Clean Energy Development in Egypt 2012 Acknowledgements Main Author Hossein Razavi Task Managers ONEC ORNA EGFO Mafalda Duarte Vincent Castel Khaled-El-Askari Directors ONEC ORNA Hela Cheikhrouhou Jacob Kolster Contributors ONEC ORNA Tanja Faller Yasser Ahmad Engedasew Negash Paula Mejia Ahmed Ounalli - Zakaria Bellot - Emanuel Nzabanita - The African Development Bank (AfDB) This document has been prepared by the African Development Bank (AfDB) Group. Designations employed in this publication do not imply the expression of any opinion on the part of the institution concerning the legal status of any country, or the limitation of its frontier. While efforts have been made to present reliable information, the AfDB accepts no responsibility whatsoever for any consequences of its use. Published by: African Development Bank (AfDB) Group Temporary Relocation Agency (TRA) B.P. 323-1002 Tunis-Belvedere, Tunisia Tel.: (216) 7110-2876 Fax: (216) 7110-3779 Clean Energy Development in Egypt - 2012 Table of Contents 4 List of Abbreviations 6 Executive summary 13 1 Context and Objective of the Study 16 2 Overview of the Energy Sector 2.1 Structure of the Power Sector 2.2 Energy Resources 2.3 Electricity Demand and Supply 2.4 Legal and Regulatory Framework 23 3 Energy Efficiency and Conservation 3.1 Egypt's Current Program and Accomplishments 3.2 Lessons from International Experience 3.3 Proposed Strategy and Institutional Framework for Egypt 33 4 Development of Renewable Energy 4.1 Egypt's Current Program and Accomplishments 4.2 Wind Energy Development 4.3 Solar Energy Development 4.4 Incentives for Developing Renewable Energies 4.5 Proposed Strategy and Institutional Framework for Egypt 44 5 Local manufacturing of wind and solar equipment 5.1 Egypt's Current Program and Accomplishments 5.2 Lessons from International Experience 5.3 Proposed Strategy and Institutional Framework for Egypt 51 6 Conclusions and Recommendations List of Useful Background Material 3 Clean Energy Development in Egypt - 2012 List of Abbreviations AFD French Development Agency AfDB African Development Bank bbl/d Barrels per Day bcm Billion Cubic Meters BOO Build-Own-Operate BP British Petroleum CBE Central Bank of Egypt CDM Clean Development Mechanism CIF Climate Investment Fund CNG Compressed Natural Gas CSP Concentrated Solar Power CTF Clean Technology Fund DNI Direct Normal Insolation DSM Demand Side Management EC European Commission EE Energy Efficiency EEA Egyptian Electricity Authority EEHC Egyptian Electricity Holding Company EETC Egyptian Electricity Transmission Company EEUCPRA Egyptian Electric Utility and Consumer Protection Regulatory Agency EGAS Egyptian Natural Gas Holding Company EGEF European Greek Energy Fund EIA Energy Information Administration EIB European Investment Bank EPC Energy Performance Contract ESCO Energy Service Company ESMAP Energy Sector Management Assistance Program ESTELA European Solar Thermal Electricity Association EU European Union FEMIP Facility for Euro-Mediterranean Investment and Partnership FIT Feed-In Tariffs 4 Clean Energy Development in Egypt - 2012 GEF Global Environmental Facility GHG Greenhouse Gas IEA International Energy Agency IEA International Energy Association IPP Independent Power Producer KEMCO Korea Energy Management Corporation KfW Kreditanstalt für Wiederaufbau kWh Kilo Watt Hour LNG Liquefied Natural Gas mmbtu Million Metric British Thermal Unit MOEE Ministry of Electricity and Energy MSP Mediterranean Solar Plan mtoe Million Tons of Oil Equivalent MW Mega Watt NIF Neighborhood Investment Facility NREA New & Renewable Energy Authority OECD Organisation for Economic Co-operation and Development OEP Organization of Energy Planning PPA Power Purchase Agreement PPP Public – Private Partnership PV Photovoltaic R&D Research & Development RE Renewable Energy REA Rural Electrification Authority RPO Renewable Purchase Obligation RPS Renewable Portfolio Standard SCF Strategic Climate Fund SEC Supreme Energy Council STDF Science & Technology Development Fund Sumed Suez Mediterranean SWEG Sewedy for Wind Energy Generation TA Technical Assistance toe Tons of Oil Equivalent TSO Transmission System Operator VA Voluntary Agreement 5 Clean Energy Development in Egypt - 2012 Executive Summary nce an exporter of oil and gas, Egypt is now struggling • Institutional and legal constraints: There is no law, O to meet its own energy needs. The growth in energy regulation or effective policy to promote energy consumption is a response to the country’s economic efficiency. There is no clear and comprehensive expansion, industrialization, and change in people’s life strategy and/or program for improving energy style. Although all energy forms have been subject to efficiency. Notwithstanding the creation of the new high growth, electricity consumption has increased Energy Efficiency Unit, still there is no dedicated substantially causing serious concerns over the power institution that have clear implementation and sector’s fuel mix, heavier reliance on fuel oil, and an executive authority for pursuing energy efficiency unaffordable burden on the government budget. As a objectives. result the government is determined to diversify the energy mix and to improve the efficiency of electricity • Data and Information Availability: There is little reliable consumption. It has also recognized that energy diversifi- data and information on energy use by subsectors, cation and efficiency can impart other benefits such as key industries, equipment and appliances. There are cleaner environment, transfer of advanced technologies, no mandatory fuel efficiency standards in transport, and possible new areas of manufacturing and services. no mandatory energy efficiency building codes, no benchmarking for industries, and only few energy This report reviews the opportunities and challenges efficiency standards for appliances. involved in improving energy efficiency, developing renewable energy resources and promoting the local • Capacity Constraints: There is an insufficient capacity manufacturing of the corresponding equipment in Egypt. to develop and undertake energy efficiency programs The international experience indicates that the three and projects. subjects are intertwined and that there are four pre-requisites for their success: (i) a clear strategy; (ii) a proper institutional • Financial constraints: There are no dedicated funds framework; (iii) a well designed incentive system; and (iv) or other financial mechanisms and incentives to a suitable set of financing instruments. Egypt, however, support energy efficiency activities. Energy prices are has shortcomings these four areas. well below costs and do not encourage energy savings. Energy Efficiency It is therefore fair to state that energy efficiency improvement Although energy efficiency had not taken a prominent in Egypt is at an early stage despite the fact that there have role in Egypt’s past energy strategy, it has now been various studies and technical assistance activities become a high priority. Due to inadequate supply of over the course of the last two decades. There is, at the domestic oil and gas and a tight public budget, the same time, vast international experience that Egypt can government has now arrived at the conclusion that draw upon while designing its energy efficiency agenda. energy efficiency should be pursued aggressively. The review of best practices indicates that energy At the same time, the country is facing significant efficiency programs would require: constraints that need to be addressed in order to move forward the energy efficiency agenda. The most mportant • Long-term political commitment at a high government constraints include: level; 6 Clean Energy Development in Egypt - 2012 • Creation of proper (and specialized) institutional advanced energy technologies; facilitating market set up; penetration and commercialization of high-efficiency equipment; and mobilizing financial support for energy • Creation of incentives including appropriate energy efficiency projects. The recently established Energy pricing schemes; Efficiency Unit is mandated with some of these responsibilities but is not an executive body. It is possible • Mobilization of sustained financial resources; to expand the mandate of the Energy Efficiency Unit to that of a specialized entity with implementation capacity. • Monitoring and measurement of the results; and Alternatively Egypt should consider creating an energy efficiency entity. • Effective communication with the public. 2. Establish an Energy Efficiency Fund: To attract Within the above framework we recommend the following public and private capital to the energy efficiency market, actions: specific financing strategies and mechanisms are needed for the various sectors and stages of energy efficiency 1. Strengthen the Present Institutional Arrangements: development. The financing instruments should fit the The institutional set up should enable all stakeholders to requirements of: (i) project preparation consisting of work together to provide and implement the specific plan audits, surveys and technical assistance in project of energy efficiency improvement. A high-level decision formulation; (ii) energy efficiency projects; (iii) energy making body is needed to bring all parties together and efficiency ventures; and (iv) R&D and promotion of new provide strategic directions to the energy efficiency technologies. Although the specialized agency should agenda. Though the eventual decision maker regarding have the capacity and