Electricity and Energy Crisis in Egypt…Ways to Confront

Since mid-July 2023, Egypt has been experiencing a power outage crisis amid increasing temperatures resulting from climate change and increasing consumption rates in light of the population increase of about 105 million citizens, in addition to other imbalances in the energy sector.

The Strategic Forum for Public Policy and Development Studies “Draya” issues a research paper on the crisis and its causes, consumption and production rates, energy sources in Egypt, the most important projects in this field, and finally the international outlook on the development of the electricity sector in Egypt.

The most important recommendations for getting out of the crisis :

– The need to accelerate diversification and dependence on new and renewable energy sources, especially solar-powered plants.

– Taking advantage of batteries that rely on solar energy generation by deploying them on the roofs of houses and factories and making use of them during power outages.

– Compensating for the shortage in gas production at the Zohr field as a result of reports that some of the field’s wells were out of operation due to the presence of a leak of sea water inside them, with the continuation of exploration and exploration for other gas fields.

– Take advantage of the current decline in gas prices by importing gas during the summer period.

– The importance of openness and disclosure to citizens and constant information about the government’s response to the crisis.

– Fair and regular distribution of electricity outages with no exceptions except for vital areas only .

– Reduce the hours of interruption in areas suffering from severe high temperatures in southern Egypt.

– Cooperation with international organizations and partners in order to fulfill their obligations to countries suffering from the effects of climate change and rising temperatures.

First: the crisis

Egypt has been hit by power outages before and their severity increased after 2011 amid the deterioration of electricity networks and their inefficiency amid the lack of investment in this sector, as well as the stagnation of production and the suspension of gas exploration contracts.

Indeed, confronting this crisis was a priority on the agenda of President Sisi, who, since coming to power in June 2014, has been keen to solve it and the state has launched an ambitious plan to confront the crisis by building a network of new plants: three gas-fired plants with a capacity of 4.8 gigawatts, namely Beni Suef and the new capital, burlus, operated by the German Siemens group, representing almost 40% of Egypt’s energy capacity and providing electricity to about 40 million Egyptians. In 2015, Egypt also began importing liquefied natural gas (LNG) for the first time in its history, docking two floating storage and re-conversion units (FSRU) in Ain Sokhna in the Gulf of Suez.

The Italian company Eni announced the discovery of a natural gas field in 2015 with reserves estimated at about 30 trillion cubic feet of gas, which is equivalent to 5.4 billion barrels of oil equivalent, and these reserves represent more than 135% of the current reserves of crude oil in Egypt, after which Egypt will become a net exporter of liquefied natural gas.

This discovery has strengthened Egypt’s position to become a regional energy center and a platform for trading gas, whether produced locally or imported from neighboring countries, and then re-exported after liquefying it.

These discoveries and this development contributed to Egypt playing an important role in meeting Europe’s natural gas needs after the Russian/ Ukrainian war, and in June 2022 the European Union signed a gas agreement with Egypt and Israel to increase gas supplies.

In 2023, Egypt exported 8.5 million tons of liquefied natural gas, ranking as the twelfth largest exporter in the world.

Second: the causes of the crisis

– The country is exposed to heat waves caused by climate change, amid increasing domestic consumption.

– The decline in natural gas production due to the presence of some errors causing cracks in one of the wells in the Zohr field, which led to the leakage of sea water inside it and stopped production completely .

– The Egyptian government stopped importing the fuel oil needed to operate the stations as a result of its high prices, it is noteworthy that the Electricity Holding Company had received more than 500 thousand tons of fuel oil and it was consumed to operate electricity production stations.

– The crisis of the shortage of foreign exchange necessary for the import of gasoline fuel mixed with gas for the operation of power plants in the country.

– Continue to support the electricity sector and sell it at less than its real price.

– Compliance with gas export contracts to Europe, which prompted the government to transfer part of domestic production to the European market .

– Israel’s decision after the events of the seventh of October and its war on the Gaza Strip to stop the eastern Mediterranean gas pipeline that connected Ashkelon in southern Israel to El Arish in Egypt, which negatively affected the duration of the interruption.

Third: consumption and production rates

Government data indicate that investments of up to 355 billion pounds (11.5 billion dollars) were made in the field of electricity production during the period from 2014 to the end of 2022, and the government invested about 85 billion pounds (2.75 billion dollars) in strengthening and modernizing the electricity transmission system.

– In 2022, Egypt exported about 8.5 million tons of liquefied natural gas to become the 12th largest exporter in the world, and about 60% of its natural gas production went to Europe.

Gas is still the largest source of electricity generation in Egypt at more than 79%, but it is lower than the previous year’s 82.9%. Electricity generated from natural gas decreased from 174 in 2021 to 159.3 TWh in 2022 by 8.5%.
In the same context, Egypt’s consumption of natural gas decreased over the past year to 60.7 billion cubic meters, compared to 62.2 billion cubic meters in 2021, an annual decline of 2.3%.

Gas exports jumped during the year 2022 to 8.4 billion dollars, compared to 3.5 billion dollars in 2021, and liquefied gas exports decreased to 2.9 million tons (3.9 billion cubic meters), compared to 3.9 million tons (5.3 billion cubic meters) in the comparative period of 2022.

Fourth: energy sources in Egypt

Egypt has a variety of sources of electricity generation between Steam and gas-fired plants based on fossil fuels, water plants based on the High Dam in southern Egypt and wind and solar-based plants such as the Zaafarana and Bannan project south of Aswan.

While solar plants operate only during the day, and wind turbines stop when the air movement stops, the greatest dependence remains on plants that combine steam and gas, which make up 52% of electricity stations in Egypt .

Egypt relies heavily on natural gas for electricity generation by 66%, so it has developed plans to diversify energy sources in the country by investing in the new and renewable energy sector, as it is one of the most developed countries in the Middle East and North Africa in terms of energy transformation projects, and ranks first in North Africa in terms of installed electric capacity (solar, wind and hydrogen energy).

The most important Egyptian projects in the field of electricity and energy:

-A report by the information and Decision Support Center of the Council of ministers indicated that “Egypt reached the fourth place in energy projects in the Middle East and North Africa during 2022-2026,” as confirmed by APICORP in its report, ” the value of energy projects in Egypt, both planned and projects under implementation during the period (2022-2026) reached about 100 billion dollars. The estimated value of the 10 largest gas projects in Egypt was set at about 14 billion dollars, compared to 12 billion dollars for the 10 largest oil projects in Egypt,”he said.

It pointed out that Egypt aims to generate 42% of its electricity from renewable energy sources by 2035.

– Egypt has one of the largest power plants in the world, the Bannan solar energy complex with a capacity of up to 1.8 GW, and the complex is also the largest solar energy farm on the African continent( 200 thousand solar panels equivalent to 90% of the electricity generated by the High Dam, with a total investment cost of up to 4 billion dollars.)

– the Kureimat solar energy project, the installation of photovoltaic cells on the rooftops of 121 MW as well as hydropower projects in Nag Hammadi with a capacity of 64 MW, and Assiut bat.

-Dabaa Nuclear Station: One of the largest electrical energy production projects on the African continent. It includes four nuclear reactors with a total capacity of 4,800 megawatts, with 1,200 megawatts for each reactor. The first nuclear reactor is scheduled to begin operating in 2028, and the other reactors will then be operated successively.

Future projects

The green hydrogen strategy announced by Egypt at the COP27 climate change conference aims to:

-An increase in GDP from 10-18 billion dollars by 2025.

-Creating more than 100,000 new jobs.

-Contributing to reducing Egypt’s imports of petroleum products.

-Reducing carbon emissions

This strategy is being implemented in cooperation with the European Bank for Reconstruction and Development (EBRD) and the Arab Union for Sustainable Development and Environment.

Within the framework of cooperation with Siemens, the Egyptian Electricity Holding Company will launch a green hydrogen pilot project in which the capacity of electrolyzers will range from 100-200 megawatts.
Signing a memorandum of understanding with the Norwegian company SCATEC, which aims to produce 1 million to 3 million tons annually of green ammonia.

-The Indian ACME Group’s production target is 2.2 million tons annually of green fuel
-The Saudi Al-Fanar Company aims to produce 500 thousand tons annually of green fuel.
-The German company H2 Industries (East Port Said Industrial Zone) established the first station to convert waste into green hydrogen with a production capacity of 300 thousand tons annually.

Egypt has sought to be a pivotal center for energy, through electrical interconnection with neighboring countries and its membership in various energy groupings at the continental level up to the international level, especially since the continents of Africa and Europe are among the least continents and regions of the world producing electricity around the world for the year 2021, (the percentage of electrical energy generated in… Africa represents 3.2% of the world’s total production, Europe’s production accounts for 14.2%, and Asia and the Pacific’s production of electrical energy accounts for 49.2%.

The figure shows the most prominent bilateral interconnection projects:

-The Egyptian/ Libyan electrical interconnection project with a target capacity of 2000 MW, the electrical interconnection project between Egypt and Sudan with a target capacity of 300 MW, the electrical interconnection project between Egypt and Saudi Arabia with a target capacity of 3000 MW, and between Egypt and Jordan with a target capacity of 2000 MW.

-Egypt / Cyprus / Greece electrical interconnection project: the project aims to make Egypt the Gateway of electrical interconnection between Africa and Europe through Cyprus to exchange electricity capacity up to 2000 MW.

-At the African level, the country is working to be a pivotal Center for energy and electricity trade by establishing an electricity trading market between countries that pool energy for East African countries EAPP.

Fifth: consequences of the crisis

Positive results:

– Registration of gas export revenues ranging from 100 to 150 million dollars per month, with an increase in the value of Egypt’s gas exports to reach 8 billion dollars by the end of June 2022.

– The reduction of domestic gas consumption by 10% brings returns of 300 million dollars per month.If it is reduced by 15%, it achieves returns of 450 million dollars per month.
Negative results:

Social effects related to:

– The temperature is increasingly rising, which affects citizens negatively, and social and political stability as a result of citizens ‘ discontent.

– The feeling of a state of inequality among citizens as a result of its non-interruption in all parts in an equal way, as well as the existence of exceptions for tourist areas, while these considerations were not taken into account in other tourist cities such as Luxor and Aswan.

Economic effects :

– Causing a decline in the rate of foreign investment in Egypt, especially as this will affect the business climate and attract investors.

– Ending the current crisis will require the government an additional 300 million dollars a month to import enough energy in addition to the value of state support for the sector of about 220 billion pounds (about 4.6 billion dollars), which will put pressure on the state budget, according to the minister of finance, especially since the state cannot pay from the foreign reserve of 46,125 billion dollars in May 2024.

– Fears of rising inflation rates, which have reached 35% on a monthly basis, especially in light of the government’s announcement of a trend to increase electricity prices, and adjusting the prices of consumer segments, as well as the rise in prices of cereals, fruits and vegetables as a result of crop damage due to high temperatures

Sixth: the international view of the development of the electricity sector in Egypt

Fitch expects:

– Strong growth in renewable energy sectors compared to 2021 (the growth rate of electricity generation from renewable energy sources (other than hydroelectric energy) will reach 13.9% in 2021, compared to 22.6% in 2022, and 23% in 2023)

Egypt will be one of the fastest growing non-hydroelectric renewable energy markets in the region over the next ten years

– Egypt is enhancing its competitiveness and becoming a very attractive destination for investors in renewable energy sources, thanks to strong support and natural solar and wind energy potential.

Egypt is also at the forefront of the Arab countries in the production capacity of solar and wind energy, with a capacity of 3,523 megawatts, and Fitch confirmed that electricity exports and green hydrogen projects will drive the long-term growth of the Egyptian energy sector, and the surplus energy supply in Egypt will remain high during the next ten years.