Egypt looks to Gulf investors to end power blackouts

Mohamed Abd El Ghany/Reuters

• 4GW of new capacity needed
• Hotter summers increasing pressure
• Population rising 2m a year

Egypt’s energy blackouts have created new opportunities for Gulf investors, as the cash-strapped Cairo government tries to end the crisis and plug the gap in its electricity supply before next summer.

Prime minister Mostafa Madbouly announced on September 19 that there would be no more power cuts over the coming period, potentially marking an end to load shedding that has frustrated Egyptians throughout the summer. 

Speaking to reporters in July, Madbouly said that despite the country having prepared for increased demand, summer heatwaves created temperatures that “nobody could have imagined”, damaging generators and transmission infrastructure, and pushing peak consumption up from 37GW to a record 38.5GW. 

To meet this increased demand, Madbouly said, the country needs to add 4GW of renewable energy capacity by next year.

Egypt is dependent on natural gas, which accounts for 84 percent of its electricity generation mix; solar and wind combined make up about 10 percent.

• Austerity threatens Egypt’s green energy progress

• Egypt seeks to treble foreign direct investment to $30bn

• Egypt to receive half of Acwa Power’s $30bn Africa investment

One company set to increase its investments in Egypt is the Dubai developer Amea Power, which is planning to add 2GW of renewable energy capacity to Egypt through a combination of wind, solar and green hydrogen power plants.

“Egypt has been blessed with good wind resources and good solar resources which makes renewable power quite attractive,” says Amea’s chairman, Hussain Al Nowais.

Amea hopes to double the capacity of its existing 500MW Abydos Solar Energy project to 1GW. It was also recently approved to add 1GW of capacity to the nation’s solar energy project. Al Nowais says that he expects a separate 500MW wind project to come online earlier next year. 

“We are a strong believer in Egypt,” Al Nowais says. “The Egyptian vision of energy transition and to increase green power is one we subscribe to and support.”

The company is also developing Egypt’s first battery storage project, with a combined capacity of 900MW, to optimise renewable energy output. Al Nowais expects it to be running in around 18 months.

Climate change means Egypt’s summers are getting hotter. In June, Aswan in Upper Egypt recorded 50.9C for the first time. On top of this, the population is growing by almost two million people a year.

The Central Agency for Public Mobilisation and Statistics predicts Egypt’s population could reach 157 million by 2050.

Reuters

James Swanston, an emerging markets economist at Capital Economics in London, says: “It seems like it will require a lot of investment for them to be able to really reach the goals they want. 

“It’s just, at the moment, they’re trying to bring the debt ratio down. They’ve got very high interest payments on their debt that they don’t have that fiscal room to really do it.” 

With austerity measures and government cutbacks, the private sector is likely to play a big role in developing energy infrastructure, and Gulf investors are the most likely to be involved. 

“The relationship between my country and Egypt is helping a great deal,” Al Nowais says. 

“The United Arab Emirates is a big investor in Egypt, a big supporter of Egypt and we are working with development financial institutions who are competing to give us money to support Egypt.”

Another Gulf company seeking to expand operations is Saudi Arabia’s Acwa Power. Backed by the Public Investment Fund, the energy company intends to invest $15 billion in Egypt by 2030, with green hydrogen projects leading much of that investment, along with solar and wind.

‘Positive momentum’

Marco Arcelli, Acwa’s CEO, says: “I really see a positive momentum. You build on the fundamentals of the country. They need energy, they have a growing population, it’s a large economy and so you have to believe, basically, in a good future.”

Egypt is hoping to treble foreign direct investment in the current financial year to $30 billion and is actively courting foreign investors.

The government hopes that a raft of incentives will bring new inflows of investment to a country that has had to strip back its budget after a persistent foreign liquidity crisis.

Acwa Power

The economic issues of the past few years had deterred many from putting their money in Egypt, but Arcelli says that the situation “has improved considerably in the last year. We view it positively. And we invest for the long term.”

Acwa is less concerned than before about access to foreign currency, the ability to change Egyptian pounds and repatriate profits, and believes that the long-term advantages of the Egyptian market outweigh any short-term turbulence.

“They’re well positioned geographically,” Arcelli says, “so I think that the fundamentals are there for supporting investments in the country, and we really want to participate in that.”