After a bout of power cuts, Egypt looks to alternatives

The government's response to the power cuts was to reaffirm its commitment to building new power stations and repeated its pledge that renewable energy will contribute.

The Egyptian government says renewable energy will contribute 20 per cent of the country's total power needs by 2020. Victoria Hazou for the National

In the summer, during the heat of a sweltering Ramadan, a number of Cairo's elite experienced something of an unpleasant surprise: power cuts.

"That was a big one actually; electricity in some high net worth parts of the city was cut, maybe two to three hours, this never used to be the case," says Omar Taha, an analyst at the private equity company Beltone Financial.

The outages were just the latest indication of Egypt's faltering power infrastructure. Six years of fast-paced economic growth along with a concomitant expansion of its industrial and manufacturing sector has led to demand for electricity increasing some 8 per cent a year - pushing the country's supply of 23 million megawatts (mw) to the limit.

The government's response to the power cuts was to reaffirm its commitment to building new power stations to increase capacity by 58 million mw over the next 17 years. Since the country has a limited supply of domestic hydrocarbons, it also repeated its pledge that renewable energy would contribute 20 per cent of the country's total power needs by 2020.

That seems unlikely to happen. If you discount the already tapped out hydro power generated by the Aswan High Dam, the amount of electricity produced by the renewable sector is today less than 1 per cent.

"We're already in 2010, close to 2011 and basically nobody believes it will happen," says Khaled Abou Bakr, the managing director of the Egyptian energy company Taqa Arabia.

There is little doubt, however, that renewable energy will play a bigger role than it does now. Some 200km south-east of Cairo, on the Gulf of Suez, the Zafarana wind farm stands as a pointer to the country's new direction. Powered by average wind speeds of more than 10 metres a second, Zafarana is ultimately expected to generate 545mw a year; another 220mw farm, funded in part by the Japanese, is also expected to be operational by 2014.

The government is keen to involve the private sector in these new plants with 10 companies competing to build a 1,000mw wind farm. The problem is, according to Hassan Abdel Salam, the vice president at Elsewedy Electric, the bidding process is taking far too long.

"The competitive bidding has taken almost three to four years. To the wind industry this is unacceptable because one of the big advantages of the wind industry is that from the day you decide to start a wind farm to the day you have it running could be down to just one year.

"This is the beauty of the industry, it's fast, but now we are slowing it down," he says.

The government says it is also encouraging further private investment in wind by offering tax breaks as well as 607,000 hectares of free land on which to build the farms. Mr Taha, however, believes the reality is somewhat different. "If you look at the land that has been allocated for wind, a lot of that land is not usable yet because of gas and oil exploration - a lot more is not [level] enough, it's in a mountainous area, and a lot of it is army-related land.

So it might not actually materialise in a tangible sense," he says. With 350 days of sunshine a year, it might also seem obvious that Egypt would be a prime location for solar power.

While there is an experimental solar plant funded by the World Bank under construction at Kuraymat, 104km south of the capital, the principal problem with solar power remains the same: it is much more expensive than traditional energy and therefore of little interest to private investors.

Ahmed Heikal, the chairman of Citadel Capital, one of the region's largest private equity companies, says: "We all know that the returns from solar, at this point in time, with its present technology are not for people like us. We look for higher returns."

One thing that should make the wind sector more attractive is that the government is removing electricity subsidies, at least for industry. That should, ultimately, make renewable energy more cost competitive.

"Today, 74 per cent of our industry has zero subsidies in terms to energy and for the rest we will get rid of their subsides by 2011," says Rachid M Rachid, Egypt's trade and industry minister.

The government also plans to offer energy companies a "fixed feed and tariff" that will guarantee them a fixed return on their power - a system that has already been shown to work in other countries.

The new policy is held up in parliament but most analysts believe it is only a matter of time until it is passed.