PV Analysis of the Belt and Road Initiative

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PV Demand Analysis of the Belt and Road Initiative: Egypt of North Africa

Country profile

Egypt has an estimated population of 98 million. The Egyptian economy has improved markedly these years, with economic growth driven by the economic reform program launched in 2016 under a loan of USD 12 billion granted by the International Monetary Fund. The North African country achieved a new high in GDP growth in recent years, having posted 5.314% in 2018.

The climate in Egypt is dry all over the nation, with a desert climate prevailing in the most part of the country and a hot Mediterranean climate in the northern coastal region and the Nile Delta. The average temperature in Egypt is 34 °C in summer and 25 °C in winter. Egypt receives an annual solar radiation of 2,600 kWh/m2.

Renewable energy development in Egypt

The Egyptian government has set a target of achieving a 20% share of renewables, of which 12% from wind power, 6% from hydropower, and 2% from solar PV by 2022. To meet this target, it has implemented a FIT mechanism, independent power producer (IPP) projects, and tenders under build–own–operate (BOO) model to promote the development of the domestic renewables market.

Hydropower, solar PV, and wind power, which constitute the centerpiece of the Egypt’s effort to develop renewables, accounted for 8% of the total power generated in the 2016–2017 fiscal year (July 1, 2016 – June 30, 2017). However, this small amount of green power—in which hydropower comprised 7% whereas wind power and solar PV made up the remaining 1%—is far short off Egypt’s 2022 renewable energy target. Having met the hydropower target ahead of schedule, the government has shifted the focus to solar PV and wind, both of which still fall short of their respective targets of power generation.

Shares of Electricity Generation by Energy Source in Egypt

Source: NREA Annual Report 2018

Egypt’s PV policy and development

Egypt promoted its PV industry as early as 1993. The government started with constructing small-scale off-grid solar projects under EPC contracts. In September 2014, the Egyptian government launched the first round of the FIT scheme, which aimed at allocating 2,300 MW of capacity, and this drew foreign investors’ attention to Egypt’s PV market. However, the double whammy of Egypt having arbitration disputes with international investors and the Egyptian pound depreciating in 2016 caused foreign investment withdrawal and made it difficult for the domestic PV industry to attract capital. Consequently, the first round of solar auction only awarded PPA for a mere 150-MW projects, which met less than a third of the installation capacity they had pledged to achieve. 

In September 2016, Egypt unveiled the second round of FIT scheme while reforming related policy, including relaxing investment restrictions and settling arbitration disputes. Its PV market began to grow in the same year, with small-scale projects underwritten by a USD 3.5 million loan that the United Nations granted to the country in December of the year. The reform paid off; the second round of auction awarded approximately 1.8 GW of projects, which are due to be connected to the grid by the end of 2019.

Egypt.'s RE FIT rate

Egypt has decided not to launch the third round of FIT subsidy scheme. Instead, the government invites bids for solar PPAs to drive market demand. It is currently tendering for 600 MW of projects on the western side of the Nile and 200 MW of projects in the town of Kom Ombo. Once awarded, these projects will be operating under a BOO model.

Egypt Cumulative installed capacity

Source: IRENA

Egypt–China trade: module import and export

China exported  around 1.95 GW of modules to Egypt between the first half of 2018 and the first half of 2019, most of which was shipped in the second half of 2018 and might have been used in the 1.8 GW of projects awarded under FIT scheme.

With the majority of the modules pulled in by Egyptian buyers in 2018, the number of modules shipped to Egypt plummeted in the first half of this year. Moreover, module demand is yet to rise as tenders for BOO contracts still under way, China’s shipments to Egypt will likely reduce further in the second half.

China module export to Eygpt

Conclusion

Egypt’s PV market has grown rapidly since the government fixed its investment policy and launched the second round of FIT scheme. There was a surge in Chinese module shipment to Egypt in the second half of last year; most of the modules were probably used in PV projects awarded in the second phase of FIT scheme. However, after the modules were mostly pulled in last year, the module shipment to Egypt is forecast to decline throughout 2019.

Projects secured contracts under FIT scheme are due to complete construction by the end of this year, and after that, the government will focus on tenders for PPA. As demand level from projects under PPA model is lower than that of FIT, Egypt’s PV market may go through a period of stagnation before the government issues new auctions.  

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