Solar sector in Egypt shines light on cost savings

In general, renewable energy still costs a lot more than fossil fuel, but there are a few important niche markets in Egypt where significant savings could be achieved reasonably quickly, both for consumers and the government.

Wind farms and photovoltaic arrays, once up and running, cost very little, apart from maintenance and upkeep. The problem is that they require huge upfront costs that make them more expensive than traditional power, even in the long run.

It’s cheaper to build gas-powered turbines and pay for the gas throughout its lifetime, at least under current, government-subsidised prices.

In areas that are off the electricity grid, however, solar power suddenly begins to make a lot more sense. These include large areas of the country: the grid does not extend south of the port of Safaga on the Red Sea coast, nor does it go very far into the desert in the rest of the country. In these areas, hotels, mines and factories tend to generate power using their own diesel generators.

Another application where solar is beginning to have an advantage is in heating water. Solar thermal water heaters are ubiquitous in most Mediterranean countries, but not in Egypt, where the government subsidises diesel, gas, electricity and other fossil fuels, making them cheaper than solar.

Until Egypt reforms its energy pricing structure, it costs less to buy an inexpensive electric water heater and pay for electricity than to install expensive thermal panels on one’s roof, even if afterwards the hot water comes out free for the lifetime of the heater.

According to Sameh Aziz, the chief executive of Solaris Innovative Solutions, an Egyptian solar power company, heating water uses up about 6 per cent of the country’s power production.

But when the government increased diesel prices in July 2013, thermal water heating suddenly became more economical, especially for large-scale users such as hotels.

Hotels generally use diesel boilers. Mr Aziz calculates that if depreciation and other costs are factored in, it costs about 0.90 Egyptian pound (Dh0.42) per kilowatt hour equivalent to heat water in a boiler.

A typical 300-litre solar water heater, enough for three hotel rooms, costs between 10,000 and 12,000 pounds, far more than a diesel boiler.

The lifetime of a typical 10-year solar unit, which takes up about four square metres of rooftop space, is about 10 years. Maintenance costs between 2 and 3 per cent of the initial cost a year. And each solar unit needs a small backup electrical unit that adds to costs.

Still, in total, this works out to about 0.55 pounds per kilowatt hour equivalent for a solar unit, making it cheaper than a diesel boiler, says Mr Aziz. If a hotel were to convert to solar energy, the payback period would be a mere two-and-a-half years. If the government were to eliminate all energy subsidies, it would be even less – about one-and-a-half years.

Mr Aziz says there are no statistics for the amount of solar water units being installed in Egypt, but he believes it is only 1,500 to 2,000 units.

One advantage for renewable energy in Egypt is that the country’s photovoltaic (PV) power tends to be more economical than in industrial nations, partly because Egypt’s inexpensive labour lowers installation and maintenance costs, but also because the desert sunlight is bright and clouds are few.

The payback period for switching from diesel water pumping to PV pumping – pumping water is one of the country’s biggest use of off-grid power – is about five years if all costs of diesel are taken into account. They include maintenance, depreciation, the unreliability of supply and the often spotty quality of the diesel itself, says Ahmed Zahran, the chief executive of KarmSolar, an off-grid solar energy solutions company. It has outfitted 11 PV pumping stations in the Western Desert, and is working on another 23.

PV prices are falling. In 2011, the cost of one watt of installed PV power was US$1.30. It is now $0.55.

Until the price of PV falls below that of electricity produced by natural gas, which remains the cheapest method of power generation in Egypt, there is unlikely to be a major conversion.

But there are some things that the government could be doing right now to save money, including perhaps paying consumers to convert to solar. Since the government is already subsidising diesel consumers, it would make sense for it to encourage people to use a cheaper source of energy.

Patrick Werr has worked as a financial writer in Egypt for 25 years for agencies including Reuters and Bloomberg News.

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