Cairo has a big power challenge on its hands, analysts say.
“Electricity is one of the big public issues in Egypt. The government needs to sort out this problem as soon as possible,” says Mohammed Nabil Hazzaa, a senior associate at the Egyptian law firm Sharkawy & Sarhan.
Before the 2011 Arab Spring, Egypt’s electricity position was perilous. Political and economic inertia in the years that followed coincided with rising demand for power. This caused the gap between electricity supply and demand to widen.
Demand for power is expected to continue to rise. Egypt’s electric utility and consumer protection regulatory agency expects the country’s power needs to grow by an average of 6.2 per cent a year up to 2035. Other agencies expect a steeper incline.
The country therefore needs to build a lot more power generating capacity. The government is keen to see new gas-fired power plants constructed. This will be necessary for Egypt to fulfil its basic electricity requirements.
At the same time, there are limits to the number of traditional new power plants Egypt may want to build. This is because its oil and gas production is dwindling. Even though the country still has reserves, rising extraction costs may mean that it no longer makes economic sense to continue production. According to Egypt’s 2030 energy strategy, it will soon become a net oil and gas importing country. It will need to buy fuel for traditional power plants from other countries. Egypt currently generates 95 per cent of its electricity from oil and natural gas. Paying international fuel prices can be expensive, particularly for a country like Egypt, which has seen the value of its currency slump by 27 per cent against the US dollar over the past five years.
Importing fuel would also put pressure on the state’s foreign currency reserves. It has been grappling with its reserves for several years and relies heavily on funds from other countries. While Egypt’s foreign currency reserve recently rose to its highest level since October 2011 after its supporters in the Arabian Gulf provided US$6 billion, the issue of reserves is likely to continue.
Importing increasing amounts of fuel for power generation instead of relying on its own reserves also exposes Egypt to price volatility. While international oil and gas prices are a lot lower than a year ago, Cairo is wary of future price rises and general volatility.
Renewable energy would offer Egypt some immunity.
If gas prices rise significantly and the cost of renewables diminishes, their prices may become more or less comparable.
“In five years’ time we are going to remove the subsidy [for renewable power],” says Lamya Youssef, the general manager for renewable energy projects at Egyptian Electricity Transmission Company.
“So maybe by that time renewable energy may be at the same cost as other power generation.”
Follow The National’s Business section on Twitter