Egypt's solar plant a bright spot in energy landscape

Egypt faces dual challenges of time and money when it comes to keeping its energy-hungry populace sated.

On a sun-baked plain 100km south of Egypt's capital, engineers are putting the finishing touches to a groundbreaking solar plant they hope will offer the country a way out of its energy crisis.

The Kuraymat solar thermal power station, which is in a close race with a project in Algeria to claim the title of the first commercial solar plant in the Arab world, features rows of curved mirrors spread over 13 hectares to concentrate the heat of the sun and generate electricity.

The solar array, which a project spokesman says is "99 per cent complete", will generate a maximum of 20 megawatts by channelling the sun's heat to an adjacent gas-fired power station.

That output is small, less than 0.1 per cent of Egypt's peak summer needs, but it is the first in a wave of projects that aim to wean the Middle East's most populous country off its declining fossil fuel reserves.

The turn to nuclear and renewable energies, driven by the same staggering consumption growth and supply constraints experienced in the UAE, has vaulted to near the top of the agenda this autumn after the government was forced to implement the first nationwide power cuts in decades last August.

The Kuraymat plant and two operational wind farms on the east coast will be replicated dozens of times as the country chases a goal of generating 20 per cent of electricity from renewables by 2020, a target that is second only to Morocco as the most ambitious in the region. Abu Dhabi expects to generate 7 per cent from renewables by that date.

Officials will begin accepting bids from contractors for the first major step in the Egyptian plan, a 1,000mw wind farm, by the end of the year.

On Wednesday, the ministry of electricity and energy said it would also proceed with a third major renewable energy project: a 1,500mw combined solar and natural gas plant that is due to be built by October 2013.

More significantly, the government expects to award a construction contract for the country's first nuclear power stations next year, with the plants planned to be operational by 2020.

But every year is precious: unlike in the UAE, Egypt's power supply system is already failing as demand growth of between 6 and 7 per cent a year eclipses growth in generating capacity.

This summer, as hot weather spurred Egyptians to buy a record number of air conditioners, peak power demand rose by more than 13 per cent, officials said.

The energy deficit will continue for the short to medium term, leaving the government with no choice but to import power as it develops nuclear and renewable alternatives as quickly as possible, says Mounir Megahed, who served as vice chairman of Egypt's nuclear power authority until retiring in April this year.

"Our oil resources are very limited … our natural gas resources are more than we have for oil but still very limited … we don't have coal," Mr Megahed says. "This is simply the situation."

In the short-term, continued reliance on fossil fuels will erode Egypt's large natural gas export surplus, he notes, and force it to buy more electricity from neighbouring states.

Burning oil to produce power, which is always costly, has become prohibitively expensive for Egypt since it became a net importer of crude and oil products several years ago, Mr Megahed says.

Alternative options all have downsides as well.

The 10 years it takes to develop a nuclear energy programme is too long to resolve current concerns. Renewable energy remains more costly than nuclear energy and natural gas plants, despite Egypt's ample sunshine and windy conditions on the Red Sea coastline, adding to a growing fiscal burden on the government.

A law now under consideration would encourage renewable energy projects by providing incentives for private investment. It remains essential if renewable energy projects are to take off in Egypt, a report commissioned by the Egyptian German private sector development programme found this year.

The attractiveness of future solar projects will depend heavily on regulations enacted by the government, says Alexander Jacobsen, a spokesman for Solar Millennium, the German solar thermal company that is building the Kuraymat plant through a subsidiary.

"It always depends on the regulatory conditions," Mr Jacobsen says. "I don't know if Egypt is preparing another tender but if there would be another process we would look at the conditions and then decide."

The ultimate solution to the country's energy crisis, forcing a slowdown in consumption growth by increasing power prices, has been considered for years and remains as politically tricky in Egypt as it does across the rest of the region. The country's electricity rates for large industrial users increased three times since 1993 but remained fixed for residents and small businesses.

"There is a lot of waste in energy because according to some opinions it is too cheap," Mr Megahed says. "They are already changing the tariffs but this is being done quite slowly … we have to take care of the poor people because if you increase the price too much it would kill them."

The cost of government subsidies to the power industry in the 2009 fiscal year totalled 4.3 billion Egyptian pounds (Dh2.74bn), up 59 per cent in four years, the government-owned Electricity Holding Company reported.

Egyptian consumers pay 5 piastres (3.2 fils) a kilowatt-hour (kwh) for their first 50kwh of monthly consumption.

That is just 64 per cent of the rate in Abu Dhabi, which has some of the lowest power prices in the world.

Egypt's finance minister, Youssef Boutros Ghali, announced a year ago that the government would fully eliminate subsidies for electricity, petrol and diesel within five years. But political analysts say the unpopular plan is unlikely to advance before presidential elections are held next September.

Mohamed Awad, the head of the Electricity Holding Company, told the local press this summer that reduced consumption was the only solution to the country's power woes.

"There are renewable sources but, at the same time, there are unacceptable levels of consumption," Mr Awad told Al Masry Al Youm, an independent daily newspaper, after the power cuts sparked public outcry.

"We're trying to set another plan for next year, though we hope there will be no such heat waves and that people will rationalise their consumption."