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Why Integrated Policies are Vital for Egypt's Energy Future

By Economywatch | Thu, 06 December 2012 22:45 | 0

Egypt’s energy sector, specifically its electricity, oil and natural gas subsectors, is a large, important and promising part of the national economy. Egypt faces the challenges of growth in population, energy demand, and the energy production needed to meet its modern development goals. The economy is energy-intensive, especially the manufacturing and tourism components that together represented about 25 percent of GDP in recent years.

Can Egypt Meet Its Future Energy Needs?
Can Egypt Meet Its Future Energy Needs?

This article reviews Egypt’s current electricity production and consumption policies, and their related oil and gas policies. It also explores the difference that integrated and effective energy policies can make.

A sound energy strategy in the future should be based on: A) boosting the production of clean and efficient energy from various renewable and non-renewable sources, and B) managing and rationalizing energy demand, with related reforms. The results, as will be seen, can serve Egypt’s citizens and economy really well.

Energy Production & Related Policies

In 2011, Egypt produced 147 Tera watt hours (1 Tera = 1 million million) of electricity, of which 131 TWh were consumed, while 16 TWh were lost in transmission and distribution. Of the electricity produced, Natural gas-fueled stations provided about 75 percent, oil-fueled thermal stations about 14 percent, the Aswan High Dam hydro-electric turbines, 9.7 percent; and wind and solar power, 1.2 percent.

Still, activities where Egypt is competitive deserve cost-efficient energy. Egypt has the resources and economic viability to create and expand new communities on the northwest and Red Sea coasts, Sinai, around and west of the Nile Valley. These would provide good livelihoods, help relieve the crowded Nile Valley, conserve the fresh Nile water and the scarce, highly fertile and productive Nile Valley agricultural land.

Energy sources covered below include:

1) Non-renewables: Hydrocarbons (natural gas and oil), nuclear power, and waste treatment.
2) Renewables: Hydro-electric, solar and wind-generated energy, and biofuels.

Non-Renewable Sources: Natural Gas

Egypt was the 2nd largest natural gas producer in Africa (after Algeria) and 12th worldwide in 2010, with 2.2 Trillion cubic feet (Tcf.) produced and 1.6 Tcf. used. Reserves were 78 Tcf. in 2012. Steady gas and crude oil finds continue, given ever-improving search technologies and large, unexplored areas in Egypt. Most of Egypt’s gas is located undersea off its Mediterranean coast, and in its Western Desert.

A bad decision was made a decade ago to export gas and to use oil fuels in electric power generation and many activities within Egypt. Liquefied natural gas, high in processing and transport costs, is exported to Europe, the USA and elsewhere on inflexible multi-year contracts, terms and prices. Gas was exported to Israel at much-below market prices until 2012, with more exported by pipeline to Jordan, Syria and Lebanon.

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Natural gas policy, as such, must change. Growing domestic gas demand deserves priority, with exports to be phased out. As a fuel, gas is superior in many ways to the inefficient and costly oil fuels that Egypt imports. Mazut fuel is particularly bad; it is also polluting and evaporates at temperatures of 35oC and above. More use of gas would significantly improve electricity production, cost efficiency and affordability. Along with additional output from newly-found fields off the Mediterranean coast, in the Western Desert and elsewhere, gas should replace oil fuels in power generation, manufacturing, transport, mining and home usage as quickly as possible. New electricity from now on needs to be primarily from gas and renewables, with gas to be prominent in the regions near its fields: northern and northwestern Egypt, Cairo and Sinai.

Non-Renewable Sources: Oil

Oil policy also needs change. Most of Egypt’s crude oil is located in the Gulf of Suez area and the Western Desert. Output was 260 Million barrels in 2011, with reserves at 4.4 Billion barrels in 2012 and rising.

Egypt’s use of oil and distillates was wrongly allowed to jump by over 40 percent in 2003-11 and overtake output. As a result, Egypt became a net importer of crude oil and oil fuels such as gasoline, diesel, mazut and butane gas.

Additional oil output from newly-discovered fields, in the Western Desert near Libya and elsewhere, wider use of gas, and demand control policies outlined below, are now needed in order to help restore self-sufficiency in oil and distillates. Egypt’s petrochemicals industry as well needs to change its primary raw material from oil to gas. The use of a specific biofuel, suitable for Egypt and outlined below, would further conserve oil.

Non-Renewable Sources: Nuclear Power

Egypt’s government is reviving plans to build a nuclear power plant at Al-Daba’a on the northwest coast, to be operable in 2019 or later. Nuclear energy proponents point to power cuts in the summer of 2012 as evidence of a systemic electricity shortage, project a growing crisis in the coming years, and present nuclear power as Egypt’s only option for long-term electricity security. Electricity security will be discussed in the final section.

Meanwhile, nuclear power opponents raise red flags. The insufficient available pool of qualified, specialist staff is an issue, as is the difficulty of consistently meeting and maintaining the stringent and complex nuclear safety standards. The toxicity risk of nuclear waste in an important, groundwater-rich area is significant, and the effects of any nuclear spill or contamination on nearby agriculture and tourism would be grave. The incoming prevailing wind would quickly blow that damage onto Egypt’s population, with serious harm to be expected, rendering the nuclear venture risky.

Non-Renewable Sources: Organic Waste Treatment

Organic waste recycling can become an additional source of electricity. By a process of low-oxygen heat treatment, known as gasification, special plants outside large cities can produce gas fuel to generate plentiful electricity across Egypt (an estimated capacity of 500 Megawatts (MW) in Cairo alone) while also helping solve the country’s chronic garbage pollution problem. Egypt has received viable offers from qualified western firms. There are challenges in organizing, regulating, and integrating the informal waste recycling and management activities in Egypt, but with the right policy mix of clear government vision, directives and financial incentives to those involved, such obstacles can be managed and overcome.

Renewable Sources: Hydroelectric Power

Egypt’s hydroelectric power has been steady and reliable for four decades, although now a new, pragmatic, water supply-sharing and securing agreement with African Nile river countries is needed. More important for Egypt’s water and hydroelectricity security would be to sharply reduce the large volume of water wasted, especially by traditional inundation irrigation in the Nile Valley agricultural land.

Renewable Sources: Solar

The renewable energy source of special promise for Egypt now is solar power, where Egypt has made a belated start. A government-built solar/thermal energy combination plant at Kuraymat near Beni Suef, with a capacity of 140 MW, was the first in Africa and the Middle East, and the fourth in the world. Opened in 2011, the plant is now part of the German-led “Desertec” mega-project to build many solar and wind energy farms in North Africa and export the electricity they generate to Europe. This partnership is good policy by Egypt, securing valuable technical expertise, funding and reliable, future export income. Separately, another, combined 100 MW solar/thermal plant, is planned at Kom Ombo near Aswan, followed by the first, 20 MW pure solar power station in Hurghada.

Solar energy merits a higher policy priority. According to experts, sunny skies, the angle and intensity of sunlight, especially in southern Egypt, can yield high, cost-efficient output. More than in most countries, it is feasible to build large, labor-intensive solar plants in open spaces, and connect to the nearby, integrated, Nile Valley-based electric power grid. Small solar generators can also make farms, small homes and remote communities self-sufficient in electricity, thus increasing flexibility, mobility and energy efficiency across Egypt.

Also needed for a modern and effective energy policy are an independent energy advisory board, a fully independent alternative energy authority, specialized energy study institutes, and the integration of alternative energy studies within the education system, in order to help develop modern energy technologies, train and recruit qualified staff for the future.

Large solar power stations can play a key economic role across Egypt, especially in the south. Build-Operate-Transfer (BOT) partnerships with international firms can attract large-scale investments in clean, efficient and high-yield solar power. The government would pay fair market electricity prices to the producers, but domestic demand control and subsidy reform policies outlined below would be great cost savers. High, cost-efficient electricity production, channeled to profitable and productive activities, the expenses saved by the government, and the long-lasting benefits of the efficient, state-of-the-art stations, combine to make this option a very good one for Egypt.

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A great potential complement to this policy is that Egypt’s white desert sands are perfect for manufacturing four in-demand, exportable products: 1) Photovoltaic cells for solar energy panels, 2) Computer chips, 3) Optic fibers for internet network cables, and 4) Glass products. Solar energy can help power existing and new cities of Upper Egypt (New Minya, New Asyut, etc.). Potential is high in Upper Egypt for sand-based industries, export-oriented farming, food processing, mining and mining-based manufacturing. New communities can arise around and west of the Nile Valley, centered around these activities.

Renewable Sources: Wind

Plentiful wind-generated electricity can be produced along Egypt’s Red Sea coast, where two farms at Hurghada and at Za’farana had a total capacity of 550 MW in 2012. A national total wind power capacity of 7,200 MW is targeted for 2020. A similar BOT strategy to that for solar power is highly recommended here as well. New wind farms can help power growing economic activities and communities along the Red Sea. Gold reserves are growing, with potential for high exports and a thriving coastal, gold-based handicrafts and jewelry industry. Red Sea tourism is growing, with world-class potential as well in the Halayeb Triangle at the extreme southeast. High exports of Red Sea area gold, jewelry and minerals, Upper Egyptian fresh and processed food, minerals, industrial and sand-based products, can be achieved.

Renewable Sources: Biofuels

The use of biofuels as renewable energy is growing worldwide, with fuel oils extracted from a wide variety of plants and trees. Although the use of certain crops, especially corn to produce ethanol fuel oil, has been criticized for diverting resources from much-needed food growing, there is a suitable and problem-free option for Egypt. A proven crude oil conserver is the high-quality biodiesel oil extracted from the high-yielding fruit of the jojoba semi-desert tree. Grown in many countries including nearby Palestine and Israel, the tree can live 100 years. It perfectly suits the sandy soils and climate of Egypt’s Mediterranean coastal areas in North Sinai and west of Al-Daba’a. Both areas are somewhat cooler and rainier than the Nile Valley. In addition to seasonal rain, irrigation can be by salty seawater. Jojoba diesel oil can help fuel groundwater pumps and independent electricity generators across Egypt.

Demand Rationalization and Related Reforms

Egypt can manage energy demand, control and recover costs much better than it does now. Many ministries and public sector firms pay their electricity bills years late; recipients of costly electricity and fuel subsidies still include factories and businesses, stores, touristic and entertainment venues, and owners of luxury homes, cars and yachts; and Along with practices such as wasteful store and daytime street lighting, and excessively late work and store hours, this led to overconsumption, and eventually to rising electricity bills for all. Homes consume an elevated 40 percent of total electricity used. Egypt’s electrical daily peak load occurrence with evening home use is another clear sign of unbalanced demand.

Energy conservation and cost control are as important as maximizing production. Government and public sector organizations must be obliged to pay their bills fully and promptly. Economic efficiency and social justice necessitate phasing out fuel and electricity subsidies to all but low-income areas and groups. Subsidy removal measures are now under consideration. Government laws and incentives to promote and support the use of energy efficiency technologies and practices, are needed for the activities of power generation, industry, transport and tourism.

Improved building codes and weather insulation in homes, offices and factories can also raise energy efficiency and reduce energy usage. Work and store hours can be started at earlier day times in order to reduce energy used at night. To complement these efforts, schools can teach children the value and importance of saving electricity and fuel, while media campaigns can raise public awareness of these important issues, and build consensus and support for integrated and forward-looking national energy policies. An effective, state-led family planning policy can also slow down growth in population, and hence demand.

Institutional reform of the electricity distribution side is equally important. The nine Egyptian regional electricity distribution companies need guided privatization to become private monopoly firms, with strict governmental and parliamentary oversight for consumer protection. The firms would be run efficiently to control costs and make moderate profits, but their overriding mandate would be to provide all citizens in Egypt with quality, cost-efficient, affordable and reliable electricity supply. By a new law to be issued, no electricity would be exported until and unless that mandate is first and consistently fulfilled. Instructive examples of long-serving private, regulated monopolies abroad include American Telephone and Telegraph Corporation (AT&T), the local call phone monopoly private firm in the USA, and British Telecom and British Gas in the UK, both successfully privatized in the 1980s. In all cases deregulation and de-monopolization followed, but only later, after their markets had grown, deepened and matured. Egypt’s electricity market has yet to reach that advanced stage.

Electricity Security and Future Exports

Power cuts in the summer of 2012 have raised concerns of a systemic electricity capacity shortage. It is important, though, to point out the main cause of these blackouts. Midsummer heatwaves cause the temporary spikes in air conditioning and electricity usage, and the mazut evaporation that cuts efficiency by 20-30 pecent in thermal power generation stations. Egypt does not face a crisis, and nuclear power, with its risks, is not the best option. Growing electricity demand can successfully be met by the set of energy production and demand control policies outlined above. Another contributor to national energy security would be to encourage large, well-funded, energy-intensive industrial and touristic establishments to produce their own electricity, be self-sufficient, and generate surpluses for sale to the national power grid at fair market prices.

Effective policies should give Egypt electricity security and allow substantial and profitable future exports, even though limited, near-term imports may be needed. Egypt’s electric power grid is connected to seven Arab countries and Europe, with more links to come. An Egypt-Saudi Arabia power grid link is expected to start in 2015. Egypt’s electric peak load occurs in the evening, while the Saudi peak occurs around midday. This connection will allow the sharing of 3,000 MW of capacity and reciprocal exports.

If effective policy generates the expected electricity surpluses, future export markets are available. In addition to exports to Europe under the Desertec partnership, under study is an Egypt-Sudan power grid link. That, plus potential links to South Sudan and Ethiopia, would allow exports of electricity for the three countries’ large, fast-growing and under-supplied populations.

The size, growth potential and key future role of Egypt’s energy sector all make national policy pivotal. Unified policy and close coordination, via the Supreme Energy Council, is essential among the ministries responsible for electricity, oil and gas, industry, and tourism. Sound supply and demand policies and reforms, public awareness and support, and alignment with national growth objectives, can lead Egypt’s energy sector to the success it is capable of.

By Tarek Shafey

Tarek Shafey is a business and policy analyst with over 20 years of experience, formerly at the Arab Fund for Economic and Social Development, Kuwait, and The World Bank, Washington, DC, USA.

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