Can Egypt's Crisis Help Clean Energy Gain Traction?

Egypt looks to wind and solar as the answer to some of its longtime woes.

CAIRO—On a hot, hazy Thursday in early September, life in the Egyptian capital ground to a jarring halt.

Two of the three metro lines came to a standstill, several popular cable networks were knocked off the air, and the nightly Sound and Light show for tourists at the Giza Pyramids went dark. Most residents were left to stew for hours with intermittent air-conditioning.

For several years now, Egypt has struggled with power outages that have bogged down its ailing economy and disrupted daily life, even driving schoolchildren in some poorer districts outside to study by streetlight.

The Arab world's most populous state simply doesn't produce enough energy to meet demand, and it lacks the cash to import fuel. Political upheaval has left previous renewable energy plans unfulfilled. But a fear of further unrest if these outages aren't resolved, along with a concerted bid to ease Egypt's strained public finances, appear to be propelling new President Abdel Fattah el-Sisi's government to take more decisive action.

Hobbled by Subsidies

Ninety percent of Egypt's electricity is generated from oil and natural gas, and shortfalls of both fuel and transmission capacity have forced service providers to schedule regular blackouts (though, unlike in Lebanon, which is also grappling with an energy deficit, these cuts come without warning).

Some government figures have muttered darkly about terrorist cells sabotaging transmission towers, but to many energy experts, blame for Egypt's frequent outages and range of other energy ills rests on 50 years of poor policymaking—namely government subsidies that make fossil fuel artificially cheap.

"Because of subsidies, it's impossible for anybody to compete with fossil fuels," said Magdi Nasrallah, head of the Petroleum and Energy Engineering Department at the American University in Cairo. "It encourages fuel consumption by keeping prices very low, and costs the government a big amount of money." (See related "Pictures: Eleven Nations With Large Fossil-Fuel Subsidies")

Subsidies keep the price of diesel, for example, at about 1 Egyptian pound ($0.14) per liter. By comparison, the same amount of fuel costs  $0.95 in neighboring Jordan, which has given rise to the rampant smuggling of the cheaper fuel across the narrow strait that divides these countries.

The subsidy program was first introduced during Gamal Abdel Nasser's socialist presidency in the 1960s, when Egypt's population hovered around 30 million. Since then, however, sky-high growth rates have nearly tripled the population and led to a corresponding uptick in subsidized fuel use. Between 1995 and 2013, oil consumption alone rose from 458,000 barrels per day to 738,000. (See interactive map: Fossil Fuel Burden on State Coffers)

At the same time, the country's production of oil and gas is declining: In the mid-1990s, Egypt was producing more than 900,000 barrels of oil a day, but by 2013 that output had slumped below 700,000. Local industries rely heavily on natural gas, but production has been in decline from its 2009 peak, and the country is now set to begin importing gas for the first time.

After the toppling of longtime President Hosni Mubarak in early 2011, successive governments have shied away from curtailing subsidies for fear of imperiling their leadership positions. The apprehension isn't entirely groundless. Nasser's successor, Anwar Sadat, was almost driven from power after he lowered bread subsidies in the 1970s. (See related story: "Nigeria's Rocky Effort to Wean Itself From Subsidized Fuel")

This timidity nevertheless, has burdened Egypt with an external debt so massive—more than $45 billion in the first quarter of 2014—that the state is struggling to pay off the roughly $6 billion it owes foreign energy firms, most of which have reined in further exploration until they receive their due.

Those who have studied Egypt's energy model fear for the future unless there is drastic reform.

"Whatever Egypt's experienced so far in terms of the political and religious revolution is peanuts in comparison to what will happen if you have a real social revolution on account of the energy situation," said Werner Koldehoff, a solar industry consultant who has advised the Egyptian government on its energy strategy. (Take the related quiz: What You Don't Know About Energy Subsidies)

Potential, and Hurdles, for Renewable Energy

What makes the current mess especially frustrating for some Egyptians is their country's boundless, practically untapped wind and solar potential. Egypt receives more than twice the sunshine of solar-energy-leading Germany, with its southern city of Aswan boasting more than 330 days of cloud-free skies a year. The wind on the Red Sea rarely lets up, and much of the coastline is undeveloped real estate that could be a prime location for large wind facilities.

Fuel subsidies have rendered alternatives to oil and gas economically uncompetitive, but el-Sisi's recent subsidy cuts—part of a five-year plan to taper the program—and subsequent hike in fossil fuel prices has sparked a new optimism about wind and solar's prospects.

The Mubarak government pledged to generate 20 percent of Egypt's energy from renewable sources by 2020, but currently less than one percent is derived from wind and solar, with another 8 percent coming from the Aswan High Dam, according to figures from Egypt's regulatory authority.

Investment Minister Ashraf Salman echoed these ambitious pledges when he spoke in mid-September of Egypt generating 8 gigawatts a year from wind and solar within the near future, which would represent a dramatic increase from the current capacity. This time, however, there's some evidence of genuine official interest in following through.

"We've worked since 2008, and when we talked to the government—even in 2010, they weren't listening," said Wael Madkour, head of the Solar Energy Development Association (SEDA), which is one of a number of renewable-focused organizations to have cropped up in recent years. "But now they want to know all about our activities to help energy production.

"The crisis has definitely helped our cause. It made the government realize how valuable it is," he added.

None of this changes the fact that the path to success for renewable energy is still littered with some ominous-looking obstacles.

To start with, past renewable projects have an unimpressive track record so far, despite Egypt's status as site of the world's first solar thermal power station. At least a third of the wind turbines at Zafarana, Egypt's big coastal wind farm, appeared to be out of action on two recent visits—both on blustery days—and the country's lone concentrated solar power plant has been hamstrung by maintenance issues.

Egypt's political dysfunction has also scuppered a few projects. A planned 200-megawatt solar farm in the south was canceled because the country had no parliament to accept bids for the project, nor any policy that would enable facility operators to make their energy available to the national grid.

Small-Scale Solar Struggles to Compete

More challengingly yet, a history of shoddy, locally manufactured solar water heaters, many of which were sold to farmers in the 1990s, has tarred the industry's reputation in many Egyptians' eyes.

"Using the sun sounds nice, but it's even less reliable than electricity," said Hamid al-Amri, a supermarket manager in central Cairo whose store and apartment are both equipped with traditional water heaters.

Some newspapers appear to have launched a concerted campaign to bolster the image of renewable energy. By one analyst's reckoning, more than 400 articles have sung its praises since this summer, but no amount of publicity can allay concerns over costs.

In 2012, the Ministry of Tourism launched a scheme to outfit 100,000 Red Sea resort hotel rooms with solar water heaters, but two years later, the plan has yet to be properly implemented.

"It's because hotels don't have enough confidence in this new thing," said Emad Hassan, an energy adviser to tourism minister Hisham Zaazou. "They're reluctant to remove their old electric water heaters without assurance that they can recoup their money."

Some hope that a rise in electricity prices will create more of a market for solar water heaters. That would be significant, given that the traditional contraptions are responsible for roughly half of Egyptian households' electricity use, according to SEDA.

So far, the sun-powered devices have been used mostly in big hotels and eco-friendly buildings, because they tend to cost 60 to 70 percent more than electric water heaters, said Mohammed Farid, head of sales at the Cairo-based IMIC engineering firm. "But as electricity gets pricier," Farid said, "the one-off cost of the heater will be offset." His company imports components from Turkey, but he hopes to start manufacturing parts domestically if demand picks up.

It's a similar story in the western desert, where farmers in the distant oases lack access to the national grid and have traditionally relied on diesel-guzzling generators.

Omar Hosny, chief technical officer at KarmSolar, a 3-year-old Cairo-based solar start-up, said he has been swamped with inquiries since this summer. "Farmers are interested, and solar now works out cheaper than diesel, but it's still capital-intensive, so without any financial support, people out here can't afford the up-front costs," he said. The solar equipment is built to last for 25 years, while diesel-powered machinery has a shelf life of less than a decade.

KarmSolar's very existence and ability to attract top young local engineers is a measure of how far Egyptian renewable energy has come, but its projects are small—it operates eight solar-powered water wells, and it's still complicated for the company to work outside of isolated arid spots.

"It doesn't make sense for us to focus on most areas, because subsidies are still too high for solar in places attached to the grid," Hosny said.

Signs of Change

Elsewhere, however, renewable energy appears to be winning itself some powerful advocates.

The military, which occupies an outsize but undefined role in the Egyptian economy and operates a number of large factories, has begun to express an interest in solar technology.

"It's the future for Egypt and the army, and it is our responsibility to take the lead," said a senior official in the Ministry of Defense, who spoke on the condition of anonymity. He voiced a personal interest in equipping army bases with solar panels to make their power supply less vulnerable to attack from outside.

Even more significant is the interest from industry, which consumes most of Egypt's energy. The unreliable natural gas supply has persuaded an Italian cement firm to propose plans for a 120-megawatt wind farm near its plant in southern Egypt.

The stars certainly appear to be aligning in favor of renewable energy. Officials claim that new incentives to boost renewables on the grid will be proposed within weeks, while the prospect of further social unrest if the energy crisis isn't resolved soon appears to have motivated foot-dragging ministers.

It's possible, of course, that this sense of urgency will diminish as temperatures fall below 50°F (10°C) during the winter months, air conditioners are switched off, and energy consumption drops. It's also possible that renewable energy will find itself sidelined once more if new oil and gas deposits are developed in places where small-scale exploration continues.

But with fossil fuel and electricity prices set to increase even more as subsidies are eased, wind and solar might have a window of opportunity. "It is clear that you will have competitive renewable energy in most sectors in just a few years. I have no doubt," said Maged Mahmoud, head of projects and technical affairs for Egypt at the Regional Center for Renewable Energy and Energy Efficiency (RECREEE), a nonprofit organization that advocates for clean energy in Arab countries.

"I see this trend not only in Egypt, but across North Africa and the Middle East. We're seeing dramatic changes," he said.

The story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.

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