This North African country has abundant renewables potential, particularly for solar and wind. But it can be a challenging market for developers and investors, and there is a question mark over government commitment to clean energy after the discovery of natural gas reserves.

Egypt’s generating capacity mix remains decidedly fossil-fuel-focused, with these technologies taking nearly a 90% share. Until recently, the government was working to avoid the regular blackouts seen in 2014, caused by ageing infrastructure and gas shortages. But power demand growth has slowed, probably temporarily, as it is forecast to have the highest power demand in the region by the mid-2020s, according to BNEF forecasts. As such, the country aims to increase capacity by 52GW over 2018-30, of which just under half will be renewables, and to add coal and nuclear to the mix.

The government wants to secure a fifth of electricity consumption from renewables by 2022, with 12% from wind. Yet the country has only seen modest renewables build to date. The feed-in tariff for projects under 50MW aims to add 2.3GW of PV and 2GW of wind. The second phase, which began in September 2016, is set to procure a significantly bigger chunk of renewables capacity than the preceding round thanks to some rule changes. By October 18, 2017, a total of 27 solar projects had reached financial close under the scheme, with Egypt’s fledgling solar industry attracting $1.8 billion of investment. Most has come from the European Bank for Reconstruction and Development, and the World Bank’s International Finance Corporation. This will mean that 2017 is already a record year for clean energy financing in Egypt.

While the first phase of the feed-in tariff was 50% oversubscribed, only three PV projects won support, amounting to 150MW. The reported reason was that international financing institutions refused to provide funding because the place of arbitration was Egypt.

The tenders for engineering, procurement & construction contracts have been responsible for Egypt’s modest renewables build to date. The program, which is meant to secure 3.2GW of state-owned power plants, tends to offer low-cost funding from development financing institutions. In contrast, the tender scheme for build-own-operate contracts has been less successful, with repeated delays and changes in specifications. This program is meant to source another 1.2GW of renewables. The final mechanism, with a goal of 920MW, enables private investors to sell power from their renewables projects directly to large consumers. However, this program as well as the net metering scheme have seen little-to-no uptake, principally because Egypt has some of the lowest electricity tariffs in the world. They are set to rise, however, as the government kicked off a tariff-reform program in 2014. Tariffs climbed a further 40% in November 2016 and up to another 44% in July 2017.

Another change on the horizon for the power market was initiated by the 2015 electricity law, which began a gradual market liberalization. At present, the state dominates the power market, with the EEHC owning more than 90% of each segment. Instead a new competitive market will be created based on bilateral contracts; and the offtaker (EETC) will have more autonomy by becoming an independent transmission system operator. We would expect this change to help spur renewables deployment but the process is on the slow side.

Some commentators have suggested that the government’s renewables ambition has waned since the Zohr gas discovery and the country’s attainment of a power surplus. However, there are several reasons to suggest that this is not the case: by end-2021, Egypt will still be 1.6GW away from the government’s capacity targets needed to reach the 2022 goal of 20% renewable power generation, according to BNEF analysis. Developers have also said that they are optimistic about the prospects for renewables, and there is still significant ambition for more renewables capacity according to the Energy Strategy to 2035, which was approved in 2016.

Egypt was one of the few countries without a quantitative emission target in its Nationally Determined Contribution. Instead its submission to the UN included a range of high-level mitigation and adaptation goals such as “Increased use of renewable energy”. But it did not outline specific actions.

Score summary

Egypt gained 23 places on Climatescope 2017 to rank 19th out of the 71 nations assessed. Its score of 1.41 placed it above Lebanon but below Jordan, the only other Middle Eastern nations included in the project. The country saw gains on three out of four parameters, with its best performance and biggest improvement being on Clean Energy Investment and Climate Financing Parameter II.

On Enabling Framework Parameter I, Egypt claimed 35th position, up from 42nd the year before. The score took impetus from the country’s several clean energy policies, including tax incentives and utility regulation, but was held back by the largely unreformed, state-run power sector and lack of new installation in 2016.

Egypt took 9th place on Parameter II, a dramatic improvement from the previous year when it was 42nd. This reflects investment of $745m in new wind infrastructure in 2016, compared with zero renewable energy investment the year before, and the fact that some $174m of the total $1,083m invested in the sector since 2010 came from local investors.

On Low-Carbon Business & Clean Energy Value Chains Parameter III, the country was ranked 26th, up from 30th in 2016. Strong points include the presence of a wide variety of financial and legal service providers, as well as several types of equipment manufacturers and engineering firms in the wind, solar and small hydro sectors.

Egypt sank 24 places on Greenhouse Gas Management Activities Parameter IV to rank 54th. Its poor performance reflects the country’s decision not to submit an emissions reduction target as part of its Nationally Determined Contribution and its lack of a domestic climate change policy.