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Familiar realities threaten Egypt’s energy ambitions

7 February 2024

This package on Egypt's power sector also includes:

> Egypt to complete Gabal El Zeit wind farms sale
> Egypt president and Putin mark El Dabaa construction
> EBRD invests in 1.1GW Egypt wind farm
> Scatec in talks for Nagaa Hammadi solar project
> Team signs land deal for 1.1GW Egypt wind project
> Acwa Power moves forward with Egypt green hydrogen project

 

As of early 2024, Egypt appears to have come full circle in terms of providing electricity services to its citizens.

The country faced severe power shortages in 2013-14, which gave way to the fast-tracked construction of 14.4GW of gas-powered generation capacity in 2018. This, along with the increase in renewable energy capacity, resulted in a surplus of up to 25%, yet since late last year consumers have once again been experiencing power outages lasting up to two hours.

This time, however, the power outages – which began in the summer of 2023 and are expected to last until March this year – are not due to a capacity deficit.

The government-initiated load-shedding programme initially aimed to rein in rising electricity consumption and reduce pressure on the country's gas network.

According to the country’s Electricity & Renewable Energy Ministry, national electricity consumption reached 43,650MW in mid-July last year, up significantly from previous highs of about 31,000MW.

While the record-high consumption level is still way below the official generation installed capacity of close to 60,000MW, consumption levels of between 34,000MW and 36,000MW will require around 129-146 million cubic metres of gas and diesel a day.

Barring load-shedding, any increase in consumption beyond 36,000MW will require a commensurate increase in gas and diesel, which is understood to be beyond the government’s capacity to procure.

Crucially, the other side of the electricity rationing initiative has to do with the need to save gas for exports, to boost the government’s dollar reserves in the face of the ongoing currency crisis.

Frustration over the power cuts and their impact on job productivity and the overall economy has been growing over the past few months.

There are no magic pills, however, and any solution needs to start with broader economic and energy sector reforms, to improve the prospects of attracting investments, notes Jessica Obeid, a partner at Dubai-headquartered New Energy Consult.

“Reducing reliance on gas for domestic power generation and increasing renewable energy plus storage are critical, not only to reduce the shortage gap but also to improve energy security, since one gas field, Zohr, feeds almost half of the domestic needs,” she explains. “In the immediate term, doubling down on energy-efficient measures and demand-side management is needed.”

It is an awkward and unprecedented situation for the North African state, which has espoused a clear intention – and started executing relevant projects – to establish itself as a regional energy hub, exporting natural gas and electricity to neighbouring countries, as well as to Europe.

“The government has signaled its prioritisation of exports, although no economy can grow nor become a hub while dealing with energy shortages,” Obeid says.

“The Egyptian government has showcased that the focus is on economic revenues from gas exports, even if that is at the expense of the living conditions of the citizens. However, Egypt cannot realise its hefty regional ambitions without efficient measures and reforms to mend the high domestic reliance on gas, and the lower gas production prospects.”

Another expert on Egypt’s energy policies notes that the country is in a tough spot and “needs ideas to move ahead from this”.

In addition to its energy hub plans, Egypt could look into other opportunities such as setting up repair hubs for ships, as well as education centres to cater to the needs of those hubs, the expert suggests, while noting – as Obeid does – the need for wide-ranging reforms, including improving the rule of law and developing alternative sources of wealth and income.

Important milestones

Six months of electricity rationing makes it easy to overlook the cumulative – though, in hindsight, insufficient – steps that Egypt has taken to avoid falling once again into the power outage trap.

Egypt has one of the highest renewable energy penetration rates in relation to overall installed capacity in the Middle East and North Africa region. While this is commendable, it has only served to highlight the weakness of the country's electricity grid when it comes to handling intermittent renewable energy sources such as solar and wind.

Nonetheless, the country is continuing to build additional renewable energy capacity, including hydropower, and with the help of Russian financing, it has also embarked on the construction of its first nuclear power plant. These projects could replace the ageing oil and gas fleet, lowering the sector's emissions while also supporting the country's energy diversification and security agendas.

Egypt aims to be a global green hydrogen and ammonia hub, and signed preliminary agreements for over a dozen such schemes when it hosted the UN global climate summit, Cop27, in November 2022.

If these projects reach the execution stage, not only do they have the potential to advance the country’s ambition to be a global green energy hub, they will also help to attract much-needed dollars to fund its economic diversification plans.

However, the ability to implement reforms and develop bankable projects lies at the heart of the deployment of any technology in Egypt, points out Obeid.

“Egypt’s existing experience in hydrogen, and being part of that trade market, along with abundant renewable energy resources, a vast land [area] and the country’s geographic location are enablers of a hydrogen market," she says.

“Yet, Egypt’s economic and financial challenges have led to higher interest rates, lower lending capacity and higher costs for system components, and these need to be addressed first.”

Never say die 

Despite a bleak short- to medium-term outlook, some projects are moving ahead in Egypt.

The European Bank for Reconstruction & Development will invest $75m in equity in the Netherlands-based subsidiary of Egypt's Hassan Allam Utilities, which along with Saudi utility developer Acwa Power is co-developing a wind independent power producer scheme in the country's Gulf of Suez and Gabal El Zeit area.

Acwa Power also reached financial close for a 200MW solar photovoltaic facility in Kom Ombo in August last year, two years after the project was put on hold due to rising solar panel and freight costs.

Even the 505MW Amunet wind farm project, located in Ras Ghareb in the Gulf of Suez on the Red Sea coast, is moving ahead. A consortium of the UAE-based Amea Power and Japan’s Sumitomo Corporation last year enlisted Shanghai-headquartered Envision Energy to supply wind turbines for the project.

According to the New & Renewable Energy Authority (NREA), solar and wind projects with a total capacity of close to 3.5GW were under development in Egypt as of the end of 2023, while schemes totalling 39GW are in the planning stage. 

Hydrogen and ammonia

In November, Abu Dhabi-based Fertiglobe delivered what might have been the world's first internationally certified renewable ammonia from its pilot electrolyser site in Egypt to India. The ammonia will be used to produce near-zero-emissions synthetic soda ash – a key ingredient in laundry powder – for Unilever.

Several planned integrated green hydrogen projects in Egypt are in the pre-front-end engineering and design (pre-feed) stage.

One of the green ammonia projects is being developed by Germany's DAI Infrastruktur. To be located in East Port Said, the Ra green ammonia project will have a total production capacity of 2 million tonnes a year (mtpa) of green ammonia, of which 1.65 mtpa is expected to be based purely on renewable energy resources when complete.

DAI has signed a preliminary agreement with Siemens Energy, which plans to supply electrolysers, auxiliary plant systems and critical equipment making up the hydrogen island of the project.

DAI and UK-headquartered Freepan Holding are also understood to have signed an offtake agreement for the ammonia produced at the Ra plant. The 10-year offtake agreement covers 800,000 tonnes a year of ammonia, with the first green ammonia delivery to Freepan expected in 2028.

A similarly sized project is being developed by Amea Power in the coastal town of Ain Sokhna in the Suez governorate. The company is in the process of appointing pre-feed consultants and contractors that will undertake geotechnical, topography and environmental studies for the project.

Detailed studies are also under way for interconnections transporting clean energy from Egypt to Europe, as the latter seeks alternatives to Russian energy exports.

Stakeholders in these projects will continue to monitor the Egyptian government's management of its energy policies at home and abroad over the next few months as they decide the next steps in their investment plans.

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Jennifer Aguinaldo

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    In a region where geopolitical turbulence has amplified by an order of magnitude, Jordan is managing to stand out as a beacon of relative stability, with the Hashemite kingdom’s banking sector acting as a case in point.

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    As Moody’s notes, Jordanian banks’ funding base remains stable, with banks mainly deposit-funded – with deposits at 67% of total assets as of December 2025 – mostly comprising well-diversified retail deposits. The ratings agency noted that banks retain the capacity to increase lending without relying on more volatile and costly external funding, as indicated by the 72% loan-to-deposit ratio.

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    So long as the regional conflict persists, banks will be inclined more towards caution than exuberance in their lending approaches. And yet that strong and stable inclination may be what serves them best in a notably turbulent year in the Middle East’s recent history.

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