The Future of Egypt’s Energy Policies after COP22

Dr. Maged K. Mahmoud

Technical Director, Regional Center for Renewable Energy and Energy Efficiency (RCREEE)

“COP 22: Fostering Climate Change Resilience in Egypt” 45th Cairo Climate Talks

January 23, 2017

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About RCREEE Independent regional inter-governmental

organization

17 member states

National focal points in every country

In operation since 2008

Headquartered in Cairo, Egypt

Our Mission Our Mission “To enable a sustainable growth in Arab states’ adoption of renewable energy and energy efficiency applications and initiatives through leading regional policy dialogues, learning, and research.”

Our Vision “The energy systems in the Arab region are characterized by a significant share of renewable resources and a highly-efficient use of energy.”

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High-Level Marrakech Action Proclamation

• Parties collectively declared that the

“extraordinary momentum on climate change worldwide…is irreversible.”

FROM AGREEMENT TO IMPLEMENTATION

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Egypt’s Key Economic Challenges.

Increase in foreign debt

Macroeconomic instability

Foreign exchange risks

Egyptian pound depreciation

Faltering growth rates

Food security concerns

Increasing energy demand

increased rates of poverty

High unemployment

rates etc.

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Questions

• Will the current energy policies support integrated and all-inclusive economic growth?

Enhancing competitiveness

Diversifying and revitalizing the economy

Attracting more financial resources and investments

Creating new jobs and improving human well-being

Achieving equity and social justice

Preserving the environment and the ecosystem

All-inclusive economic growth

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Questions

Are Egypt’s national energy policies and strategies conducive to sustainable development and green economy?

Are we really moving towards Greening Policies in the energy sector?

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Energy in the Egyptian NDC

3.1 Adaptation

1- Conduct comprehensive studies to assess the impact of climate change on the energy sector, propose appropriate adaptation measures, and estimate the economic cost of the proposed adaptation measures. In addition, these studies should determine the safe locations for the construction of power generation projects.

2- Build institutional and technical capacities of different units in the energy sector in climate change issues.

3- Support research and technological development to enable the electricity sector to deal properly with climate change.

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Energy in the Egyptian NDC

3.2 Mitigation

1- More efficient use of energy especially by end user

2- Increased use of renewable energy …

3- Use of advanced locally appropriate and more-efficient fossil fuel technologies, in addition to nuclear power

4- Energy efficiency is a corner stone to be targeted by policy makers

5-Reform of energy subsidies …

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Energy in the Egyptian NDC

3.2 Mitigation

Replacing or upgrading obsolete infrastructure

CCS in the future if proven economically feasible

Co-utilization of fossil fuel and biomass in the same plants,

Utilization of co-generation plants

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Energy in the Egyptian NDC

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Other Arab Countries NDCs

http://cait.wri.org/indc/#/map

Examples of RE targets

Algeria 27% of electricity generated from RE by 2030

Jordan 11% RE share in the total energy mix in 2025

Lebanon 15 -20%of the power and heat demand in 2030

Morocco 52% of installed electricity capacity by 2030

Tunisia 14% of electricity production in 2020 and 30% in 2030

……

NDCs are used as tools to attract more financial support and investments

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Ministry of Electricity and Renewable Energy

Vision and Actions

Very similar to the National Energy Strategy Diversified power supply to meet energy demands and exploit the country’s resources potential

Financially and socially sustainable electricity sector

Roles of all public and private actors clearly defined with all institutions held accountable for performance

Opportunities: • Over $ 70 billion of public and private investments

over 2015- 2022 to provide 54 GW of new power generation projects (coal, oil, gas, and renewables)

• Efficiency upgrades to existing thermal generation • Power transmission/distribution infrastructure • Demand-side energy efficiency

Consider! • 1/3 of thermal capacity is > 20 years • Power plants availability & efficiency rates 5-8%

below benchmarks • 5% losses in transmission and distributions • Limited integration to regional energy markets

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Egypt National Energy Strategy 2035

To meet the increasing demand for energy, a resilient and diversified supply chain should be built which will optimise the use of the natural resources of Egypt and import are prudent;

Energy security of

supply

Sector institutions to be financially independent and self-sustaining through competition and efficiency;

Long term sustainability of the energy

system

The roles of all public and private participants in the energy system should be clearly defined and understood, natural monopolies should be held accountable for performance; energy markets should be fair, accessible and transparent.

Good Governance

Principles and Modernization

Different proposed scenarios, including a 35% RE electricity production by 2035 and 15% coal, following the current official target is 20% RE by 2020.

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Egypt National Energy Strategy 2035

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Energy in Egypt Vision 2030

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Ministry of Petroleum and Mineral Resources

“Transforming Egypt into a regional energy hub”

Recurrent statement since the discovery of the Zohr supergiant gas field.

Geographical merits

Oil and gas infrastructure within integrated network of pipelines for the transport of oil, gas and LNG, e.g. Sumid oil pipeline

Projects in the refining and petrochemical industry and qualified human resources

Suez Canal projects investment opportunities

Others …

Consider! “Competition with other similar Med.

Countries …”

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Ministry of Petroleum and Mineral Resources

“Self sufficiency in the NG industry by 2020”

Recurrent statement since the discovery of the Zohr supergiant gas field.

3 new projects ($27 billion) at Zohr, North Alexandria and Atoll with production of 1.9 billion cubic feet per day (closing consumption production gap)

Expanding infrastructure for gas transport to consumers including new large power plants, and serving new mega projects (e.g. the new administrative capital) Consider!

• Development needs beyond 2020 • Better economic opportunities better

than burning gas (petrochemicals)

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Ministry of Petroleum and Mineral Resources

“Attracting foreign investments despite the lower oil and prices

globally”

During mid 2013-mid 2016, signing of 64 agreements for oil and gas exploration ($14.3 Billion) in the regions of Mediterranean, Nile Delta, Western Desert, Gulf of Sues and Sinai (274 wells) Three new international bid rounds including 27 onshore and offshore blocks across Egypt in 11 areas (6 in the Western Desert and 5 in the Gulf of Suez).

Advantage of price reduction in exploration and development (lower drilling and services costs).

Balanced conditions of agreements

Short periods for securing new areas and new contracts

Well established business models and partnerships with local actors

Using latest technologies in resolving production problems and working on nationalizing these technologies

Consider Amending the energy subsidies program Aging infrastructure and refineries,

Accumulating debts of foreign partners.

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Egypt and the Arab Region

The Case of Renewable Energies

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2008

2012 2016

Arab Region Operational and Under Construction RE Projects (Excluding Hydro)

Arab Region RE Progress Highlights (2016)

~0.5 GW

Only 4 Arab Countries (Egypt, Morocco, Tunisia and Jordan)

~2.5 GW

12 Arab Countries

~5.8 GW

All 22 Arab Countries

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“ Something must be done” …Yes

“Non-traditional” … Yes

But please

let’s get specific

HOW NATIONAL RE TARGETS WILL BE REACHED?

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• Successful implementation of the Pan-Arab Strategy requires Arab states to engage in short- to medium-term national RE planning, reporting and evaluation

National RE action plan template (NREAP)

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NREAP Template

Part I: Renewable Energy Indicators

Part II: Policies and Mechanisms

Part III: NREAP Progress Assessment

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Part I: Renewable Energy Indicators

Part II: Policies and Mechanisms

Part III: NREAP Progress Assessment

Regulated targets and obligations

RE support schemes

Administrative procedures

Technical specifications and installers’ certification schemes

Policies for renewable energy’s integration in buildings

Access to and operation of the grids

Joint projects with other Arab States, foreign countries or/and third parties

Heating and cooling projects’ support schemes

Awareness raising campaigns

Feed-in tariffs

Tendering procedures

RE Fund/ capital grants

Low interest loans

Tax exemptions or reductions

Tax refunds

Tender schemes

Voluntary schemes

Tradable certificates

NREAP Reducing policy

uncertainty about future support

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• Morocco, Jordan, Egypt, UAE, Palestine and Algeria leads Arab RE competitive markets

• The region has worldwide flagship solar and wind projects, with very competitive electricity prices, especially in UAE, Morocco and Egypt.

• Tunisia and Lebanon leverage decenteralized investments with pioneering financial solutions

• Saudi Arabia, Bahrain, Kuwait, Iraq, Qatar and Oman embrace encouraging measures to pave renewables way in their energy mix

• Yemen faces the war challenges with solar PV DG solutions

• Sudan and Mauritania stand high in RE generation capacities shares including hydro, relying mainly on public and donor based projects

Arab Region Progress Highlights (2016)

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Mobilizing Private RE Financing: Sources

Government Balance Sheet Financing

Typically resorts mainly to non-commercial sources including concessional finance • Central Bank • Multilateral • Bilateral • Islamic finance

Concerns • Financing-debt burden • Management inefficiencies • Transparency and sustainability of

commitment

Off-Balance sheet finance (Non-Utility Generators, NUGs)

Resorts to a certain extent on private equity financing (Ownership) for privately held facilities (BOO, BoT, BLT, etc.), industry, corporations, co-operatives , etc. - IPPs - PPPs - Others ..

Concerns • Management (ownership) change • Contractual process • Financing access • Retroactive regulatory actions (reforms!)

Experiences in framework conditions for oil and gas

exploration and production are useful

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Mobilizing Private RE Financing: Linkages

Production Transmission (bottle neck in many cases!!)

Distribution (readiness for

prosumers concept!!)

Collection and tariffs

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Arab RE Markets Competitiveness (2016)

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• Many of the RE technologies are still in an early stage of commercialisation in the region.

• policies and incentives are adopted to mitigate risks for investors and lenders associated with deployment of renewable energy projects.

Mobilizing Private RE Investments: Risks

Financial (access to capital, collaterals, )

Market (cost and quality of components

and services, tariff, purchaser insolvency ..)

RE-resource (lower wind/solar energy

available)

Geopolitical and regulatory (policy change, subsidy,

retroactive measures)

Business viability (technological

obsoleteness and competition)

Environmental (damage to

environment)

Building and testing (property damage

and third party liability)

Operational (resource

unavailability, unplanned

maintenance) Sou

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• The preferred policy option for utility scale projects in the region is the public competitive bidding by IPPs.

• The adoption of feed-in tariffs schemes and direct proposal submission are also gaining momentum for the development of large-scale RE projects in some countries.

• FiT and net metering are emerging for decentralized RE systems.

Mobilizing Private RE Investments: Policies

Source: IRENA, LAS, RCREEE, 2016.

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Developers are running a cost race! • The auction of the 2nd phase of UAE’s Mohammed bin Rashid Al Maktoum Solar Park resulted

in a price of $0.0585/kWh while its third phase was awarded the lowest bid of $0.024/kWh.

• For wind power, Egypt’s 250 MW Gulf of El Zayt wind project, currently under negotiation, received a price of about $0.04/kWh,

• Morocco secured average bids of just $0.03/kWh from its tender for 850 MW large-scale wind energy projects, with the lowest tariff at around $0.025/ kWh.

Those prices are possible because of the region’s remarkable solar and wind energy resources, backed by some concessional finance coupled with policy measures to reduce the various risks and encourage investment.

IPP Competitive Bidding

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Some important factors to create compelling economic and financial case!

• Political commitment. Investors’ confidence in the national market.

• Effective engagement (partnership) of utilities and state-backed private RE companies (equity)

• Clear set of bankable project contractual documents and efficient admin./licensing processes.

• PPA in foreign currency and/or local currency (actual and deemed) . Tenor (20-25 years)

• Project support (grid connection, zoning/allocation of land, fiscal incentives, concessional finance)

• Securities (senior creditor claims are covered in all termination events)

• Credit support through the government for off-takers

IPP Competitive Bidding

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• Pre-defined FiT rates were adopted in Egypt, Algeria and the State of Palestine.

• In some cases projects failed to reach the financial closure under FiT due to a host of reasons: • readiness of associated documents such as the PPA, Grid Connection

Agreement, Land Usufruct Agreement, Direct Agreement, etc.

• clarity of the administrative process and the large number of entities involved

• securing foreign currency lending and arbitration have been reported as subject of long discussion

IPP FiTs

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Actors shaping and defining the RE market (Egypt Case)

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FiT

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Direct Proposals Submission

• Egypt, Jordan and Palestine are the only countries that allow direct proposal submission for EPCs (+finance) and IPPs PPAs.

• In Jordan, three rounds of direct proposals have been launched. Where substantial progress has been achieved due to this scheme.

• Direct proposals usually put greater responsibility upon the developer to find a suitable site for deployment.

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Net Metering

• Six countries, (Egypt, Jordan, Lebanon, Tunisia, UAE and to some extent Morocco) have adopted net metering policies. However, only few of them have implemented it in practice

• The implemented schemes are all very different and are targeting various categories of prosumers

• Jordan and Tunisia have relatively simple schemes that have attracted smaller system investors

• Common for all schemes is that they limit the allowed capacity, by either stating it in the policy (in the case of Jordan and Tunisia), or through the design of the billing mechanism, which does not make it profitable to install a system that covers more than part of your own consumption (in the case of Egypt)

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Net-metering and high retail electricity prices PV installation for self-consumption already at grid parity

Net-metering combined with grant and bank loan

National Energy Efficiency and Renewable Energy Action (NEEREA) offers low-interest loans as low as 0.6% with a repayment period of as long as 14 years for decentralized PV systems

Rural Electrification Project Install 1.1 million individual solar rooftops in rural areas between 2012 -2031

Examples of Supporting Policies for Decentralized Small-Scale Projects

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Sustainable Energy Dedicated Institutions

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EDF

FNME

National Transition Fund

NEEREA

JREEF

Revolving Fund

Sustainable Energy Public Funds

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Distributed SE Generation: The Untapped Potential

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Thank You

Dr. Maged K. Mahmoud Technical Director Regional Center for Renewable Energy and Energy Efficiency (RCREEE) Hydro Power Building (7th Floor) Block 11 - Piece 15, Melsa District Ard El Golf, Nasr City, Cairo, Egypt maged.mahmoud@rcreee.org www.rcreee.org