5. COUNTRY STUDY EGYPT
5.6 B ARRIERS TO THE I MPLEMENTATION OF R ENEWABLE E NERGY T ECHNOLOGIES IN E GYPT
5.5.6 Conclusion
5. Country Study Egypt
ability to finance “expensive” investments in RET is quite low and second the subsidised fuel and electricity prices in Egypt nullify the RET advantage of low operation costs.
Many interviewees stated that high upfront capital costs50 of RET are affordable for neither public nor private investors [EGx]. Large projects - e.g. the realisation of a solar thermal power plant - often fail to be implemented due to high initial investment costs [EGxi]. As a consequence, the government only implements RE projects if soft loans are provided by foreign donor agencies, even if a project would be profitable over its lifetime. However, getting soft loans or other types of financial assistance from donor organisations is possible only for large entities that can manage the complicated application procedures. Besides, the risk of exchange fluctuations further complicates the financing of projects with need of special foreign equipment (e.g. revolving absorber for Desiccant Cooling Systems or heliostats for STPP) [EGx].
As is typical for developing countries, upfront costs are one of the most important criteria for investment decisions. Often only specific investment costs in [€/kW] rather than specific electricity generation costs in [€/kWh] are compared to those of conventional power plants.
Since the first benchmark generally is much lower for fossil fuel plants and the latter is diminished by the high Egyptian fossil fuel subsidies, RET often have no real chance for implementation from an economic and financial perspective [EGx].
However, in particular for solar power plants even the simple comparison of the electricity generation costs sometimes is not suitable if the solar electricity costs are compared to (fossil fuel) baseload electricity costs: CSP plants as well as PV plants generate electricity especially at midday and in the summer, when electricity demand (e.g. for cooling applications) is very high. Peak load can be significantly more expensive than baseload electricity.51 Electricity generation costs of CSP plants nowadays are in a range of 12 to 20 Ct/kWh and are expected
50 There have been significant price decreases and technological progress for some technologies in recent years (e.g. wind turbines, PV cells) but in particular some of those RET with a huge potential in developing countries are still very expensive (e.g. solar cooling).
51 In free spot markets (which does not exist in Egypt), peak load electricity can reach prices of more than 20 Ct/kWh.
to be considerably below 10 Ct/kWh in future.52 But many potential investors or political decision-maker only set the base load price of e.g. 2 to 4 Ct/kWh as reference [EGxii].
The low electricity tariffs in Egypt are the main disincentive for getting any private investor to invest in RET. The planned tariff increase by 5% per year would slightly remove this barrier [EExiii]. However, even if this plan was realised, it would take14 years to double the present prices for electricity and they still would be on a relatively low level then.
The subsidies granted to fossil fuels create an uneven “playing field”, the levelling of which is judged as an indispensable prerequisite for bringing RET into the market [TGxiv]. But decreasing these subsidies is politically very difficult since it might lead to social unrest (see the nation-wide protests against attempts to diminish subsidies for bread in Tunisia or Morocco) [EGxv]. In the absence of subsidy decreases, the main opportunity area for RET applications might be electricity exports since the difference between export revenues and local tariffs could improve the economic situation of RET.
Apart from the high initial investment costs and low tariffs there are further financial barriers:
Taxes and customs for imported equipments make installations of RET even more expensive. Additionally, there is hardly any incentive set by the government for encouraging the use for example PV systems (EExiii). Thus, PV can compete only in remote/small villages that are far from the grid, if at all. However, the income of people living in these peripheral regions is often far below the average income so that they cannot afford paying for the
“hardware”. Moreover some RET face barriers due to their rather decentralized and small-scale nature which produces higher transaction costs. Thus implementation is only possible if grants are available to cover incremental hardware and / or transaction costs. This is the reason why PV is almost only used by the private sector in the telecommunication infrastructure and advertisements on highways (EExiii).
Solar cooling could be a very useful application.53 As one interviewee reported, an estimated 70% of the harvest of fruits and vegetables goes off due to gaps in the cooling chain from the producer to the consumer. However, destroying the major part of the crop is still cheaper than
52 E.g. the MED-CSP study 2005 by DLR reveals future costs for electricity from CSP of about 5 Ct/kWh in 2020 and 4 Ct/kWh in 2040 respectively (DLR 2005).
53 One great advantage of solar cooling is the coincidence of solar supply and cooling demand.
5. Country Study Egypt
establishing solar cooling systems [EGx]. Therefore it is important to overcome the financial start-up difficulties to realise the significant potential for economies of scale.
5.6.2 Institutional and Political Barriers
In industrialised countries as well as in developing countries many institutional barriers are based on the historical development of the energy sector: Decision-makers have grown up in a fossil fuel world and institutions are designed accordingly. While the New and Renewable Energy Authority (NREA) was established in 1986 already, the main responsibility for the development of the electricity sector still lies with the Egyptian Electricity Holding Company (EEHC) that does not pay much attention to RET. There is therefore still a lack of a powerful institution for RET promotion.
The strong hierarchical structure of public institutions also impedes the diffusion of new knowledge and ideas. The technical expert on a lower hierarchical level may have a good understanding of the benefits of the promotion of RET but has hardly any influence on the decision-making process whereas the person with decision-making competence may lack this expertise (EGxii). Ministers often take decisions without any consultation with the technical experts. This hierarchical structure also results in a rather passive behaviour of lower hierarchy personnel. Therefore, well-established personal contacts to upper level bureaucrats are required for investors of projects, which could be a serious barrier for small and medium enterprises [EGx][EGxi].
Another problem that can only be solved through political action is the monopolistic structure of the energy “market”. At the electricity market, EEHC is the central actor to whom all Independent Power Producers have to sell their electricity. As decentralized RET lose one important competitive advantage in countries with a high rate of grid-connected electrification such as Egypt, ensuring grid access for smaller projects is crucial to exploit decentralized potential.54
There are special barriers for biomass energy as result of the involvement of different ministries (Ministry of Environment, Ministry of Local Development and Ministry of
54 See also (GTZ 2004: 14): “In particular, technological standards, codes or non-discriminating, free third-party access to heat or electrical grids can be significant for the development of renewables”.
Agriculture) and unclear responsibilities. As a consequence, hardly any governmental institution takes care of the promotion of biomass. The most competent actor is the Agriculture Research Centre whose focus, however, is rather on research than on implementation. The Ministry of Electricity and Energy, on the other hand, is dominated by engineers who often do not see the added value of biomass compared to large fossil plants since project implementation takes longer and less electricity is generated. Another indication for the weak standing of biomass is that the respective unit in NREA has little influence compared to other units and makes hardly any progress [EGxvi].
5.6.3 Technical Barriers
Technological barriers very much depend on the RET considered. As there is hardly any RET production industry in Egypt, most RET need to be imported, creating some financial barriers (see Chapter 5.6.1). Efforts to introduce RETs in Egypt have frequently been set back by insufficient quality of the appliances. As outlined in section 5.3.3, in particular solar water heaters have gotten a bad reputation due to frequent malfunctioning, which is a major barrier to their further dissemination.
While these problems can be remedied relatively easily, in particular in the case of solar thermal power plants (STPP) with their vast potential in Egypt there are still major technological barriers to overcome before large-scale implementation can start.
The generally favourable conditions for CSP electricity generation in the Mediterranean region are well known, but to implement STTP there is a need for specific information on the solar radiation at different sites. As there are no solar radiation world atlases for the “Direct Normal Insolation” (DNI)55 in high definition yet, the solar input needs to be evaluated for every single location, which further raises up-front investment costs.56
One important restriction for the utilization of STPP is the need for cooling water.
Therefore, coastal locations or locations nearby rivers are at first most favourable. Once the potential of these locations has been exhausted, however, process designs with dry cooling
55 The yearly amount of Direct Normal Insolation (DNI) is an important benchmark for the utilisation of CSP systems.
56 An important programme to tackle these barriers is the Solar and Wind Energy Resource Assessment (SWERA) carried out by UNEP and GEF for a number of countries.
5. Country Study Egypt
systems need to be developed so that also sites with less water supply can be used.57 Up to now, dry cooling (especially in hot regions) is accompanied by efficiency losses which result in slightly higher electricity generation costs. This disadvantage could in the future be compensated by economies of scale.
Whereas STPP have already proven their reliability for more than 15 years (there is more than 350 MWel installed capacity in California, for example), solar thermal storage at large scale – which is necessary for exclusive solar operation – is still at the demonstration stage. The first experience with commercial applications will be gained by the two 50 MWel CSP projects AndaSol 1 and 2 in Andalusia/Spain that are to start electricity production in 2007/2008.
If STPP are implemented in the hybrid version (solar energy and fossil fuel), the steam turbine must be larger to accommodate to the additional solar-generated steam. If such a turbine is operated in pure fossil mode (e.g. at night), it operates in the unfavourable part-load operational range. U.S. American and German experts have quarrelled about the resulting amount of efficiency losses [EGxvii].
To transmit RE electricity from Egypt to European countries, a connection system with little losses will be essential. Therefore, in the long term the transfer of large quantities of solar or wind electricity will require a totally new grid infrastructure of High Voltage Direct Current (HVDC)58 interconnections between MENA states and Europe [EGxii]. A new study (DLR 2006) suggests a step-by-step erection of two to twenty HVDC lines (of 5 GW each) between 2020 and 2050 which at the final stage would allow a electricity transfer of 700 TWh per year to the main demand centres in Europe. In this scenario, the study assumes electricity costs in 2050 to be 5 Ct/kWh, including 1 Ct/kWh for transportation (see Table 5.12).
Another interviewee commented that those special interconnections were not absolutely necessary; in his opinion a meshed feed into the European net would be sufficient [EGxvii].
57 Incidentally, the technical challenges concerning the re-cooling of solar cooling systems are similar.
58 Such a HVDC interconnection already exists for example between Morocco and Spain. At present Spain delivers fossil-fuel based electricity to Morocco, but in the future Morocco could feed RE electricity into the European grid via this connection.
Table 5.12 Results from the TRANS-CSP Scenario 2020 till 2050 (5 GW lines)
Source: DLR (2006)
5.6.4 Awareness / Information / Capacity Barriers
Being a fossil fuel producing country, there is only limited awareness of the (ancillary) benefits the application of RET could yield for Egypt. Besides, the huge potential of some RET are still underestimated. This is even more true for newer technologies such as solar thermal electricity generation (STEG). Combining STEG with cooling applications and/or seawater desalination (in thermal, electrical or combined processes) and considering that peak load electricity has a higher value than base load (see chapter 5.6.1), solar power plants could in the mid-term deliver electricity and fresh water at competitive prices. Another indication for the lack of mainstreaming RET awareness in the governmental institutional setting are the activities of the Rural Electrification Authority that mainly focuses on conventional energy sources [EExiii].
A further obstacle is the lack of personnel capacity: lack of skilled and trained personnel is not only problematic for technical maintenance, but for RE market development in general.
Human capacity is needed for the implementation, maintenance and distribution of RET and also for financial arrangements on the local level.
Moreover, while there are several institutions in Egypt that are concerned with supporting RETs on the policy level, there is so far little infrastructure to directly support practitioners in
5. Country Study Egypt
the actual implementation of RETs on the ground. In particular, interviewees indicated that there is only little support for small-scale RET applications [EGx].
Table 5.13: Overview of the Barriers Identified and the Effects that Hinder RET Implementation in Egypt
Barrier group Barrier Effect/Impact
High specific upfront costs of RET versus low fuel prices and electricity tariffs (through high subsidies for fossil fuels and electricity)
No level playing field, low willingness and/or ability to finance “expensive” investments in RET
Comparison of costs in [€/kW] instead of specific electricity generation costs in [€/kWh]
RET investments are not implemented even if a project would be profitable over its lifetime
Taxes and customs on imported equipment RET installations become even more expensive Insufficient purchasing power of potential users Potential RET applications are not implemented Financial &
Economic
High transaction costs due to small-scale and decentralised nature
Potential RET applications are not implemented
Institutions for RET promotion are relatively powerless
Government concentrates on fossil energy, RET potential not realised
Strong hierarchical structure of public institutions Impeding of the diffusion of new knowledge and ideas from bottom up (especially serious barrier for small and medium enterprises)
Monopolistic structure of the energy market No guaranteed grid access and feed-in tariffs for independent RE power producers
Institutional &
Political
Unclear ministerial responsibilities for RET especially in the biomass sector
Weak promotion of biomass in Egypt
Insufficient quality of appliances RET get a bad reputation, impeding their further dissemination
Need for cooling water for Solar Thermal Power Plants (STPP)
In the market launch phase potential locations are restricted to coastal (or river) areas; later dry cooling systems (with the disadvantage of efficiency losses) have to be developed Solar thermal storage at large scale – necessary for
exclusive solar operation – is still at demonstration stage
Start up with hybrid fossil/solar power plants is economically sounder than monovalent solar operation Technical
Great efficiency losses for RE electricity transport over long distances (e.g. from MENA states to central Europe)
Establishment of a new international grid infrastructure of High Voltage Direct Current (HVDC) interconnections on the long run necessary for long-distance exports
Lack of awareness of the potential and the multiple benefits of RET utilization among decision-makers on different political and administrative levels
Potential and positive side benefits of some RET are still underestimated
Lack of qualified personnel Problems in technical implementation, maintenance and financial arrangements hinder RET market development in general
Awareness /
Information / Capacity
Inadequate, insufficient education of consumers/RE system users
Technological mistrust in case of system breakdown, monetary losses for consumers