Egypt is studying new energy pricing structures to facilitate private sector investment in power projects worth USD 70 billion that are expected to be carried out in the next six years, a government advisor said.
Sherif Atifa, advisor to the investment ministry, told Zawya that Egypt hopes to attract investment of USD 24 billion in the planned power projects that aim to resolve frequent electricity shortages and support economic development in the Arab world's most populous country.
"The flow of investment in power projects in Egypt is strongly linked to the existence of a fair structure for pricing services to ensure that there is a return on investment. Investors have concerns that we fully understand and appreciate, and we are working with them to come out with realistic solutions," he said.
"We are working on enacting legislative reforms to investment laws and we are also studying various funding models and putting in place a price structure for selling services."
Egypt needs to increase its average power production by 5.2 gigawatts (GW) per year by 2022 to keep up with demand. The country's energy mix is largely dependent on oil and gas at 91%, with hydroelectric power providing just 8%, according to data from the Ministry of Electricity and Renewable Energy.
Last year, the electricity ministry said 24 agreements and memorandums of understanding (MOU) for energy projects worth around USD 70 billion had been signed at an investment conference in Sharm El Sheikh, including projects for electricity generation, transmission lines, power plant expansions and renewable energy projects utilizing solar, wind and coal.
Atifa said there have been delays in implementing most MOUs for renewable energy projects due to negotiations related to the setting of prices for the sale of electricity to consumers, and on whether services should be sold directly to consumers or through the government.
In 2014, Egypt said it plans to gradually reform the country's energy subsidy policies and that energy prices would be fully liberalized by 2019 under a five-year plan to cover much-needed capacity expansions at power plants. The 2015-2016 state budget has allocated USD 3 billion in energy subsidies.
The reform plan includes an increase in electricity prices, except on residential consumers using less than 200 kilowatt per hour a month, as tariffs have been frozen for this category to protect households with low income.
Mohammad Shoeib, managing director of Al Qalaa Holdings, said that transparency and liberalization of prices are the most important guarantees to sustain the flow of investments to the energy sector.
"The Egyptian government cannot continue to be the only player in developing power projects," he told Zawya. "This is a burden that it cannot bear for long in light of its inability to repay the investment returns to companies that have constructed power plants, which eventually led to a deficit in energy production."
Gas shortages and ageing state-run infrastructure have led to frequent power outages in Egypt, especially during the summer months when demand is high and electric grids are overloaded by more than 3,000 megawatt (MW), according to the electricity ministry.
Last September, Minister of Electricity and Renewable Energy Mohamed Shaker told Daily News Egypt that the country planned to add 14,400 MW to the national grid within two years through three new power plants under an agreement with German industrial company Siemens. The minister was quoted as saying that the projects represent around 40% of total capacity of the electricity grid.
In June 2015, Siemens signed a USD9 billion agreement with Egypt to supply gas and wind power plants to boost the country's electricity generation by 50%. The order includes 12 wind farms in the Gulf of Suez and West Nile areas, comprising about 600 wind turbines and an installed capacity of 2 GW.
Government advisor Atifa said that Egypt hoped to increase the contribution of renewables in the energy mix to 20% by 2022 from 8-9% now. He said that total investments in renewable energy projects currently being implemented stand at more than USD 13 billion.
The chairman of the New and Renewable Energy Authority (NREA), Mohamed El Sobky, said that under the six-year plan to 2022, the contribution of wind power is expected to reach 12% and that there would also be an expansion in hydropower energy capacity.
El Sobky said the NREA is working on some solar and wind power projects in the Suez Canal area as part of efforts to promote a fair geographic distribution of projects. He said there are targets to generate 2,300 MW of solar energy in 2016.
"Egypt is counting on the power linking project with Saudi Arabia to increase the capacity of its electric grid. An international call for proposals (for the project) is expected this year with investments of about USD 1.6 billion," he told Zawya.
The Egyptian daily Amwal AlGhad reported in January that the Egyptian cabinet had approved a USD 98 million loan agreement with Kuwait Fund for Arab Economic Development (KFAED) to help finance the Egyptian section of the power link project with Saudi Arabia.