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Finance challenges burden Egypt’s clean energy goals

Egypt's President Abdel Fattah al-Sisi attends the second edition of the summit of the Green Middle East Initiative, held on the sidelines of the Cop27 climate conference Reuters/Bandar Algaloud/Courtesy of Saudi Royal Court
President Abdel Fattah El Sisi issued a directive to increase the tax limit to EGP36,000 ($1168.68) from EGP24,000 per year

A week before Cop27 began, the governor of South Sinai, Khaled Fouda, declared Sharm el-Sheikh “the first environmentally friendly tourist city in the Middle East.”

His announcement marked the conclusion of the five-month “Green Sharm El-Sheikh” project, which introduced hundreds of electric cars, hybrid and hydrogen buses, and numerous vehicle charging points to the city for the first time. 

At the centre of the project was the construction of two solar power plants with a combined capacity of 26 megawatts (MW), the largest of which was inaugurated last month, just in time to provide much of the electricity needed at the conference.

Renewable energy is high on the Egyptian government’s agenda at Cop27.

Speaking to the Egyptian Mena news agency in Sharm el-Sheikh on Sunday, the electricity and renewable energy minister, Mohamed Shaker, said that the ministry wants to use the opportunity to sign new agreements with the world’s leading renewable energy companies. 

One of the main pillars of the renewable energy sector is solar power, a relatively young industry in Egypt, but one that energy experts agree has massive potential.

The country has ambitious targets for expanding its current capacity, but despite the country’s vast solar resources, and enthusiasm across the board for its development, many worry that the sector is not growing as quickly as it should.

According to officials, Egypt is aiming to obtain 42 percent of its electricity from renewable sources in 2035, rising to 60 percent by 2040.

Rumours among those working in renewable energy are that the government will announce a more ambitious target during this year’s conference, although sources disagree on what the new target is likely to be.

Mostafa Hassanein, a former electricity minister official who now works for the Regional Center for Renewable Energy and Energy Efficiency, believes that the current renewable energy targets could be increased by as much as 55 percent. “There are a lot of new projects that will be announced,” he said.

Those who attended last year’s conference may remember a similar announcement. At Cop26 in Glasgow, the Egyptian oil minister, Tarek El Molla, announced that Egypt would achieve 42 percent of its energy mix quicker than it planned, bringing the date forward from 2035 to 2030. 

Since then, however, government briefings and speeches have quietly reverted to the previous deadline of 2035.

Within the industry there is a lack of consensus on what the official target is. “If you’re asking me which one is the real one, I don’t know,” said the CEO of Onera Systems, Wael El-Nashar.

Nonetheless, the International Renewable Energy Agency believes that both targets are achievable. In a 2018 report, the agency went even further, claiming that Egypt could feasibly get 53 percent of its electricity mix from renewables by 2030.

With around 3451 hours of sunshine a year and high radiation levels equivalent to roughly 2,600 kilowatt hours per square meter per day (KWh/m2), Egypt has the potential to produce large amounts of cost-effective solar power.

“If you invested the same capital cost in Egypt as, let’s say, Germany or Italy, the return would be 70 percent more,” Al-Nashar said.

It is only in the last decade that solar power has received large-scale investment in Egypt and renewables still occupy a small fraction of the country’s energy mix, over 90 percent of which comes from fossil fuels.

But solar power capacity has grown exponentially in recent years with numerous new plants being built, including the world’s fourth-largest photovoltaic power plant, Benban near Aswan, which has a total capacity of 1650 MW.

But while solar power is on the rise, the country has a long way to go to reach its renewable energy targets.

According to the International Energy Agency’s forecast for 2021, Egypt’s total renewable energy output is likely to grow by 68 percent over the next five years, a sharp rise but nowhere near the steep upturn needed for the country to quadruple its renewable energy output by 2035.

Regarding the growth of solar in particular, some market leaders are sceptical. “It’s not growing, in my opinion,” said Al-Nashar. “There are a lot of challenges.”

One of the biggest obstacles to development that solar companies are reporting is access to finance.

A currency crisis, caused in part by global inflation related to the war in Ukraine, has seen the dollar rise to 24.3 Egyptian pounds, from 15.7 EGP, over the last year and Egyptian businesses are struggling to access hard currency.

“The biggest problem we’re facing now is finance,” says CEO of renewable energy components distributor Enersyscom, Mohamed Fahmy. “We can get the parts we need, but our customers can’t buy them. And if they do, they pay a lot.”

Solar power operators also report difficulties in borrowing unconnected to the currency crisis, particularly for small and medium-sized businesses. “Most institutions and funding entities are still treating small systems as high risk,” said Al-Nashar. 

“On the other hand, they treat the high-scale systems as low risk”.

Al-Nashar is among those that believes these market trends reflect the Egyptian government’s preference for larger utility-scale plants over smaller systems, a preference he disagrees with. “Scattered and small systems provide much better utilisation of solar energy,” he said.

Despite the problems accessing finance, solar operators on the whole say that they are not looking for financial support from the government. “I think a sound business should not be dependent on certain things from the government,” said CEO of KarmSolar, Ahmed Zahran. 

“The government in general has been quite cooperative with us.” Zahran said that the 2015 Electricity Law, which effectively restructured the nation’s energy markets, is “one of the most progressive in the world”.

Al-Nashar agrees that improvements in solar power technology means that plants should now be profitable enough for companies to operate without government support.

He said that he would prefer to see clearer legislation to allow organisations like his to do business without an excess of ambiguity, citing the confusion around the renewable energy targets as an example: “We need clear policy, not subsidies.”

With the solar sector reporting an investment deficit that is set to grow along with demand for renewable energy, solar energy operators say they welcome any new lines of finance, but remain sceptical that Cop27 will provide it. 

“I have no expectations,” said Zahran, “and, to be honest, I don’t even believe in those kinds of conferences.

“I believe in stuff that happens on the ground: the business models that are going to convince people to move from fossil fuels to green energy.”

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