Egypt’s Energy Renaissance Good for Egypt, Good for the Energy Industry
Egypt is undertaking a complete transformation of its energy sector, embarking on an ambitious path to increase and improve the efficiency of the supply of electricity for the Egyptian people. The government’s comprehensive energy strategy will bring new, world class technology while diversifying fuel sources on the grid – including the addition of wind and solar energy – while simultaneously making existing generation plants larger and more efficient. Upon execution, the plan will help meet growing domestic power demand while attracting foreign investment and technology to strengthen Egypt’s energy infrastructure – ultimately expanding access to electricity while making it more affordable and reliable. This energy strategy is an important condition for an economic renaissance that supports the growth of small businesses and entrepreneurs as electricity supply becomes more secure. The government’s important initiative has the potential not only to reform and diversify Egypt’s energy sources but, given its strategic geographic location, could also turn the country into a global hub for energy trading.
Energy is fundamental to economic development, fulfilling a crucial need that helps increase gross national products and lift people from poverty. Without energy, schools struggle to function. Medical services suffer. Communities have difficulty obtaining and maintaining high standards of living. Entrepreneurs lack the tools they need to create new businesses and to operate existing businesses. The government’s awareness of these dynamics drives the strategy. President Sisi himself understands the link between energy and economic development. In 2014, he announced that his government would focus on overcoming the energy challenges that have hindered the country from meeting its domestic energy demand and attracting much-needed international investment. These were not just words. Since then, the government has implemented a number of key policies, including establishing a solar feed-in-tariff, undertaking energy subsidization reforms, adopting a prioritized natural gas distribution plan, and making creditor repayments to stimulate the economy. The energy strategy is delivering results, not the least of which is an upgrade of Egypt’s credit rating, which has gained the attention of the global energy and financial communities.
As Egypt’s financial position becomes more stable, investor confidence has also grown. Due in no small part to the thoughtful design of Egypt’s energy strategy, the international energy and financial communities are starting to partner with Egypt to invest heavily in energy infrastructure. Egypt has forged a path for secure and profitable investments that will deliver a diverse and efficient energy mix. The government has clearly articulated its objective of obtaining a diversified energy portfolio – including natural gas, renewables, nuclear, and cleaner coal – to ensure that there will be ample energy resources to power the expanding economy. While Egypt is fortunate to have significant hydrocarbon reserves, it traditionally looked beyond its borders to meet its energy needs. The international energy community will play a vital role in developing additional domestic resources, in building interconnections with other countries, and in using fuels more efficiently.
Earlier this year, the Minister of Electricity and Renewable Energy, Dr. Mohamed Shaker, announced the implementation of a key first phase of the country’s energy vision, adding 1,707 megawatts to the national power grid. Additionally, Egypt has taken actions that include adding exploration wells, expanding refineries and increasing renewable energy projects. The global energy investment community is taking notice as the country becomes more inter-connected and builds out infrastructure to deliver power to previously under-served population centers – particularly in remote areas such as the desert. Egypt is opening up vital new markets for goods and services, leading to tens of billions of dollars in energy investments.
As the foreign investments grow, the government is taking steps to create a favorable environment to attract energy investors. More importantly, it is taking additional actions to ensure that it will sustain these global energy investments. “If investors believe in the country and its leadership, then naturally the investment will flow in,” Prime Minister Ibrahim Mahlab said in an interview ahead of a global economic conference in Egypt in March. “We will change the perception of Egypt and prepare the country for a future of growth and prosperity.”
The Prime Minister’s words have been backstopped by effective action. Egyptian leaders have recognized that the gaps between the country’s energy supply and growing demand require urgent action and are taking steps accordingly. The new focus is on energy use in public buildings, street lighting and eventual elimination of low-efficiency light bulbs in homes, among other changes.
Expectations are high in this youthful, fast-growing country. Sixty percent of Egyptians are age 30 or younger. Currently 82 million, Egypt’s population has been projected to exceed 100 million residents by 2020.
Investments for an energy-hungry nation
A wide array of international stakeholders has made commitments to help Egypt meet the energy needs of the growing population. Oil and gas contracts, renewable energy ventures, and preliminary agreements for new power plants are all in the works.
In February, a German-owned group operating in Bahrain announced $3.5 billion in solar energy projects in Egypt. Backers said the investment in plants, equipment and education would yield direct and indirect benefits, including more than 50,000 construction and operational jobs over the life of the project.
In March, a cluster of foreign firms announced a total of $35 billion in commitments to Egypt to support natural gas production and power generation. The investments included pledges from British, Italian and Saudi Arabian groups to fund power stations and wind parks, as well as the equipment to keep the installations functioning.
GE was among the companies announcing investment plans and contracts during that round. GE will build a $200 million “Multi-Modal Facility” for manufacturing and training. Our company also announced an agreement with the Egyptian government to deliver 2.6 gigawatts of electricity – enough energy to power the equivalent of more than 2.5 million homes. As part of its commitment, GE agreed to supply 46 gas turbines to begin generating power in May – a remarkably ambitious target for delivering large amounts of power after only five months of construction. GE is executing on its commitments to help Egypt meet its energy goals. We are proud to be long-term partners with a strong and growing local Egyptian team.
Also in May, Egypt inaugurated a 750 megawatt power plant north of Cairo. The $500 million combined-cycle gas turbine plant uses gas- and steam-powered turbines to generate power in a highly efficient manner. It’s a key part of the five-year effort to provide environmentally-friendly electricity.
“Greening” and public awareness
Government leaders also are working to ensure Egyptians understand the urgency for clean and sustainable energy. A recent United Nations Environment Program study called for a “greening” of the Egyptian economy. The authors made a series of recommendations toward sustainable development, from public awareness campaigns on sustainability to increased spending on green goods and investments to create markets and demand for such products.
The paper called for public-private partnerships to encourage a transition to green energy. Households need to shift to energy efficient appliances to help curb energy consumption, while businesses need equipment upgrades to meet efficiency targets, the report said.
Human capital is another significant area of focus in the “greening” initiative. The inclusion of environmental and sustainability information in educational and vocational programs can help build a pipeline of talent to support the green economy. The results of such efforts can be seen in organizations such as OneraSystems, which produces solar power for Egypt’s energy grid.
In parallel with its green energy efforts, Egyptian leaders have made it clear that they’ll need to rely on a mix of sources – including coal, and natural gas – to satisfy the country’s energy needs. Reliability is, of course, one of the key mainstays of an effective grid system, and Egypt recognizes correctly that reliability depends in part upon a diversity of supply. It is critical to ensure that the diverse fuel sources are converted as efficiently as possible into electricity, so that the imperative for reliability does not undermine the good work being done to “green” the economy. Egypt’s leaders seem to have struck the right balance in dealing with this challenging dynamic.
Egypt has some key advantages as it develops affordable and reliable energy sources, including its geographic location and suitability for solar and wind energy. The country sits at an energy crossroads, literally and figuratively, occupying a prime location along the Suez Canal linking the Persian Gulf to Europe and ultimately the United States. I recently attended Egypt’s celebration of the Suez Canal expansion; the government’s investment in energy and infrastructure for the canal serve as yet another testament to its commitment to being world class. This key location places Egypt in a strategic position with respect to the trade and flow of energy resources.
Egyptians are the largest consumers of oil and natural gas in Africa, and the country also has the largest oil refining capacity on the continent. But this potential is not being fully optimized. Oil consumption has grown by an annual average of 3 percent during the past decade, leaving Egyptians in need of more fuel as consumption has consistently outpaced production.
The country also faces other key challenges, such as the need for highly skilled labor and a culture that espouse continuous maintenance of energy systems. In addition, a basic lack of public awareness of energy issues could impede the country’s development of a more diverse energy infrastructure over the long term.
These issues, if not addressed, could become more significant as the country’s energy needs increase and economic growth accelerates. Egypt’s current gross domestic product growth is estimated at 2.2 percent, compared to 7.2 percent in 2008. By 2020, however, the International Monetary Fund is predicting that Egypt will hit 5 percent growth.
The growth of Egypt’s emerging economy is the result of opportunities and good policy, and it serves as an example for the entire region. A more reliable and accessible energy infrastructure will be crucial in boosting entrepreneurship, building local manufacturing industries and lowering import bills. These advances, in turn, will lead to far-reaching benefits for Egyptians and their neighbors: economic growth, improved access to utilities and social services, and improved quality of life for all of Egypt’s citizens. This is truly a win-win proposition: good for Egypt and good for energy industry as whole.
Steve Bolze is Senior Vice President at the General Electric Company and President and CEO of GE Power & Water.
Source: http://www.diplomaticourier.com/egypts-energy-renaissance-good-for-egypt-good-for-the-energy-industry/
