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The industry has made a dramatic shift from severe undersupply to generation capacity outstripping supply, but African Energy Live Data’s analysis shows the underlying structure of Egyptian power generation will change only slowly in the period to 2022 and beyond, writes John Hamilton

The questions facing electricity sector strategists and their international and local partners have changed dramatically as Egypt has shifted from severe undersupply to oversupply. However, analysis of installed plants and the project pipeline to 2022 and beyond captured by African Energy Live Data suggests the underlying structure of power generation – dominated by state-owned gas-fired plants – will change only slowly, despite the huge amount of extra capacity being added to the system.

According to Live Data’s snapshot of the pipeline as it stands in October, installed capacity will increase from 46.6GW at end-2017 to 69.3GW in 2022. Some 14 projects totalling 15.9GW are under construction and a further 67 projects totalling 34GW are planned, although inevitably not all will be developed.

The financial close deadline in the second round of the solar feed-in tariff programme means that approximately 1.5GW of privately financed solar photovoltaic (PV) capacity will come on stream in the next 12 months. Approximately 1.5GW of wind generation is planned or under construction, mostly via competitive tenders. These projects are moving more slowly than the solar schemes.

Also due to fully come on stream over this period is the remaining unbuilt capacity of the three huge combined-cycle gas turbine (CCGT) plants supplied by Siemens, which in total will add 14.4GW of capacity. Some of this is already installed and operating. A programme to convert a large fleet of open-cycle gas turbine plants to combined cycle and the construction of new thermal plants at Helwan and Assiut, will add a further 4GW by 2022.

Looking further into the future, the five-year plan which ends in 2027 will be dominated by the construction of 8GW of coal-fired capacity, 4.8MW of nuclear, plus additional gas, solar and wind projects.

There is already strong momentum behind a government-led expansion of generation capacity. Since 2015, 8GW has been added to the system. As a result, load-shedding caused by lack of capacity is a problem of the past. The mix of projects which are highly likely to be commissioned over the next five years will provide a more than solid reserve margin.

Questions of cost

The problems that Egypt’s power sector is likely to face over the coming period will come from oversupply. The dominant questions for developers of further capacity are those of price and the terms of power purchase agreements (PPAs). With the power supply now secure, the government wants the best prices for electricity and has left behind its earlier ‘procure at any cost’ approach.

Following the competitive $0.04/kWh benchmark price agreed with Lekela and Engie at their Gulf of Suez projects, the government is unwilling to pay more for power from other projects. Those located in areas with poorer wind quality are struggling with this. Projects potentially affected include the New and Renewable Energy Authority’s 200MW Gulf of Suez Wind II project, supported by Masdar, and the 2GW Siemens scheme – agreed at the same time as its trio of CCGT plants – where African Energy understands that Egyptian Electricity Transmission Company (EETC) has refused to agree a PPA at €0.058/kWh (equivalent to $0.061/kWh).

New solar PV projects will come under similar pressure. The 600MW SkyPower West Nile project will produce power at a levelised cost of $0.038/kWh, which is expected to become a new benchmark (AE 353/8).

In this context, the most significant change to electricity sector policy in 2017 was a Ministry for Electricity and Renewable Energy decision to abolish bilaterally negotiated contracts for new generation; future power plants are to be awarded based on the most competitive prices following a tender procurement process. UAE-owned Al-Nowais’s 2.46GW coal-fired project and Siemens’ wind project are thought to be excluded from this.

Coal and nuclear

A number of other planned coal projects have been restructured into a single competitive tender for a massive 6GW plant at the Red Sea port of El-Hamrawein. An Egyptian Electricity Holding Company (EEHC) source told African Energy that bids from GE, the Chinese Dongfang Electrical/Shanghai Electric consortium, and a Japanese Mitsubishi/Sumitomo/Toyota Marubeni consortium were in contention. The Chinese bid could be financed by International Commercial Bank of China, China Exim Bank and the Export Development Authority under the EPC plus finance model.

In August, Egypt and Russia completed talks on contracts to build the 4.8GW Dabaa nuclear power plant. The area for construction is scheduled to be cleared by early 2018. These discussions have advanced stolidly via a series of high-profile signing ceremonies, despite the deal’s implausible economic framework, which is centred on a Russian state-backed loan of $25bn to cover some of the total cost of $30bn. Egypt has said it intends to raise the remaining 15% from private investors.

Although the levelised cost of energy (LCOE) produced by nuclear is normally expected to be low, at $6.25bn/GW, the capital cost of the project is 12% more than the equivalent $5.57bn/GW capital cost of the concentrated solar power scheme recently agreed in the UAE between Dubai Electricity and Water Authority and Acwa Power, for which the LCOE will be $0.073/kWh. It therefore appears that the main justification for the project, apart from the prestige which nuclear affords in some quarters, is the vast scale of the concessional financing apparently on offer from Moscow.

Reduction of renewable energy

Officially, the target of 20% renewable generated electricity by 2022 remains unchanged. This was intended to include 12% of wind generation implying 8.3GW of capacity within an expected total of just under 70GW. However, the current project pipeline will deliver no more than 10% as renewables by 2022. The contribution from hydro will fall from 6% to 4%, while the contribution from wind will increase from 2% to 4% and solar from zero to 2%. These figures may change slightly if old and comparatively inefficient thermal plants are decommissioned. While 4.7GW of installed capacity was built during the 1980s or earlier, EEHC has not yet established a firm plan for taking such plants out of service.

Despite the involvement of dozens of private sector developers in the solar feed-in tariff programme and some competitive wind tenders, state-backed projects – particularly those developed under the EPC plus finance model – will continue to dominate Egyptian power procurement in the near term. Of the 45.2GW currently installed, only 2,047.5MW is owned and operated by the private sector, less than 5% of the total. Although 16.5GW of planned projects – more than half the total – will be privately financed, the bulk of these are scheduled to be commissioned after 2022.