Renewable energy sector could see growth after Egypt subsidy cuts

The austerity plan is altering prospects of renewable energy companies, reviving hopes for better business conditions and increasing demand.
Sunday 24/06/2018
High hopes. An employee works on the production line of a solar energy department at a factory on the outskirts of Cairo. (Reuters)
High hopes. An employee works on the production line of a solar energy department at a factory on the outskirts of Cairo. (Reuters)

CAIRO - Renewable energy companies have struggled in Egypt to expand their market. Growth has been hampered by the lack of support from local banks for renewable energy projects, the high cost of needed station components and little interest from citizens.

The fact that fossil fuels were much cheaper than renewable energy, with the Egyptian government spending billions of dollars to subsidise fuel, was the prime reason there was scant national enthusiasm for renewable energy.

This is quickly changing with Egypt implementing an austerity plan that eliminates subsidies, including those allocated for fuels.

The plan is altering prospects of renewable energy companies, reviving hopes for better business conditions and increasing demand for renewable energy for institutions and citizens who hope renewable energy could be cheaper than traditional fuels.

“Conditions are quickly changing with the price of the traditional fuels rising,” said Ahmed Hamdi, the head of solar power company Africa Solar Energy, one of dozens of renewable energy companies in Egypt. “Interest in our projects is growing and we can feel it.”

Egypt slashed home and car fuel subsidies almost 50% in June, the third such cut in less than three years. Fuels sell at more than 80% of their real market price and the government has said it plans to eliminate fuel subsidies in the next three years.

Electricity subsidies will be cut by almost 47% in the fiscal year 2018-19, which starts July 1. This is also the third time that electricity subsidies have been reduced in less than three years. The government expects to eliminate electricity subsidies as well.

These developments are deeply affecting the cost of powering everything in Egypt, from the country’s millions of homes to its vehicles and industrial plants that relied on government subsidies.

With the subsidies expected to be cut, renewable energy companies such as Hamdi’s Africa Solar Energy say their time has come.

Like many renewable energy companies, Africa Solar Energy struggled to find a market and the company posted very slow growth. However, now the company has been receiving a huge number of calls from factories looking into solar energy and people considering installing solar panels on their roofs or in their yards.

The sales section at Hamdi’s company recently secured deals for the installation of ten solar power arrays on the rooftops of buildings in Cairo, with more deals expected soon.

“I am sure solar energy will invade every part of Egypt in the coming few years with its cost gradually becoming lower than the cost of energy generated by traditional fuels,” Hamdi said. “Most of the electricity generated in Egypt will be generated by solar power.”

Officially, Egypt has a much more modest goal as far as renewable energy is concerned. Cairo plans to generate 20% of its electricity from renewable energy by 2022.

More than 94% of the country’s electrical power plants are powered by traditional fuels, including natural gas and oil.

The growth of the renewable energy market is being stimulated by increased investment, with major banks willing to finance renewable energy projects.

Solar power panels are being manufactured in Egypt in several nationally owned factories. Apart from saving foreign currencies that used to be spent on importing solar panels from abroad, their being manufactured domestically contributes to lowering prices and making renewable energy more affordable.

There are, however, many challenges before a major domestic shift to renewable energy takes hold, experts said, not least that solar power plants require expensive maintenance and upkeep.

“The components needed for solar power plants, including the solar panels, also remain expensive,” said Wael al-Nashar, an Egyptian expert in renewable energy. “The prices could go down in the future but, until this happens, this will constitute a major hindrance on the road to greater dependence on renewable energy nationwide.”

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