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ENVIRONMENT: Desert Winds Stir New Hope

Cam McGrath* - IPS/IFEJ

CAIRO, Sep 9 2009 (IPS) - With oil and gas reserves running dry, the most populous country in the Arab world is eyeing wind power as a solution to its looming energy crunch.

Egypt relies on the burning of fossil fuels to satisfy about 85 percent of its electricity requirements. But with electricity consumption growing at 8 percent a year, and the country's oil and gas reserves expected to dry up within 30-50 years, energy policymakers have taken an increasingly hard look at the potential of wind power.

The National Renewable Energy Authority (NREA), which manages Egypt's clean energy portfolio, has mapped out a strategy to develop the country's abundant wind resources.

"We are currently generating 400 MW of power from wind and will increase our capacity to 600 MW by mid-2010," says Fathy Ameen Mohammad, vice- chairman for projects and operations at NREA. "Our goal is to generate 7,200 MW of wind power by 2020, which is about 12 percent of total electricity production."

Energy experts believe it can be done.

A Wind Atlas for the country published in 2005 indicated that the coastal plain between Suez and Hurghada on Egypt's Red Sea coast has sufficient wind resources to generate 20,000 MW. Egyptian and Danish researchers found average wind speeds on this plain exceeded 9 metres/second, comparable with the best North Sea conditions. Other candidate locations for wind power development include the Nile Valley and the Western Desert, where wind speeds average 6-7 metres/second.

The government has earmarked over 8,000 square kilometres – an area the size of Puerto Rico – for wind parks. Japan, Denmark, Germany and Spain have provided funding for onshore wind farms currently operating or under construction on the Red Sea coast. Private investors are currently being sought for build-operate-own (BOO) wind projects to supply electricity to the national grid.

"We are in the process of issuing the first 250 MW project in this regard," Mohammad told IPS, adding that more than 30 local and foreign companies are bidding for the contract.

The NREA strategy includes construction of wind parks covering 150 square kilometres at Zafarana, with 600 MW capacity. Another 200 square kilometres, with 720 MW capacity, is being developed at Gebel El-Zeyt, further down the coast. And between these two areas a swath of 1,300 square kilometres has been allocated for independent producers to generate up to 6,000 MW of wind power.

In addition, the government has earmarked 6,500 square kilometres of state land in three blocks along the Nile River in Upper Egypt for wind farms. "NREA will develop on one-third of this land, while the remainder is for independent projects," Mohammad says.

One obstacle to this ambitious development scheme, analysts point out, is that Egypt's energy policies have been engineered to ensure the supply of cheap fossil fuels to residential and industrial consumers. The country's domestic oil and gas prices are among the lowest in the world, discouraging energy users from switching to cleaner alternatives.

"The basic impediment to renewable energies in the region is the incremental cost," says Kilian Baelz, acting director of the Regional Centre for Renewable Energy and Energy Efficiency (RCREEE), a Cairo-based energy policy think tank. "The most cost efficient technologies like wind in Egypt are near commercial, but they are not yet (commercially viable).

"This applies to renewables worldwide. If you look at Europe, for example, the countries where renewable energies thrive are those countries where the government has put in place incentives to promote renewable energies, like Germany and Denmark."

Germany, a world leader in wind energy production, has 24,000 MW of installed wind power capacity – about a fifth of the world's total. Denmark, with 3,100 MW of installed capacity, uses wind turbines to generate more than 20 percent of its electricity.

Egypt is committed to phasing out subsidies on oil and gas, and privatising electricity production and distribution – a move analysts say should encourage investment in the wind power sector. It has also reduced tariffs on imported renewable energy equipment such as wind turbines, and established a fund to help offset the marginal costs of deploying these technologies.

Draft legislation currently before parliament and expected to be passed later this year will regulate power purchase agreements, where the state-owned transmission company buys electricity from independent power producers (IPPs) for an agreed rate and period.

"The proposed feed-in tariff will create an incentive for developers to build renewable energy plants to supply the national grid," says Mohammad.

Wind farms are also eligible to receive carbon credits under the Clean Development Mechanism (CDM) of the Kyoto Protocol. NREA has already registered a 120 MW wind farm at Zafarana as a CDM project, and is in the process of registering three more.

Egypt's plan to install 7,200 MW of wind farms will reduce the country's annual greenhouse gas emissions by 17 million tons of carbon dioxide equivalent.

Foreign investors are lining up in anticipation of the energy policy changes, creating a demand for firms able to supply wind power equipment designed for the local operating environment.

"The technology is available, but it needs to be adapted to operate under the conditions at the Red Sea – very high wind speeds all year long and very high temperatures," Baelz explains.

One local firm already in the market is El Sewedy Group, which established El Sewedy for Wind Energy Generation (SWEG) in 2008 to manufacture wind towers and components, supply turnkey solutions to IPPs, manage wind projects, and provide service contracts. SWEG recently purchased a 30 percent stake in wind turbine maker M. Torres Olvega, and hopes to leverage the Spanish firm's experience in wind tower design and construction.

"Being local you solve the main logistics problem of wind energy, which is transportation, that reduces the cost," explains Faisal Eissa, SWEG's managing director.

The high front-end cost of wind projects forms a barrier to many independent producers. An onshore wind farm with 200 MW installed capacity costs about 340 million euros to set up.

"Wind projects need intensive initial capital outlay, which requires loans and financing," says Eissa. "If there is a specialised local mechanism for financing the wind business, like in Europe, it will drive the final cost of wind projects downwards."

Experts are confident that once Egypt has the proper regulatory framework in place, banks will make financing available.

(*This story is part of a series of features on sustainable development by IPS – Inter Press Service, and IFEJ – the International Federation of Environmental Journalists.)