooperation would be useful.

- 64 -



Egypt.doc

Annex 1

Mission Report

- 65 -



Egypt.doc

The country mission was successfully completed in the time span of 2 to 8 June 2009. Because it was

the first country mission and because the mission included the project kick-off meeting with RCREEE,

it was scheduled slightly longer than the average duration of five days per country mission.

The mission programme was as follows:

Date Programme Item

2 June Travel day

2 June internal team meeting, briefing by national specialist

3 June Meeting with GCEEE

3 June Project kick off meeting at RCREEE

3 June Meeting at New and Renewable Energy Authority (NREA)

3 June Meeting at World Bank office Cairo

4 June Meeting with Electricity Regulatory Agency

4 June Meeting with UNDP GEF

4 June Meeting with Egyptian Environmental Affairs Agency

5/6 June internal project team meetings and preparation of seminar presentations

7 June Seminar

7 June Meeting with Committee on Energy Efficiency in Industry

8 June internal team meeting discussion of report inputs

8 June return travel

A list with the names and the coordinates of the interlocutors is attached in Annex 2. It also indicates

the participants in the half-day seminar.

The seminar had some thirty participants. It was very gracefully hosted by RCREEE, which gave the

workshop a proper standing. The participants were mainly the persons that had been visited in the

previous days, plus some whose schedule had not allowed meeting us separately. The seminar pro-

gramme is attached in Annex 3. The main objectives of the seminar were to discuss methodologies of

policy development and evaluation and to discuss the findings on Egypt as developed during the

course of the project mission.

The information collected in preparation of the mission and during its implementation had been organ-

ised in a Matrix system that had been prepared beforehand. The resulting tables were distributed to all

participants and the seminar offered the opportunity to provide clarifications. In this context it was es-

pecially important to note that the main thrust of the project is towards the development of EE and RE

policies and that the project will not engage in the comprehensive collection of energy data like for in-

stance energy balances. The Tables giving the overview of available information is attached in Annex

4.

The main presentation of the seminar was on evidence based policy development and theory based

policy evaluation. The presentation is attached in Annex 5. These notions of policy development obvi-

ously were quite new to the participants, who took them up attentively, but only engaged into a discus-

sion, after the theoretical concepts were translated into some policy issues that are presently relevant

in Egypt, like for instance the policy for developing a massive wind power programme. The importance

of case studies became evident and they therefore take a significant space in this country report.

Finally the seminar was used to give a preview on the three day workshop on EE and RE policy de-

velopment. The presentation is attached in Annex 6.

- 66 -



Egypt.doc

Annex 2

List of Stakeholders

- 67 -



Egypt.doc

Entity Person name Position Phone, Fax & e-mail Notes

attended the WS or

some one attended on

their behalf

Regional Centre for Renewable Dr. Kilian Baelz Acting Director - Head of Interim T +2 02 241 54 691 Host / attendedF +2 02 241 54 661

M +2 017 33 44 365

E [email protected]

w www.rcreee.org

Eng. Samir Hassan Deputy Head of Interim Secretariat

RCREE Technical StaffProf. Adel Khalail RCREE Board member M +2 012 35 55 523

Egyptian German High Level Joint

Committee for Renewable Energy, Dr. Paul Suding Program Director Email: [email protected] attended

Mob: +2 018 9888795

Tel: +2 2 22702793 ext. 111

Fax: +2 2 22702699 ext 104

Eng. Sayed Emam Program Co-director Email: [email protected]

Mob: +2 012 7920241

Tel: +2 2 22702793 ext.106

Fax: +2 2 22702699 ext 104

Econ. Maryame Georgis Communication Coordinator Email: [email protected]

Mob: +2 018 9888150

Tel: +2 2 22702793 ext. 102

Fax: +2 2 22702699 ext 104

NREA Eng. AbdelRhman Salah Executive Director T +202 2271 8505 two attended on this T +202 2271 3176M +2 010 168 0222

World Bank Dr. Mohab Hallouda Senior Energy Specialist M +2010 660 0676 was not able to attend

[email protected];

UNDP/GIF national project- EEIGGR Dr. Ibrahim Yassin Project Technical Director 012-349 0541 attended

Electricity Regulatory Agency Dr. Hafez ElSalamawy Managing Director 012-318 6900 attended

UNDP Dr. Mohamed BayoumiAssistant Resident Representative

UNDP012- 3294510

KFW Dr. Andreas Holtkotte Director T +20 22 736 9525 / -7496 attended

F +20 22 736 [email protected]

Ministry of Petroleum M. Sc. Ahmed Abdrabo Environmental Affairs A. General Office: + 202 22766543 attendedFax: + 20226706419Email: [email protected]

Eng. Osama Nour EL Din Petroleum Affairs General Manager Office 202 22766328Fax: + 20226706419Email: [email protected]

Ministry of Environment Dr. Alsayed Sabry Mansour Coordinator, Climate change Unit, EEAA Email: [email protected] attended

Office: +202 252466162-

fax: +202 25246162

Email: [email protected]

UNIDO Dr. Paul Makin UNIDO Representative & Head Regional [email protected] was not able to attend

office +202 2794 3477

fax: +202 2792 1199

MOEE Dr. Khalil yasso First under Secretary office: +202 22616321 Dr. Ibrahim Yassin

Fax: +202 22616234


MOEE Eng. Mohamed Moussa First under secretary for planning and office: +202 24051162

Fax: +202 22616302


WEC Dr. Emad El-Sharkawy Chairman of WEC/ Egypt Office: +202 24012368

Fax: +202 24011630


Transmission Company Eng. Abdel Hady Sedeek Head of Project &Studies Sector office: +202 22616517

Fax: +202 22616517


Egyptian Holding Company Dr. Mohamed Awad EEHC Chairman office: +202 22616306

- 68 -



Egypt.doc

Annex 3

Seminar Programme

- 69 -



Egypt.doc

Methodology and Policy for Energy Efficiency and Renewable Energies Half-day Seminar - Egypt, 7 June 2009, 10:00 - 13:00

1. Welcome, by RCREEE

2. Introduction to the Project and to the Seminar, by the project team leader, Florian Sauter-

Servaes

3. Methodology: Evidence based Policy Making and Theory based Evaluation, by Nigel Lucas

4. Status of EE and RE Policies and their Development in Egypt, by Mohammed ElSobki (Jr.)

and Danyel Reiche

5. Preview on Three-day Training Workshop, November 2009, by Martin Ehrlich

6. General Discussion

- 70 -



Egypt.doc

Annex 4

Data Matrix

- 71 -



Egypt.doc

Part I Regulations / incentive schemes

Primary Legisla-tion

Laws, Directives (e.g. Algerian Law on Electricity and Gas Distribution which

contains a general strategy and incentives for the promotion of renewable en-

ergy).

Secondary Legis-lation

Decrees or implementing regulations which regulate the implementation of pri-

mary legislation (e.g. Algerian Decree on the Diversification of Power Generat-

ing Costs which specifies incentives of the Law on Electricity and Gas Distribu-

tion by introducing feed-in tariffs).

Policy Statements Official statements of relevant political decision-makers (e.g. minister for en-

ergy).

Under Discussion Law is being discussed by legislative institutions and/or is in draft phase al-

ready.

Adopted Law has been adopted by legislative institutions.

Implemented Law is in the process of implementation.

Targets/Aims Both specific targets (e.g. 10% of electricity from renewable sources by 2010)

and general aims (e.g. promotion of renewable energy) formulated in regula-

tions.

Instruments “Tools” or mechanisms selected to achieve targets/aims of a regulation (e.g.

feed-in tariffs, standards).

Duration Timeframe of regulations (e.g. a law is effective until 2011 or shall be amended

by 2011).

Governmental En-tities

E.g. ministries (Ministry for Environment) or agencies (e.g. national energy

agency).

Industry E.g. utilities, state companies

Non-governmental or-ganisations

E.g. renewable energy associations, industry associations, environmental or-

ganisations

- 72 -



Egypt.doc

Renewable Energy and Energy Efficiency: Regulations / incentive schemes

Basic Information Content Impact Analysis (if available)

Type of

Law

Title

of

Law

Year Responsible

Institution

Status* Source Targets/

Aims

Instruments Dura-

tion

Title of

Analysis

Ye-

ar

Author Source

UD A I 1)

2)

3)

1)

2)

3)

Primary

Legislation

Elec-

tricity

Law

2009

MOEE (Ministry

of Electricity

and Energy)

X X

Regulatory

Agency and

MOEE

Regulate the

electricity market

and move to a

liberalized mar-

ket

Licensing

Not available

Promote renew-

able energy

Competitive

Bidding and

feed-in tariffs

as wells as bi-

lateral agree-

ments

20-25

years

(com-

petitive

bidding)

15

years

(feed-in

tariffs)

Promote energy

efficiency

Guaranteed

purchase of

CHP

Secondary

Legislation

De-

cree

102 of

estab-

1986 MOEE X NREA Promote renew-

able energies

Developing

own projects.

Assisting in the

development of

unlim-

ited

n.a.

- 73 -



Egypt.doc

lish-

ment

of

NREA

a national plan

for renewable.

Testing certifi-

cation activi-

ties.

De-

cree

of es-

tablis

hment

of

Regu-

latory

au-

thority

2000 MOEE X Egyptian

Electric

Utility and

Consumer

Protection

Regulatory

Agency

Moderating and

liberalizing the

electricity market

Licensing, set-

ting market

rules and

benchmarking

unlim-

ited

n.a.

En-

ergy

effi-

ciency

for

com-

mer-

cial

build-

ings

To be

is-

sued

end

of

2009

Ministry of

Housing (MOH)

En-

ergy

effi-

ciency

for

resi-

den-

tial

build-

2006 MOH

- 74 -



Egypt.doc

ings

En-

ergy

effi-

ciency

for

gov-

ern-

men-

tal

build-

ings

To be

is-

sued

end

of

2009

MOH

Test-

ing

stan-

dards

for

Refrig

frigera

era-

tors

2006 NREA X NREA An-

nual report

Improved Effi-

ciency of energy

use

Obligatory test-

ing and certifi-

cation for both

local manufac-

tured and im-

ported prod-

ucts

unlim-

ited

n.a.

Test-

ing

stan-

dards

for

Wash-

ing

ma-

chines


nual report

Improved Effi-

ciency of energy

use

Obligatory test-

ing and certifi-

cation for both

local manufac-

tured and im-

ported prod-

ucts

unlim-

ited

n.a.

Test-

ing

stan-

dards


nual report

Improved Effi-

ciency of energy

use

Obligatory test-

ing and certifi-

cation for both

local manufac-

Unlim-

ited

n.a.

- 75 -



Egypt.doc

for Air

Condi-

tion-

ers

tured and im-

ported prod-

ucts

Test-

ing

stan-

dards

for

Elec-

tric

Water

Heat-

ers


nual report

Improved Effi-

ciency of energy

use

Obligatory test-

ing and certifi-

cation for both

local manufac-

tured and im-

ported prod-

ucts

unlim-

ited

n.a.

Policy

statements

Na-

tional

Strat-

egy

for

wind

en-

ergy

up to

2020

2008 Supreme

Council of En-

ergy

X X NREA an-

nual report

20 % of electric-

ity by renewable

energy until 2020

including 12 %

grid-connected

wind power (7200

MW).

n.a. 2020 n.a.

Na-

tional

Strat-

egy

for en-

en-

ergy

effi-

ciency

up to

2008 Supreme

Council of En-

ergy

X X National

Energy

committee

by the rul-

ing party (in

Arabic)

8,3 % reduction

of the predicted

energy consump-

tion.

n.a. 2020 n.a.

- 76 -



Egypt.doc

2020

UD: Under Discussion and/or in draft phase; A: Adopted; I: Implemented

- 77 -



Egypt.doc

Renewable Energy: Commissioned reports DURING THE PASE OF PREPARA-TION of regulation / incentive scheme

Title of Study Year Author Source Main conclusion of report: # to be understood as first

impression for project members

1 NATIONAL ENERGY EFFICIENCY LAW

2003 UNDP ENERGY EFFICIENCY IMPROVE-

MENT AND GREENHOUSE GAS

REDUCTION PROJECT

(EEIGGR) – UNDP/GEF

Support an energy efficient economy and environment in

Egypt. Establishing a National Agency for Energy Efficiency.

2

3

4

- 78 -



Egypt.doc

Renewable Energy: Evaluation reports on IMPACT of regulation / incentive scheme

Title of Study Year Author Source Main conclusion of report: # to be understood as first

impression for project members

n.a.

2

3

4

Current Status of Renewables

Total electricity generated by the utility per year GWh 62336,3 67981,086 73310 77956 83003 88951 94913 100996 108368 115407 125129

electricity generated – Gas non coalfired GWh 50114,7 52694,299 58628 64006 67578 75811 81449 87760 95136 101487 108424

electricity generated – Coal GWh 0 0 0 0 0 0 0 0 0 0 0

electricity generated - Solar, Wind GWh 0 0 23 137 221 204 368 523 552 616 831

electricity generated - Combustible renewables and waste GWh 0 0 0 0 0 0 0 0 0 0 0

electricity generated – Nuclear GWh 0 0 0 0 0 0 0 0 0 0 0

electricity generated – Hydro GWh 12221,6 15287 14659 13697 15130 12859 13019 12644 12644 12925 15510

Installed capacity for generation of electricity MW 13308 13935 14582 15286 16648,5 17671 18119 18544 20452,2 21944 22583

Installed capacity for generation – Nuclear MW 0 0 0 0 0 0 0 0 0 0 0

Installed capacity for generation – Hydro MW 2810 2810 2745 2745 2745 2745 2745 2745 2783,4 2783 2842

Installed capacity for generation – Solar, Wind MW 0 0 19 63 63 63 140 140 183 225 305

Installed capacity for generation – Combustible renewables and waste MW 0 0 0 0 0 0 0 0 0 0 0

Installed capacity for generation – Thermal MW 10498 11125 11818 12478 13840,5 14863 15234 17706,5 17485,8 18936,5 19436,5

- 79 -



Egypt.doc

Renewable Energy: Institutions

Institution General Responsibilities of In-

stitution

Number of

Staff

Budget

(Mill. $ per

year)

Link/Contact Involvement

in legislation

process?

Y/N

Governmental entities

NREA Development of renewable en-

ergy projects and policies.

996 n.a. www.nrea.gov.eg/ Yes

Energy council of the minis-

try for trade and industry

Policy Development and advice

of the ministry for energy effi-

ciency

9 (not full-

time)

n.a. n.a. Yes

Egyptian Electricity Trans-

mission Company (EETC)

Dispatching and transmitting

electricity between generation

and distribution utilities/large

customers

About

31,000

n.a. Yes

Egyptian Electricity Regula-

tory Agency

Regulate the electricity market

and move to a liberalized mar-

ket

60 n.a. www.egyptera.org Yes

Industry (e.g. utilities, state

companies)

Industrial Modernisation

Centre

Assist the industrial sector to

be competitive and to promote

energy efficiency and renew-

able energy industries and ap-

plications.

About 200 n.a. www.imc-egypt.org Yes

Non-Governmental Organi-

sations (including industry

- 80 -



Egypt.doc

associations etc.)

Energy Committee of the

ruling party (National De-

mocratic Party)

Policy Development and advice

of the government for energy

related issues

35 (not full-

time)

none n.a. yes


Federation of Egyptian In-

dustries

Promote energy efficiency and

renewable energy industries

and applications.

5 About

15,000

n.a. yes

Egyptian Junior Business-

men Association


renewable energy industries

and applications.

500 (not full-

time)

n.a. www.ejb.eg.org no

Egyptian German Joint

Committee (JCEE)

Support of services for energy

efficiency and renewable en-

ergy issues

3 3 million

2009-2011

http://www.jcee-

eg.net/

yes

Arab-German Business As-

sociation

Support of services for energy

efficiency and renewable en-

ergy issues

n.a. www.ahk-mena.com/ no

Regional Center for

Renewable Energy &

Energy Efficiency (RECREE)


renewable energy in the MENA

countries

n.a. http://www.rcreee.org/ no


American Chamber in Egypt Participate in and provide effec-

tive support to ongoing gov-

ernment efforts to restructure

the Oil & Gas Sector and the

Power Sector (including Re-

newables); enhance the Energy

Sector's economic performance

and sustainability; Support re-

form efforts to gradually elimi-

nate energy subsidies.

n.a. www.amcham.org.eg/ no

- 81 -



Egypt.doc

Part II Energy Data: prices, taxes, subsidies, further data Clearly indicate reference year!

Energy prices: retail

prices

Per unit Source, incl. full author Language

Transport fuels Per litre See attachment Arabic

Electricity Per kWh See attachment English

Heat/natural gas? Per kWh / m3 See attachment Arabic

Energy taxes on Per unit Source, incl. full author Language

Transport fuels Per litre Law 144 for 2008 Arabic

Electricity Per kWh See attachment at the end of this document Arabic

Heat/natural gas Per kWh / m3 Law 144 for 2008 Arabic

Cost of electricity genera-

tion

Per unit Source, incl. full author Language

Word bank Egypt office report 2009 (upcoming soon) English

Boose Allen report 2007 English

- 82 -



Egypt.doc

- 83 -



Egypt.doc

Subsidies Per unit Total (bn US$/a) Source, incl. full author

Transport fuels Per litre

n.a.

e.g. National energy subsidies report,

NEEA 2009

Electricity Per kWh

n.a. (are abolished

until 2014)

Heat/natural gas Per kWh / m3

n.a.

- 84 -



Egypt.doc

Further Energy Statistics If you find reports and studies on the following topics during your investigations, please list these here. Topic Title of Report Yea

r

Author #

for cita-

tion in ref-

erence list

Full author Lan-

guage

Energy statistics: primary energy de-

mand, final energy demand

National paper on energy and development by the Na-

tional Democratic Party

(Expected / Targeted Future Energy Status up 2022)

2007 NDP Arabic

(transla-

tion in

presen-

tations)

Potentials of renewable energies

Wind atlas

De-

cem-

ber2

005

NREA English

Solar atlas 1991 NREA English

Energy efficiency potentials

National paper on energy and development by the Na-

tional Democratic Party

(Expected / Targeted Future Energy Status up 2022)

2007 NDP Arabic

(transla-

tion in

presen-

tations)

Energy efficiency and environment protection project

(ECEP)

1989/

1997

USAID English

- 85 -



Egypt.doc

Part III

List of References United Nations Department of Economic and Social Affairs (2003): ENERGY CONSERVATION PROGRAM FOR ELECTRIC MOTOR-DRIVEN SYS-

TEMS

Internet links

www.nrea.gov.eg/

http://www.jcee-eg.net/

http://www.rcreee.org/

- 86 -



Egypt.doc

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- 87 -



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Annual rate of increase for energy use = 0,06

year

Local

energy

needs

Committed

exports

Local

energy

needs

with ex-

ports

Energy

needs with

Energy Ef-

ficiency

Potential

available

fuel prod-

ucts

Potential

available

N.G.

Energy

available

form Hy-

dro re-

sources

Energy

available

form

Wind re-

sources

Nuclear Energy

gap

1 2006/07 56,39 23,4 79,79 56,39 26,7 26,5 2,99 0,20 0,00 0

2 2007/08 59,77 23,4 83,17 59,42 26,7 26,50 2,99 0,20 0,00 3,0

3 2008/09 63,35 23,4 86,75 62,62 26,7 26,50 2,99 0,89 0,00 5,5

4 2009/10 67,16 23,4 90,56 66,00 26,7 26,50 2,99 1,58 0,00 8,2

5 2010/11 71,19 23,4 94,59 69,55 26,7 26,50 2,99 2,27 0,00 11,1

6 2011/12 75,46 23,4 98,86 73,30 26,7 26,50 2,99 2,96 0,00 14,2

7 2012/13 79,98 23,4 103,38 77,24 26,7 26,50 2,99 3,65 0,00 17,4

8 2013/14 84,78 23,4 108,18 81,40 26,7 26,50 2,99 4,34 0,00 20,9

9 2014/15 89,87 23,4 113,27 85,79 26,7 26,50 2,99 5,03 0,00 24,6

10 2015/16 95,26 23,4 118,66 90,41 26,7 26,50 2,99 5,72 1,38 27,1

11 2016/17 100,98 23,4 124,38 95,28 26,7 26,50 2,99 6,41 2,76 29,9

12 2017/18 107,04 23,4 130,44 100,41 26,7 26,50 2,99 7,10 2,76 34,4

13 2018/19 113,46 23,4 136,86 105,82 26,7 26,50 2,99 7,79 5,52 36,3

14 2019/20 120,27 23,4 143,67 111,52 26,7 26,50 2,99 8,48 5,52 41,3

15 2020/21 127,48 23,4 150,88 117,52 26,7 26,50 2,99 9,17 8,28 43,9

16 2021/22 135,13 23,4 158,53 123,85 26,7 26,50 2,99 9,86 8,28 49,5

- 94 -



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( طن / جنيــه )

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1982//81 182 37,8 36 30,42 7,5 52 9

1992/91 1013 252 240 210,6 80 200 75

1993/92 1301 378 360 315,9 100 200 99

1994/93 1305 504 480 421,2 130 200 149

1995/94 1305 504 480 421,2 130 200 152

1996/95 1305 504 480 480 130 200 156

1997/96 1305 504 480 480 130 200 156

1998/97 1305 504 480 480 182 200 156

1999/98 1305 504 480 480 182 200 156

2000/99 1305 504 480 480 182 200 179

2001/2000 1305 504 480 480 182 200 179

2002/2001 1305 504 480 480 182 200 179

2003/2002 1305 504 480 480 182 200 179

2004/2003 1305 504 480 480 300 200 244

2005/2004 1305 504 720 720 300 200 275

- 95 -



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2005/2006 1768 964 900 900 300 200 279

2006/2007 1768 964 900 900 500 200 327

2007/2008 1320 1320 1320 1000 200

- 96 -



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(LE/ton)

Gasoline Kerosine Solar Trans Solar Mazot LPG N.Gas**

1981/82 182 37,8 36 30,42 7,5 52 9

1982/83 210 37,8 36 30,42 7,5 52 9

1983/84 210 37,8 36 30,42 7,5 52 9

1984/85 211 37,8 36 30,42 7,5 52 9

1985/86 284 37,8 36 30,42 7,5 52 9

1986/87 355 37,8 36 30,42 7,5 52 9

1987/88 357 63 60 52,65 28 52 34

1988/89 499 63 60 52,65 28 52 34

1989/90 502 88,2 84 76 35 52 43

1990/91 786 126 120 105,3 50 120 61

1991/92 1013 252 240 210,6 80 200 75

1992/93 1301 378 360 315,9 100 200 99

1993/94 1305 504 480 421,2 130 200 149

1994/95 1305 504 480 421,2 130 200 152

1995/96 1305 504 480 480 130 200 156

1996/97 1305 504 480 480 130 200 156

1997/98 1305 504 480 480 182 200 156

1998/99 1305 504 480 480 182 200 156

1999/2000 1305 504 480 480 182 200 179

- 97 -



Egypt.doc

2000/01 1305 504 480 480 182 200 179

2001/02 1305 504 480 480 182 200 179

2002/03 1305 504 480 480 182 200 179

2003/04 1305 504 480 480 300 200 244

2004/05 1305 504 720 720 300 200 275

2005/06 1836 964 900 900 500 200 345

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- 99 -



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Egypt.doc

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Egypt.doc

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Egypt.doc

Annex 5

Presentation on Methodology


Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

Evidence based policy making and theory based evaluation

Egypt – Half-day Seminar on Methodology and Policy, Cairo, 7/6/2009Page 1

and theory based evaluation

Nigel Lucas



• Evidence based policy making

• Theory based evaluation

• The linkages

– Theory

– Indicators

Contents

Egypt – Half-day Seminar on Methodology and Policy, Cairo, 7/6/2009

– Indicators

• Hesitant thoughts on Egypt

Page 2



• What is Evidence Based Policy Making?

• Why do we need it? What have we been doing before -

making it up?

Evidence Based Policy Making?


• What is evidence?

• It is all very well, but I do not have the time or resources.



Many different definitions, but what it really means is just:

“An approach to policy development and implementation which uses rigorous techniques to develop and maintain a robust evidence base

What is Evidence Based Policy Making?


rigorous techniques to develop and maintain a robust evidence base from which to develop policy options”.

All policies are based on evidence - the questions are:

•Is the evidence reliable?

•Are the processes by which evidence is turned into policy fit for their purpose?



•The key benefit of evidence-based policy making is better policy

•Policy may be driven by prejudice or short-term political pressure

•There is often a range of instruments to achieve identified policy objectives and choice can be very difficult

•Foreign consultants and agencies may not understand entirely the constraints and practices in a specific country; they often prescribe

Why do we need it?


constraints and practices in a specific country; they often prescribe remedies from home with little thought whether they are appropriate

•Countries need to develop in-house capabilities to analyse and evaluate policy so that they can properly choose options that fit into economic, cultural, legal and political life and can be realistically enforced and better use inputs from international experts

•Really just better, better resourced and more systematic policy making



Good evidence is necessary, but not sufficient


Need evidence and process

Page 6



• The evidence base must be both broad enough to develop a wide range of policy

options, and detailed enough for those options to stand up to intense scrutiny.

• An evidence-based approach should show continuity between foresight, strategy, policy,

and implementation

• Evidence does not necessarily mean hard facts like scientific data, although the

objectively verifiable evidence is important

• Evidence is any information that can be used to turn policy objectives into feasible and

What is evidence?


• Evidence is any information that can be used to turn policy objectives into feasible and

effective policy instruments

• Can distinguish three main components:

• hard data (facts, trends, survey information)

• analytical reasoning that processes data to illuminate problems

• stakeholder opinion on an issue or set of issues.

• Research, analysis of stakeholder opinion, public perceptions and beliefs, cost/benefit

analyses, economic and statistical modelling are important sources of evidence

• Judgement of the quality of the methods that are used to gather and synthesise the

information is vital



• Often we work under pressure. Can only do what

is reasonable

• Four options for research

– Review existing research

Evidence and time horizons


– Review existing research

– Commission new research

– Consult experts

– Consider a wide range of fully costed and

appraised options

• Operate on different time scales

Page 8



Reconciling evidence and time




• LOOK FORWARD

• LOOK OUTWARD

• INNOVATE

• SEEK EVIDENCE later

Nine features of better policy making


• SEEK EVIDENCE later

• BE INCLUSIVE

• BE JOINED UP

• MONITOR later

• EVALUATE later

• LEARN later



The policy-making process takes a long-term view of the likely effect and impact of the policy based on established trends and informed by predictions of social, political, economic and cultural trends, for at least five years into the future.

Look Forward


A forward looking policy will probably contain:

• A statement of intended outcomes is prepared at an early stage

• Contingency or scenario planning is included

• Taking into account the Government's long term strategy

• Use available foresight and forecasting work (Mediterranean Foresight Programme)



Take account of influencing factors in the national, Mediterranean and

international situation;

Draw on experience in other countries;

Considers how policy will be communicated with the public.

Look outwards


Considers how policy will be communicated with the public.

Outward looking policies will probably:

• Make use of regional mechanisms where appropriate e.g. MEDREG, RCREEE, MEDA programmes

• Look at experience of how other countries dealt with the issue

• Prepare and use a communications/presentation strategy



The policy-making process should question established procedures, encourage new and creative ideas; and make established ways work better.

Failure is not good, but occasionally is inevitable. Learn from failure.

Risks are identified and actively managed.

An innovative, flexible and creative approach:

Be Innovative


An innovative, flexible and creative approach:

• Uses alternatives to the usual ways of working (brainstorming sessions etc)

• Takes steps to create management structures which promote new ideas and effective team working

• Brings in people from outside into policy team; other departments, industry, NGOs



The policy-making process takes account of the impact on and/or meets the needs of all people directly or indirectly affected by the policy; and consults widely.

Be Inclusive


An inclusive approach may include the following aspects:

• Consults those responsible for service delivery/implementation

• Consults those at the receiving end or otherwise affected by the policy

• Seeks feedback on policy from recipients and front line deliverers



The process takes a holistic view; looking beyond institutional boundaries to the government's strategic objectives.

There is consideration of the appropriate management and organisational structures needed to deliver cross-cutting objectives.

Avoids conflict with other policies.

Be joined-up


A joined-up approach to policy-making:

• Clearly defines cross cutting objectives at the outset

• Working arrangements with other departments clearly defined and well observed

• Barriers to effective joined up policy are clearly identified with a strategy to overcome them

• Implementation is considered part of the policy making process



•Alternative forms of intervention need to be reviewed and short-listed. Evidence of the success or failure of similar instruments in developed and developing countries needs to be studied with special emphasis on the conditions that created success and failure

•There must always be a base-case against which alternatives are

The process of evidence-based policy making (I)


•There must always be a base-case against which alternatives are screened. Alternatives should include all available instruments.

•All the relevant potential impacts need to be identified and where possible, quantified

•Indicators need to be established of what is expected from the policy measures. These indicators should cover outputs, outcomes and impacts

•Intermediate indicators are important in helping understand how policies work, how measures interact and how they can be improved



•Impacts should be assessed in consultation with the subjects of policy

•The cost of compliance needs to be assessed. Consideration should be given to how these costs can be minimized.

•It is necessary to consider who pays the compliance costs; there are generally alternatives with different implications for equity.

•The procedures for compliance need to be worked out and for monitoring

The process of evidence-based policy making (II)


•The procedures for compliance need to be worked out and for monitoring impacts.

•Quantitative analysis of impacts is essential. The analytical method most commonly used is economic cost-benefit analysis.

•Cost-benefit analysis should take into account opportunity costs of energy and external environmental costs.

•Multi-criteria analysis can also be a useful support to decision making



What is Theory-Based Evaluation?

• Theory-Based evaluation focuses on analysis of the theoretical or logical sequence

by which a policy intervention is expected to bring about its desired effects.

• For instance, a theory-based evaluation might ask about the steps that are implicit

between a policy initiative (e.g. introduction of minimum energy performance

standards for electrical appliances) and the policy outcome (reducing energy and

GHGs). The Figure represents the implicit theory of policy makers:

Introduction Consumer is Manufacturers Market is Energy use


Introduction

of MEPS

Consumer is

empowered to

make a better

judgement and

change

behaviour

Manufacturers

are

incentivised to

make more

efficient

models

Market is

transformed

and inefficient

devices

become

obsolete

Energy use

and CO2

emissions

fall;

Domestic

manufacture

strengthened

• The concept is similar to the logical framework for project evaluation, but because it

depends on an explicit behavioural model it can handle not linear logical structures



Theory and the policy cycle

formulate

Implementreformulate Theory

Foresight Evidence


Implement

monitorevaluate

reformulate Theory

Model

Indicators



Alternative theories

Introduction

of MEPS

Consumers are

indifferent to

energy use –

buy only on

price

Manufacturers

are obliged to

make more

efficient

models

Market is

swamped by

poor quality

smuggled

goods

Energy use

and CO2

emissions

rise;

domestic


price models goods domestic

manufacture

falls

• Failure to be clear about the causal sequence by which a policy is expected to work

can result in poor and even contrary outcomes

• Theory Based evaluation does not prevent us constructing a bad model but tells us what indicators we should examine to make sure things are going well



Indicators need to be established of what is expected from the policy measures. This is vital for evaluation.

Indicators should cover:

•inputs, i.e. the financial, human, technical or organizational resources used in the endeavour

Indicators


used in the endeavour

•outputs, (objectively verifiable indicators that demonstrate the progress made in implementing the measures, e.g. the creation of a minimum energy performance standard),

•outcomes (immediate effects on the regulated subject, e.g. the offer of new products and retooling of production lines) and

•impacts (direct measurements of the improvements that the programme is designed to bring about, e.g. more efficient products and lower energy use).



Some indicators

Outputs Outcomes Impacts

Policy Intervention Price Reform Policy commitment to defined schedule for

raise prices to economic costs

Creation of free competitive energy markets,

or

Clear administered link to international prices

with specified frequency of review

Prices that reflect opportunity costs

Overall reduction in energy use or CO2

emissions per unit of GDP

Institutional and legal

reform

Primary energy efficiency law approved by

legislature

Provisions for energy agency

Provisions for standards and labelling

Provisions for audits

Provisions for financial incentives

Obstacles to private energy service

companies removed

Energy agency established with adequate

budget, staff and powers

Regulations for labelling of specified

products

Regulations for financial incentives

Funds and resources assigned to pilot ESCO

activities

Regulations for minimum energy

performance standards for specified products

No direct impacts

Labelling Regulations for labelling of specified Certified testing sites established or identified Numbers of high performance appliances


Labelling

Regulations for labelling of specified

products

Certified testing sites established or identified

Protocols for testing agreed

Manufacturers invest to produce new designs

Labels approved

Appliances labelled

Compliance systems introduced

Procedure for periodic review

Numbers of high performance appliances

bought

Average energy use per group of

appliances decreases

Financial

incentives for audits

Regulations for financial incentives,

including defined funding mechanism and

responsibilities for implementation

Funding mechanism implemented

Transparent, non-discriminatory system of

access published and in operation

Loans made

Number of audits made

Quality of audits evaluated

Energy use per unit of output in target

group

Financial

incentives for investments

Legal provisions for financial incentives,

including defined funding mechanism and

responsibilities for implementation

Funding mechanism implemented

Transparent, non-discriminatory system of

access published and in operation

Volume of loans made

Volume of funding from private banks

Effectiveness of loans evaluated

Investment in energy efficiency


group

Energy service companies Obstacles to ESCO participation removed

Funds and resources assigned to pilot

ESCO activities

Pilot ESCO activities implemented

Number of contracts written

Energy savings from contracted activities



Some more indicators

Standards

Regulations for minimum energy

performance standards for specified

products

Legal provision to remove sub-standard

products from market

Building standards introduced

Certified testing sites established or identified

Protocols for testing agreed

Manufacturers invest to produce new designs

Compliance systems introduced

Procedure for periodic review

Percentage of non-compliant appliances

Average energy use per group of

appliances decreases

Average use per square metre of floor

area improves

Mandatory measures

Regulations for mandatory audits,

appointment of qualified energy managers,

compliance with performance targets,

reporting.

Number of audits accomplished

Quality of audits evaluated

Investment in energy efficiency

Number of managers appointed

Procedures for setting targets established

Number of targets set

Number of targets met


group


Number of targets met

Number of reports delivered

Corporate agreements

Regulations if compulsory scheme Numbers of corporate agreements in place

Volume of commitments agreed

Post hoc evaluation


group

Efficiency obligations

Regulation

Rules for source and allocation of funds

Volume of funds disbursed

Number of customers affected

Behavioural changes noted

Investments leveraged/financed


group

Transport and spatial

planning

Restrictions on import/assembly of vehicles

to improve fleet efficiency

Regulations to permit incentives to public

transport

Planning guidance

Improved efficiency of stock

Higher use of public transport

Better planning

Less energy use per vehicle-km

Improved public-private modal split

Lower energy use for transport per capita



• Impact indicators tell you if you are getting the results that you wanted

• Generally thought they are not sufficient in themselves

• Intermediate indicators are useful and indeed necessary to verify the underlying theory

Intermediate indicators


underlying theory



• Wind power: strong sense of good evidence based policy making –doesn’t mean it can’t be better; worried about a lack of power system analysis and possibly a more detailed and fuller economic analysis. But shows good review of options; looks forward and outward and is innovative; need to establish indicators

• Other renewables – less far advanced: difficult to comment

Hesitant thoughts on Egypt


• Other renewables – less far advanced: difficult to comment

• Energy efficiency: possibly less systematic. Analytical capacity is lacking. Needs technical support to a dedicated agency or unit.

• New UNDP project very important in this context and it should be a priority to support this local capacity for policy analysis

• Comments would be helpful: what would you like from this project?

• We consult: we are outward looking and flexible!



Many thanks for


your patience

Page 26

- 104 -



Egypt.doc

Annex 6

Preview on Training



Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency

Page 1

Preview of the Three-day TrainingWorkshop

- November 2009 -

Martin Ehrlich




Page 2

• Objective of the Impact Assessment Project

• Objective of the Training Component

• Audience for the Training Event

• Modules of the Training Event

• Programme for Senior Policy Decision Makers

• Programme for Policy Analysts and Consultants

Contents of the Presentation




Page 3

Objective of the Impact Assessment Project

• To achieve:

– Rapid implementation of cost-effective policies and instruments

– Accelerated deployment of cost effective RE & EE technologies

– Through:

• Increased penetration of „evidence based“ policy formulationand „theory based“ policy evaluation

• Specific objectives of the project:

– Comparative analysis of EE & RE policies

– Provision of impact assessments of EE & RE policy and promotioninstruments in RCREEE countries

– Strengthening of the methodological basis for policy formulation

– Provision of recommendations for adjustments of the policy makingprocess




Page 4

• Presentation of the methodological basis:

– Evidence based policy making and planning procedures

– Theory based evaluation and procedures for applicationin practice

• Country specific conclusions

• Recommendations regarding the policy making process

• Presentation of Case Studies

– Case Study on EE promotion

– Case Study on RE promotion

Objective of the Training Component




Page 5

• 1st day: Senior decision makers

• Presentation of the Impact Assessment Project

• Key elements of the methodology

• Recommendation of the country assessment

• 2nd & 3rd day: Policy analysts and RE & EE experts

• Detailed presentation of the synthesis report and countryassessments

• Discussion of case studies with presentation of the methodologicalbasis

Audience for the Training Event




Page 6

Modules of the Training Event

Morning Session Afternoon Session

1st

day

Presentation of the National

Regulations and Incentives Project

Key principles of evidenced based

policy making and theory based

evaluation

Presentation of International Practice

Result of the Country Review

2nd

day

Presentation of International

Practice in the Synthesis Report

– International practice

– Assessment of RCREEE practices

– Energy planning and political

consultation process

Presentation of the Country Report

– Methodological basis for policy

preparation

– Assessment of the policy making

process

Country specific conclusions and

recommendations

3rd

day

Case study on Energy Efficiency

Selected EE policy instrument

Theoretical framework

Results of the case study

Country specific conditions

Case study on Energy Efficiency

Selected EE policy instrument

Theoretical framework

Results of the case study

Country specific conditions




Page 7

• Presentation of the Impact Assessment Project• Scope of the project and organisation• Value of international comparative analysis

• Key elements of the methodological basis for policy preparation andassessment

• Need for a methodological basis• Benefits of a sound methodological basis• Short and long term requirements

• Presentation of international practice• Policy making process• Policy implementation and impact assessment

• Result of the country review• EE and RE policy making process• Policy implementation• Observations and recommendations

Programme for Senior Policy Decision Makers




Page 8

• Presentation on methodological basis (international practice andpractice in RCREEE countries)

• Evidence based policy formulation

• Theory policy evaluation

Including: Economic evaluation of policy instruments / Integration ofclimate policy benefits in RE & EE policy analysis

• Presentation of case studies (including the discussion of casestudies prepared by participants)

• Presentation of selected policy instrument

• Required theoretical framework and selected approach

• Result of the case study

• Comment on country-specific conditions and challenges

Programme for Policy Analysts and Consultants




Page 9

• Key-documents for RCREEE countries

• Country Reports with the assessment of EE & RE policies andinstruments

• Synthesis Report

• Contacts within the RCREEE countries for networking andprofessional contacts

• Case Studies on evidence based policy preparation and andtheory based policy evaluation

Information Regarding the Available Project Results

- 105 -



Egypt.doc

Annex 7

Energy Situation in Egypt

- 106 -



Egypt.doc

Energy Situation in Egypt

Until the late 1990s, Egypt was a net exporter of energy. Currently, oil production almost matches the

Egyptian national consumption. On the other hand the discovery/development of large reserves of

natural gas established Egypt as an exporter of gas, both by pipeline and as LNG4. Electricity genera-

tion is the major user of fossil fuels (around 90% of electricity is from thermal power stations). Energy

forecasts5 include two scenarios covering the expected energy needs in Egypt and the potential na-

tional resources up to year 2022: a conservative one (figure 13), and a non-conservative one (fig-

ure14). The conservative scenario considers that Egypt will keep a steady level of production for both

oil and natural gas; while the optimistic scenario considers a 5% average annual increase in the pro-

duction of natural gas. Demand would reach 136 million TOE by year 2022 (the most upper line), the

average growth rate is about 7% annually, which corresponds to an overall development plan of over

7% annual development. The country will still primarily depend on liquid fossil fuels and natural gas by

the year 2022 (43% for the conservative scenario and 66% for the optimistic one); these percentages

are calculated after considering that the overall energy demand will be reduced by more than 8.3% in

the course of energy efficiency applications. The hydro resources for the production of electricity will

remain constant as Egypt has already fully utilised all possible national potentials at around 2.4%,

while wind is planned to cover around 8% and energy from nuclear resources would cover around

7.6%. The remaining 16% of energy needs would be supplied through other optional national/regional

resources such as solar energy in addition to interconnection with neighbouring countries and regions

such as the Mediterranean basin, the Nile basin as well as connecting to Saudi Arabia and the Per-

sian/Arab Gulf area. Out of these aforementioned future resources wind (8% of the overall needs cor-

responding to about 12% of the electricity to be generated) has real potential in Egypt as it also en-

counters the least technological limitations (cost, risk, etc) as compared to solar and nuclear.

Figure 12: Egypt's Future Energy Needs (Conservative Scenario)

5 66 0

6 36 7

7 17 5

8 08 5

9 09 5

10 1

10 7

113

12 0

12 7

13 5

0

20

40

60

80

100

120

140

160

2006/ 07 2007/ 08 2008/ 09 2009/ 10 2010/ 11 2011/ 12 2012/ 13 2013/ 14 2014/ 15 2015/ 16 2016/ 17 2017/ 18 2018/ 19 2019/ 20 2020/ 21 2021/ 22

Fr om f uel pr oducts Fr om N.G. Fr om Hydr o Fr om Wind

Fr om Nuclear Local ener gy needs Local ener gy needs with ener gy ef f . Additional needed ener gy

4 Liquefied Natural Gas - the form used for the transport of gas by ship.

5 Energy and National Security; an energy committee paper, national democratic party -Nov 2007- This paper is currently be-

ing adopted by the government.

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Egypt.doc

Figure 13: Egypt's Future Energy Needs (Optimistic Scenario)

Egypt's Oil6

Egypt was traditionally a net exporter of oil; Figure 147 shows that production declined at an average

of 3% per year over the period 1995-2005, whilst domestic demand has continued to grow. Net ex-

ports in 2007 were 60 thousand barrels per day, down from a peak of 500 in 1993. Whilst Egypt con-

tinues to be a small net exporter in physical terms, its balance of trade in oil has been negative since

19998. Eight of Egypt's nine refineries are relatively old and simple. They produce large quantities of

low value products (particularly heavy fuel oil and naphtha) and insufficient quantities of high value

products (notably diesel and LPG)9. Furthermore, many of the products are not of international stan-

dard - gasoline tends to be of relatively low octane number and high sulphur content10

. The move from

positive to negative balance of trade is often associated with a change in energy policy, notably in tar-

iffs charged. When the balance of trade becomes negative, countries have more incentives to charge

prices which reflect their full costs.

6 International Institute for Sustainable Development (IISD), draft final, April 2009, "Wind Power in Egypt: An Investment Case

Study for the Trade & Climate Change Programme". 7 BP Statistical Review of World Energy 2008,

http://www.bp.com/multipleimagesection.do?categoryId=9023755&contentId=7044552 8 ERM and Environics Analysis for World Bank Egypt: Energy-Environment Review 2003. Based on EGPC Statistical Publica-

tions and interviews 9 A number of hydrocracking/desulphurization facilities are currently being established in Egypt, including one in Northern

Cairo, producing lighter products from Heavy Fuel Oil (HFO) produced by the Cairo Oil Refining Company, and another as

an independent refinery in the Suez Area using crude oil inputs and HFO from National Petroleum Company of Suez 10

Diesel sulphur content averages around 0.4% from the eight older refineries - ERM and Environics (Ibid)

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Egypt.doc

Figure 14: Oil Production in Egypt, 1990-2007

0

200

400

600

800

1000

1990 1995 2000 2005

Th

ou

san

d B

arr

els

per

Day Oil Production Consumption Net Exports

Natural Gas11

Natural gas has been produced offshore in Egypt since 1970 (from Abu Qir, east of Alexandria; and

Abu Madi in the Nile Delta). Production levels became significant, when associated gas from the Suez

Gulf came on line in 1983. Figure 15 shows that production more than quadrupled over the period

1995-2007. Exports require the development of infrastructure: they started with the completion of a

pipeline to Aqaba, Jordan in 2003 but became significant only in 2005, when the LNG plants at Dami-

etta ("SEGAS") and Idku ("Egyptian LNG") came on line. Exports are now 15 bcm, one-third of Egypt's

production. Egypt's proven gas reserves continue to grow; the IEA projects that both production and

exports of natural gas will double between 2005 and 203012

.

Gas was first used in Egypt for power generation, via the conversion of oil-fired thermal cycle plants to

use gas as an alternative fuel. A relatively small quantity of open cycle gas turbine plant was added in

the early 1980s and a number of larger plants (including CCGT) have been constructed more recently;

these plants were specifically built to burn gas. Over 90% of thermal Egyptian generation currently

uses natural gas13

. Power plants are major consumers of gas and can use new supplies of gas quickly

(in that they need only single lines to be constructed).

The wider gas network is being progressively built up. Large customers were the first connected: in

many cases, energy-intensive plants such as fertiliser and cement plants were located in Egypt to take

advantage of the availability of gas. Concessions to construct the network were granted and the num-

ber of customers with smaller demands continues to increase. Power plants continue to dominate

Egypt's domestic gas demand. They were responsible for 63% of demand in 2006, with Industry (14%)

and the energy sector's own consumption (11%) making up the majority of the remainder14

.

11

International Institute for Sustainable Development (IISD), draft final, April 2009, "Wind Power in Egypt: An Investment Case

Study for the Trade & Climate Change Programme". 12

IEA World Energy Outlook 2005 - Special Issue on Middle East and North Africa Insights. Production is projected to in-

crease to 82 bcm in 2030 and exports to 36 bcm. The study notes Egyptian government estimates of probable or possible

reserves to be as high as 2800-3400 bcm 13

All figures taken from Egyptian Electricity Holding Company (EEHC) Annual Reports - http://www.egelec.com/ 14

IEA Energy Statistics for 2006, http://www.iea.org/Textbase/stats/gasdata.asp?COUNTRY_CODE=EG

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Egypt.doc

Egypt has dealt with its expanding gas resources by adopting, since 2000, a gas strategy compris-

ing15

:

• 1/3rd

for local needs;

• 1/3rd

for medium term export commitments;

• 1/3rd

for long term strategic requirements.

Figure 15: Natural Gas Production in Egypt, 1990-2007

0

10

20

30

40

50

1990 1995 2000 2005

Billio

n c

ub

ic m

etr

es p

er

year

Natural Gas Production Consumption Net Exports

Electricity

The electricity use in Egypt have been growing over the last decade at an average rate of about 7%

annualy; its mainly covered by thermal power generation using fossil fuels. At present Egypt has un-

bundled its former state owned vertically integrated electricity sector into 16 state owned electricity

companies, including: six generating companies, one Transmission Company and nine distribution

companies. All electricity companies remain state-owned under the Egyptian Electricity Holding Com-

pany (EEHC). A limited number of small size generating utilities were licensed to operate since the es-

tablishment of the electric regulatory agency in 2001, their overall capacity and number of customers

is growing gradually (they currently account for around 100 MW of capacity16

). Figure 16 shows the

current structure of the electricity market).

15

Eng. Sameh Famy, Minister of Petroleum, 2000 in http://www.ngv2006.com/data-NaturalGas industryinEgypt.htm 16

According to the Egyptian Electric Regulatory Agency: www.egyptera.org

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Egypt.doc

Figure 16: The Current Electricity Market.

Private Distributor

MV & LVCustomers

Exports& Imports

Gov. PP

BOOT(s)

Generation Co.(s)

Trans Co(s)

HVCustomers

MVCustomers

UHVCustomers

LVcustomers

ISP

ISP

Target MarketCurrent phase 2009

MOEE/EEHC

Dis Co(s)Trans Co(s)

At present, the Egyptian Electricity Holding Company "EEHC" owns 90% of the installed generation capacity (6 Generation Companies). Three private BOOT projects contribute with 9% of the installed generation capacity. The last 1% is made of the present wind farms and small isolated units. The present government owned electricity market is organized in the Single Buyer form. The Egyptian Electricity Transmission Company "EETC", which is the only company licensed for EHV and HV elec-tricity transmission, purchases electrical energy from all generation companies. EETC in turn sells the electrical energy to:

• the present nine distribution companies (around 24 million consumers),

• the present 85 EHV and HV consumers, and

• Some of the 12 private distribution companies (less than1% of the market). Furthermore, EETC is exchanging energy with neighbouring countries over the present interconnec-tions.

Table 13: Categories of Customers

Categories kV Numbers Energy Share

EHV 220, 132 kV 11 20%

HV 66, 33 kV 74 10%

MV 22, 11, 6.6 kV 4100 20%

LV commercial <6.6kV 22 millions 13%

LV residential <6.6kV 37%

Physical Status of EE and RE

The Egyptian energy strategy is targeting 8.3% potential reduction in the energy consumption by year

2022 through energy efficiency applications collectively at both the supply and the demand side. Fur-

thermore, the target contribution of renewable energies would be around 9% (2% from hydro and 7%

from wind; there is no clear assessment so far for the solar energy contribution).

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Egypt.doc

RE Use in the Country

In 1986 the new and Renewable Energy Authority (NREA) was established to act as the national focal

point for expanding efforts to develop and introduces renewable energy technologies to Egypt on a

commercial scale together with implementation of related energy conservation programmes. NREA is

entrusted to plan and implement renewable energy programs in coordination with other concerned na-

tional and international institutions within the framework of its mandate which includes:

• Renewable energy resource assessment.

• Research, development, demonstration, testing and evaluation of the different RE technologies fo-

cusing on solar, wind and biomass.

• Implementation of renewable energy projects.

• Proposing the Egyptian standard specifications for renewable energy equipment & systems, and

conducting tests to evaluate their performance, under the Egyptian prevailing conditions, hence is-

suing respective licensing certificates to that effect.

• Rendering of consultancy services in the field of renewable energy.

• Technology transfer and development of local manufacturing of Renewable Energy equipment.

• Education, training and information dissemination.

In February 2008 the Supreme Council of Energy, headed by the prime Minister, approved an ambi-

tious plan of having 20% of the generated electric energy from renewable energies by the year 2020.

This target includes 12% contribution from electric wind energy (around 7,200 MW) and 8% from Hy-

dro electric energy. In order to achieve this ambitious target, the Egyptian Electricity Transmission

company is currently inviting private developers through international competitive bidding to design, fi-

nance, own and operate private wind projects to be developed in successive phases in the Gulf of

Suez area as well as in areas east and west of the river Nile And near Kharga Oasis, starting with a

project of 250 MW installed capacity at the Gulf of Suez to be commissioned by December 2013. The

long term plan is to get the private sector to build around 5,000 MW by year 2020 and the rest (around

2,200) by NREA also by 2020. The underlying policy is subject of a case study in Section 5 of this re-

port.

The Egyptian electricity sector has recently drafted a new electricity act to encourage renewable en-

ergy utilization and private sector involvement. In addition to guaranteeing third party access, power

generation from renewables will enjoy priority in dispatching whenever they are available.

NREA has taken the decision to further support wind energy business through providing resource as-

sessment, necessary data for feasibility studies and technical support for potential project developers.

Besides the already earmarked areas, work is underway to identify other promising areas, which will

also be availed for future wind projects carried out by the private sector. The following figure shows

the wind energy situation up to year 2020.

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Egypt.doc

Figure 17: NREA and Private Sector up to 2020 Plan

35

0

100

200

300

400

500

600

700

2010 \

2009

2011 \

2010

2012 \

2011

2013 \

2012

2014/2

013

2015/2

014

2016/2

015

2017/2

016

2018/2

017

2019/2

018

2020/2

019

2021/2

020

Year

MW

Renewable Energy Authority

Private Sector

/4,0,, 0,,

.,,

., ,

. ,, .,, .,, .,, ., , .,,

/,,/, ,

.,,

.,,

. ,, . ,,

0,,

., ,

0, , 0, , 0, , 0, , 0, ,

With total share about 63 %

The Solar Atlas was issued in 1991, indicating that Egypt, one of the sun belt countries, is endowed

with high intensity of direct solar radiation ranging between 1970 - 2600 kWh/m2/year from North to

South. The sunshine duration ranges from 9 - 11 hours with few cloudy days all over the year. The first

Hybrid thermal Solar power plant is under construction is the Kuraymat Solar Thermal Power Plant

(140 MW). The project site at Kuraymat nearly 90km South Cairo, has been selected due to

1. an uninhabited flat desert land

2. high intensity direct solar radiation reaches to 2400 kWh/m2/year

3. an extended unified power grid and expanded natural gas pipelines

4. proximity to the sources of water (the River Nile).

Figure 18: The Kryamat Solar Thermal Project

Summary of Technical Parameters The Proposed Project Cycle

Capacity of solar portion (MWe) 20

Nameplate capacity of gas turbine (MWe) 79

Nameplate capacity of steam turbine (MWe) 76.5

Net electric energy (GWhe/a) 852

Solar electric energy (GWhe/a) 33

Solar share (%) 4%

Fuel saving due to the solar portion (T.O.E / a) 10000

CO2 reduction (T / a) 20000

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Egypt.doc

Characterisation of EE Situation

The 8.3% national energy savings target by the year 2022 corresponds to a value reflecting 20% of

the 2007/2008 energy consumption levels. The sectorial energy saving targets are shown in the table

below; the highest potential for energy savings is in the industrial sector followed by energy savings in

the transport sector.

Table 14: Potential Energy Savings at the End User Side (2022) - (Contributions to the 20% value

of year 2007/2008)

End user sector

Current Percentage

Use According

2007/2008 values

Sector Potential Percent-

age Savings According

2007/2008 values

Equivalent National Per-

centage Savings Accord-

ing 2007/2008 values

Agriculture & Irrigation 1 5 0.05

Gov. & Pub. Utilities 3 15 0.45

Res. & Comm. 20 15 3.00

Transportation 29 15 4.50

Industry 47 20 9.40

All sectors 100 17.40

On the supply side the energy efficiency targets are as follows:

Supply Sector Potential Saving

Petroleum products 0%

NG 0.4%

Electricity Generation 1.79%

Electricity Transmission & Distribution 0.4%