The new and renewable energy sector in Egypt is currently an unattractive pursuit for investment at the current time, say the owners of several companies which establish power plants in the field.
This sector, which is rapidly expanding and spreading in the rest of world, is facing significant problems that hinder the growth of its local investments, said the companies.
Head of Solar Energy Development Association (SEDA) Khaled Gasser said the sector of new and renewable energy is a field that is attracting investment and is currently expanding in most of the world. However, the present climate in Egypt is not conducive to investment and is preventing the sector from expanding.
According to Gasser, the US dollar crisis is pushing away many foreign investors who want to transfer their profits into US dollar, and at the end of the day they seek to make a profit.
The ruling legislation for this field is unclear, and the absence of an independent body responsible for the sector is one of the major obstacles preventing the sector from growing in Egypt, Gasser said.
“The tariff that the government has announced is only concerned with the large projects,” said Gasser, adding that small and medium projects could have achieved a significant leap forward in the field if they were supported properly and financed.
Gasser demanded that the government encourage the small and medium projects by buying energy produced by them at the same prices as the large projects, which would have a significant impact on the amount of energy supplied to the national network.
He said that more than one body conducted studies to determine the appropriate price of buying energy from small and medium projects. They concluded that the fair price is EGP 1.1 per kilowatt for solar energy. That was when the US dollar exchange rate was approximately EGP 7.5. The price now should not be less than EGP 1.3, whereas it is currently only EGP 0.84.
“Electricity distribution companies do not link the plants that were established to the national network,” according to Gasser, demanding that the government compel them to link the small plants to the national network and to sign contracts to buy these plants in order to encourage investors. Those who implemented small plants and responded to the call of the government are paying a heavy price as the purchasing tariff is unfair and the government does not buy their production.
Head of Green Energy Solutions Company (GESC) Mohamed Al-Sayed added that the devaluation of the Egyptian pound has reduced the profitability of renewable energy projects, according to the purchase tariff announced by the government in September 2014.
He added that the reduction in the value of the Egyptian pound has raised the average costs of renewable energy production, as the average cost of megawatt production is about $1.2m, equivalent to approximately EGP 10m. The current exchange rate of the Egyptian pound raised production costs to about EGP 13m and the product prices increased by almost 30%.
Al-Sayed confirmed that the prices of energy produced from new and renewable sources are still high compared to the relatively cheap cost of fossil energy prices. However, the differing exchange rates mean that small investors avoid pumping their investments into the field.
The non-application of the initiative to finance renewable energy projects, which was announced by Ibrahim Mehleb’s cabinet, who suggested that banks should offer financing at interest rates of only 4%, was strengthened to keep the small investors in the region.
The recent initiative by the Central Bank of Egypt (CBE) that set the interest rate on small- and medium-sized enterprises (SME) financing loans at 5% is good, said Al-Sayed. However, he said it is not enough, as the government must re-evaluate the purchase of energy prices to achieve attractive profit margins, along with the need to link the profit margins in foreign currencies to ensure its stability under changing exchange rates.
In spite of all the obstacles, Al-Sayed believes that the field of new and renewable energy in Egypt has many promising opportunities, as he said that Egypt is one of the top three countries globally in terms of sunshine duration and the degree of sun passes, as well as wide-open spaces that can be used to produce energy.
The volume of Egypt’s waste production is up to 100m tonnes per year. This waste could be used to produce several gaseous, liquid, or solid types of biofuels. Egypt produces up to 25m tonnes of garbage remnants that is sufficient enough to produce 5,000 MW, in addition to about 45m tonnes of agricultural waste per year.
He said that the export of raw gas represents a great loss. It could be used in petrochemical industries to raise the value of 1m British Thermal Units (BTU) to $100 or more. AlSayed demanded that the government legally compel manufacturers to use the energy mix and to use renewable energy sources or energy waste with specific rates that rise over time.
The state should allow the private sector to import gas from abroad as an alternative to keep the Egyptian reserves of domestic gas. He also pointed out that the imported gas is to be delivered through a national network to private sector factories with internationally recognised internal gas transmission prices.
Al-Sayed called on the government to provide facilities to encourage investors to enter the field of renewable energy, and pointed out that Germany has provided funding support at an interest rate not exceeding