PPAs can unleash Egypt’s renewable energy potential

This year’s climate summit in Sharm El Sheikh has a clear vision of moving the issue of climate change from negotiation to implementation. In his opening remarks, President El Sisi named climate change as one of the world’s existential threats and he demonstrated Egypt’s commitment to ensure that COP27 becomes the moment where words are translated to actions, and where all participating countries embark on a path towards sustainability, and a greener future for coming generations.

During the conference, Business Forward had this one-on-one interview on the challenges of transition to renewable energy in Egypt with Aly El Sherei ’11, vice chairman and managing director of Dcode Economic and Financial Consulting, an Egyptian company focused on macroeconomic analysis, advisory and public policy advancement.

What are the current challenges facing the growth in renewable energy sector in Egypt?

Egypt has put a clear vision and strategy in 2015 called “Integrated Energy Strategy” and has put forth a lot of reforms that should unleash the potential of renewable energy. As you know this COP is about implementation and we have gone a long way in implementing some of the excellent projects mainly Benban in Aswan. However while acknowledging this we should not be complacent. It is important to go faster when it comes to renewable energy and what is done is not enough. I would say what is needed in order to unleash this potential falls under three main buckets.

First, is the regulatory framework which is already set in the strategy; however, it is taking more time than what we would hope to see happening.

Second, is the market structure. The strategy states that the market structure should allow for private-to-private power purchase agreements and sales of renewable energy, and we haven’t yet seen this fully implemented.

Third, is finance of course and one important point to mention here is the local component manufacturing. Egypt is trying to deepen its local manufacturing, and this is a great opportunity because we are launching gigantic projects in renewable energy. It is time to focus on manufacturing some of the components locally.

What do you think is needed to mainstream the transition to renewable energy in the productive sector and the household sector?

Well, that’s an important question. Egypt has launched large scale projects and there are more announcements during this COP about other very large-scale gigawatt projects. In addition, it is crucial to address the industrial sector. The manufacturing sector in Egypt represents a strong market because it creates a strong demand on renewable energy to fulfill pledges to net zero emissions. However, the regulations are not helping them much. They have issues with their land space as it is impossible for them to get 100 percent of their needed renewable energy through small rooftop plants within their land space. Hence, industrial manufacturers need to have power purchase agreements with offsite independent power plants so that they can get their needs and fulfill their pledges.

What exactly are PPAs and how can they help with the energy transition in Egypt?

PPAs stand for power purchase agreements. These are agreements that are signed between an off-taker and a developer early on before the advent of a project specifying terms such as the pricing and the rate of price increase. Egypt has used PPAs from the government. For instance, the Benban project was done based on a feed-in tariff arrangement which was some kind of a PPA whereby the government was the off taker from the private sector developer.

“The market structure should allow for sales of renewable energy,” says Aly El Sherei ‘11, vice chairman of Dcode Economic and Financial Consulting.

Now we aim to have more private-to-private PPAs being signed so the renewable energy developers can sign with the corporate players to be the off-takers, rather than the government, to buy the generated electricity for a number of years at a certain price. This is definitely going to unleash the renewable energy market potential.

What do you think are the renewable energy resources that are most promising in terms of economic viability?

This question has two folds. One that has to do with the comparative advantage of Egypt and the second is more related to technological advancement. We have seen in the past ten years a huge technological progression when it comes to solar photo voltaic technology and wind generation technologies. Egypt happens to be lucky with its natural resources. It has some of the best spots in the world for wind power generation and solar generation. So we can produce renewable energy in Egypt, given the current technologies (not the future ones), at an incredibly competitive cost. At the same time, the increase in gas prices and the unavailability of gas in other parts of the world provide an excellent opportunity for Egypt to make an economic investment in renewable energy. Thus, demonstrating Egypt’s commitment to climate change and the reduction of emissions on one hand and increasing its renewable energy production with an economic return on the other.

What is your view on carbon credit as a financing mechanism for climate mitigation and adaptation?

I am very happy to tell you that a couple of days ago I attended an inauguration session of the voluntary carbon market in Egypt where the Chairman of the Egyptian Exchange announced its inauguration and said that it is going to be up and functioning by the second quarter of 2023. I consider this as a breakthrough as it is the first regulated exchange in Africa so it will serve projects in Egypt and in the region. This is also another way to reduce the risk and offer better feasibility for renewable energy projects. It is actually one of the promising things that happened in the COP27.

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