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Egypt’s renewable energy sector draws massive investment

Solar and wind energy capacity poised to surpass 5 gigawatts by 2025
Egypt’s renewable energy sector draws massive investment
Renewables concept

Egypt’s renewable energy sector shines brightly amid an otherwise bleak economic outlook for the country. Despite grappling with persistently high inflation, a foreign currency shortage, and a hefty import bill, Cairo has successfully attracted significant foreign investments, both institutional and bilateral, into its burgeoning clean energy industry. As new projects progress towards implementation, Egypt’s solar and wind energy capacity is poised to surpass 5 gigawatts by 2025.

Egypt’s offshore energy sector is fast becoming an East Mediterranean gas hub, but its gas output has declined, and it faces challenges in meeting growing domestic power demand. Access to Israeli gas was crucial for resuming liquefied natural gas (LNG) exports, highlighting the need to expand renewable energy capacity. This expansion would alleviate domestic consumption and enable profitable LNG exports, enhancing Egypt’s financial outlook.

Read: Sources, advantages and drawbacks of renewable energy towards a sustainable future

Egypt leads Africa in renewable energy adoption, and this trend is set to continue with ongoing construction projects. According to the International Renewable Energy Agency (IRENA), Egypt, Morocco, and South Africa possess the largest share of renewable energy capacity on the continent. Egypt’s wind capacity alone reached an impressive 1.64 gigawatts by the end of 2022, surpassing the entire Middle East region. The Gulf of Suez, with its wind speeds exceeding 10 meters per second, has been instrumental in powering turbines and facilitating this achievement. In total, Egypt’s renewable energy capacity stood at 6.3 gigawatts by the close of 2022, with hydropower contributing 2.83 gigawatts, as per IRENA’s report.

Infinity Power, a joint venture between Masdar and Egypt’s Infinity, and Hassan Allam Utilities has achieved a significant milestone in capacity expansion. They have signed a land agreement with Egypt for the construction of a massive $10 billion wind farm with a capacity of 10 gigawatts that is set to become Africa’s largest and one of the world’s largest projects of its kind.

The surge in renewable energy ambitions in the Middle East and North Africa coincided with declining regional wind auction prices. The International Energy Agency (IEA) reports that onshore wind auction costs in the Middle East dropped from $120/MWh in 2019 to $28/MWh in 2022, surpassing the European average of $36/MWh.

Egypt’s Minister of Electricity and Renewable Energy, Mohamed Shaker Al-Markabi, highlighted the significance of the new wind farm during the signing ceremony. It will greatly optimize Egypt’s renewable energy utilization, aligning with the country’s strategy to achieve 42 percent of its energy mix from renewables by 2030, five years ahead of schedule.

The proposed wind farm aims to generate 47,790 gigawatt hours of clean energy annually, resulting in a 9 percent reduction in Egypt’s greenhouse gas emissions. Additionally, the project is expected to save $5 billion per year in natural gas costs, as stated by the collaborating companies.

The momentum toward decarbonization accelerated leading up to the COP27 climate summit, with numerous deals announced before and after the December 2022 meeting held in Egypt. These projects are progressing swiftly, and Cairo’s immediate renewable energy plans signal a capacity of 5 gigawatts by 2025, surpassing the current 3.15 gigawatts (excluding hydropower).

Construction for the 500-megawatt ‘Red Sea Wind Energy’ wind farm, located on Egypt’s Gulf of Suez, will begin later this year. Alongside two other projects that achieved financial close in 2022, these initiatives will have a combined capacity of 1.5 gigawatts, requiring a $1.7 billion investment, and are expected to be operational by the mid-2020s.

Private Saudi power firm Acwa secured $123 million in financing on April 25 for a 200-megawatt solar PV plant in southern Egypt’s Kom Ombo. The project, funded by organizations such as the Green Climate Fund, African Development Bank, Arab Bank, OPEC Fund for International Development, and European Bank for Reconstruction and Development (EBRD), is scheduled to begin operations in 2024.

The EBRD has played a key role in financing Egypt’s renewable energy projects, including the massive 1.465-gigawatt Benban Solar Park. Initial funding of $500 million was secured from Germany and the United States at COP27. Through Egypt’s Nexus of Water, Food, and Energy (NWFE) Program, the EBRD expects to attract at least $10 billion in private investments, leading to the addition of 10 gigawatts of solar and wind capacity by 2028. The program also aims to retire 5 gigawatts of inefficient fossil-fuel capacity by 2025.

Egypt’s current installed solar photovoltaic capacity stands at an estimated 1.724 gigawatts, and an additional 2.26 gigawatts of solar capacity is expected by 2025.

Egypt is diversifying its energy portfolio through green hydrogen production, opening up new opportunities for domestic use and export. Multiple Memoranda of Understanding for green hydrogen projects were signed prior to and during COP27. A consortium comprising Masdar, Infinity Power, and Hassan Allam Utilities entered a framework agreement with leading Egyptian state-backed organizations to develop a 2-gigawatt green hydrogen project in the Suez Canal Economic Zone. Initial production is slated for 2026, with a target of achieving 4 gigawatts of green hydrogen capacity by 2030, resulting in an annual output of 480,000 tons.

Despite Egypt’s thriving renewable energy sector, it’s oil and gas production has declined. However, recent onshore discoveries may reverse this trend. Ministry of Oil figures indicate a 7 percent year-on-year decline in gas output in April, primarily due to water incursion, including at the significant offshore Zohr field operated by Italy’s Eni, which initially held great promise upon its discovery in 2013. Record imports of 800 million cubic feet per day from Israel have enabled Egypt to resume liquefied natural gas (LNG) exports from its Mediterranean terminals.

The Ukraine war prompted the EU to sign a memorandum of understanding with Egypt and Israel to facilitate Israel’s gas exports to Europe through Egypt. This was influenced by the EU’s decision to phase out Russian gas imports by 2030.

Economically, the Ukraine crisis revived Cairo’s LNG export potential, enabling it to benefit from higher LNG demand. This surge in demand, coupled with increased traffic through the Suez Canal from Russian oil, Gulf Arab region LNG, and US LNG, resulted in record revenues of $7.9 billion in 2022, a 25 percent year-on-year increase.

Offshore asset integration in the East Mediterranean is also under consideration as new reserves are developed near Cyprus. U.S. energy major Chevron, the operator of Cyprus’ Aphrodite gas field, has submitted an updated development plan that includes potential connections to Egypt’s existing processing and production facilities.

Egypt’s gas export infrastructure and pipeline links to Israel, Jordan and Lebanon provide it with an advantage, positioning the country as a central processing hub for Mediterranean gas While its two gas liquefaction terminals have resumed operations, they are currently operating below capacity due to previous gas supply constraints. To realize its ambition of becoming a regional gas hub, Egypt needs to secure additional gas supplies.

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