Power deficits to continue
With power cuts still leaving Egyptians sweltering in a hot summer, Sherine Abdel-Razek
looks at the medium term prospects for new power generation
Soon after the Eid vacation, which marks the end of Ramadan, 9pm will be the closing time for shops around Egypt, a move aimed at reducing demand on electricity. While reactions to the decision are mixed, it is too early to know if this move alone will resolve Egypt's recurrent power crises.
Demand on electricity in Egypt has increased with economic growth. According to the Information and Decision Support Centre (IDSC), a think tank affiliated to the council of ministers, the amount of electricity locally generated increased by 78 per cent in 2009/2010 compared to its level in 2000/2001, to reach 129 gigawatts per hour. Meanwhile, the amount of electricity consumed soared 95 per cent during the same period to reach 127 gigawatts per hour.
Power cuts have been a seasonal problem since 2008. According to a report prepared by the African Development Bank on the power sector, nominal generation capacity is less than summer peak demand. Peak electricity demand increased by more than 200 per cent between 1990 and 2009. As a result, dispatchers resorted to load shedding in the summers of 2008, 2009 and 2010. However, the problem exacerbated during the current and past year.
The African Development Bank report notes that although the Egyptian Electricity Holding Company (EEHC) added some capacity since 2008, the reserve margin (between production capacity and consumption) will remain low for the next several years, generally below 10 per cent instead of a standard 12-15 per cent needed to ensure adequate levels of reliability.
There are plans to moderate demand growth, which is forecast to continue at a rather high annual rate of 6.5 per cent over the 2010-2020 period, as highlighted by the AFDB report. An IDSC report entitled, The Status and Future of the Power Industry in Egypt, noted that, "there are four five-year-plans to add an extra 58 gigawatts to national production by year 2027."
According to these plans, the contribution of renewable energy to overall energy production will increase to reach 20 per cent. No matter what energy mix the country decides to pursue, investment requirements are large. "In practice, power supply capacity should expand by about 2,000 megawatts per year, which in turn implies an investment of approximately $3 billion to $4 billion per year," noted the African Development Bank report.
Recognising limited cash flow in the power sector, the government has adopted a plan to remove constraints. This includes gradual removal of subsidies on energy intensive industries. Moreover, it has decided to use public private partnership projects as well as private sector schemes to mobilise resources, according to the African Development Bank.
Worth mentioning is that the power industry is almost totally controlled by the public sector, with the EEHC representing the majority of the sector's assets. However, private equity totalling about $350 million entered the sector through three private power projects in the late 1990s and early 2000s.
Last year the number of Egyptians connected to the national grid was 26.6 million. Egyptian per capita consumption reached 1,782 kilowatts per hour in 2009/2010 compared to a global average of 2,730 kilowatts per hour. Egypt is the lowest in per capita consumption among its regional peers.
The residential sector accounts for almost half of total electricity consumption, a very high percentage when compared to the international average, and the industrial sector for a fifth.
Residential units represent the bulk of the electricity subsidy bill. Egypt adopts a bracket pricing system for billing electricity consumption at home, starting with LE0.05 for the first 50 kilowatts per hour and increasing to LE0.48 for the consumption of more than 1,000 kilowatts per hour.
The price of different brackets saw gradual increases since 1992 that range between 32.5 per cent for the lowest bracket and 92 per cent for the highest.
As well as direct subsidy, Egyptians benefit in electricity prices from subsidies given to fuel used in power generation.