Electricity supply to exceed 70GW by 2020, FiT threatened by currency risk

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May 2016

With almost 7GW of generation capacity installed during 2015 and new projects being announced on a regular basis, capacity is expected to increase to over 70GW by 2020 according to African Energy’s research. Concerns over lack of gas availability have eased following the discovery of the giant offshore Zohr field, which is expected to increase domestic production by 50%, but the threat of a balance of payments crisis poses significant currency risk to international developers and financers looking at the renewables FiT scheme.


Following blackouts during the summer of 2014, the government has been encouraging a host of new electricity generation. Projects put on hold during the 2011 ‘Egyptian Revolution’ are now back on the agenda along with new projects promoted by the government and Gulf monarchies among others – and which are being announced on a frequent basis. Meanwhile state agency Pgesco is pushing ahead with the building of new gas-fired generation and the expansion of existing plants.

As has been the case in recent times, gas-fired generation remains the government’s priority, but a substantial diversification of the energy mix remains on the agenda.A number of large scale coal- fired projects (which are expected to source cheap imported feedstocks from international markets such as South Africa) are on the horizon, alongside a number of solar and wind projects under build-own-operate models and the feed-in tariff programme, while Russia’s Rosatom signed an agreement in November 2015 to build a 4.8GW nuclear power plant at Dabaa by 2022.

In a rapidly moving market, in which almost 7GW was brought online in 2015 alone, second guessing future developments is challenging. However, the implementation of only the most likely generation projects which currently enjoy significant support and momentum could take installed capacity to over 70GW by 2020, approximately 70% above the peak demand forecast, and well beyond even the generous 27% upper limit of the government’s target reserve margin, African Energy research shows. For developers and investors, this raises a number of serious questions surrounding the government’s commitment to certain projects, and the ability for others to reach commissioning. 


Power sector developments are based on credible plans to accelerate upstream gas field developments in the near term following a recent decline in production. Gas shortages have led to some consumers from outside the power sector, such as cement factories, converting to relatively cheap imported coal.

In an extreme move President Abdul Fattah El Sisi ordered the shut-down of some non-power sector consumers of gas during 2015, diverting feedstocks to electricity generation at the expense of the economy.

African Energy research carried out during 2015 raised serious doubt as to whether ambitious energy sector plans were sustainable given the substantial deficit in domestic gas production forecast over a five-year horizon, as well as the financial pressures an increased dependence on costly imports of LNG would place on the system (see 2015 report summary).

However, Eni’s giant offshore Zohr discovery may prove a game changer. Expected onstream in 2017 and with production scheduled to reach 2.7bcf/d by 2018, gas from Zohr is projected to help domestic production increase two-fold in the next five years, and will meet demand from the power sector and elsewhere according to our research. Other significant quantities of extra gas will come from deep-water offshore projects operated by BP and BG off the Nile Delta, with smaller contributions coming from DEA Group, Dana Gas, Edison and Royal Dutch Shell onshore. 


The solar and wind feed-in tariff programme gained significant traction at a time of decline for domestic gas production, which fed over 90% of installed capacity. Gas exports ground to a halt and Egypt became an importer of LNG. Along with the introduction of liquid fuel to the energy mix, this drove the average system cost up significantly in 2015.

Despite recent gas finds, Egypt appears to remain committed towards diversifying its energy mix, including introducing renewables.A 200MW wind project was commissioned in the Gulf of Suez in November 2015 – one of a number of projects being developed by the New and Renewable Energy Agency (NREA).Agreements are also being signed with international developers for the building of wind projects under a build-own- operate model at prices as low as $0.04/kWh.

Despite strong interest from international developers and financiers, the feed-in tariff programme is proving more challenging. The generous tariffs being offered for solar ($0.14/kWh), and to a lesser extent wind ($0.11/kWh) reflect the serious risks associated with the programme, critically that of currency convertibility.While denominated in US dollars, payments are made in Egyptian pounds, and with currency controls currently in place, dwindling foreign currency reserves, and threats of devaluation, FiT project face potentially serious delays in converting to foreign currency and exchange rate risk. 

Financial risk

A balance of payments crisis will almost certainly aggravate the situation. For the next several years, Egypt is expected to run a sizeable current account deficit, which must be supported by large capital inflows from foreign direct investment, multilateral support and loans from Gulf countries such as Saudi Arabia and the UAE.

Establishing a long-term sustainable economy depends on a revival in the tourism industry – itself dependent on eradicating the security threat from Islamist terror groups – cutting the subsidies bill, finding alternatives to energy imports and resuming energy exports. These objectives are all generally dependent on continued popular support for policies being implemented by the Sisi administration.

However, this has not led to a lack of preferential international debt financing for major government-backed projects. On 12 April, a consortium of 17 international banks led by Deutsche Bank, HSBC and KfW Ipex-Bank completed a €3.5bn finance package for three combined-cycle gas turbine plants with a total combined capacity of 14.4GW to be delivered by Siemens.The first two turbines for the 4.8GW Beni Suef CCGT power plant was shipped by Siemens in February and expected to be installed mid-May. 

Political risk

Although there are no immediate threats to Sisi’s control of the political scene, some observers have detected a brittleness within the regime. It is questionable whether the increased domination by the military of the commercial sphere is sustainable. Additionally, the unprecedented crackdown on the Muslim Brotherhood organisation could drive significant numbers of its supporters towards more violent forms of political Islam.

Support for Sisi’s administration from sections of the educated middle class is being undermined by the regime’s widespread human rights abuses, and draconian restrictions on civil society and freedom of expression. Combined with extended conditions of economic hardship, these factors may eventually weaken Sisi’s administration.

However, support from western and Gulf governments, who are anxious to avoid any severe breakdown of control in this highly strategic country, means the likelihood of uncontrolled regime change is relatively low. From the perspective of investors in the power sector, the potential negative outcomes include both an increase in the security threat against personnel and assets, and an increase in currency risk caused by restrictions on converting local into foreign currency. 

For further information on our market entry capabilities please contact:

David Slater
Head of Consultancy
t: +44 (0)1424 721667
e: david@africa-energy.com

For all other research queries regarding Egypt, please contact our North Africa expert:

John Hamilton
Managing director
t: +44 (0)1424 721667
e: j.hamilton@africa-energy.com

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