Enviro journalist & researcher, think tanker @ The Wilson Center & @ Center for Climate & Security, Author of 'The Heat and the Fury: On the Frontlines of Climate Violence'
published on TakePart on Nov 3, 2016
With Egypt’s once promising renewable energy sector crippled, the government is turning to coal.
CAIRO—After 30 years in investment banking, Hisham Tawfik felt confident he could spot a winning venture. He had led one of Egypt’s largest asset management funds and served as a longtime member of the board of directors of the Egyptian Exchange. Even amid the revolution that toppled President Hosni Mubarak in 2011 and the subsequent years of economic turmoil, he kept his clients’ balance sheets steady.
So when Egyptian authorities began to voice interest in renewable energy in 2014, Tawfik leaped at the can’t-miss opportunity to bring solar power to his sun-drenched homeland. Ready for a change of profession, he put the bank on hold and enrolled in a technical workshop in Canada. On his return to Egypt, he established a company, Cairo Solar, and took on five employees. “We were excited by the possibilities,” Tawfik said when we met at his offices in New Cairo, a sprawling desert suburb of the capital. “The industry all looked very promising.”
Over the next year, things moved fast enough to suggest his business instincts were as savvy as ever. He met the minister of electricity andrenewable energy, Mohamed Shaker, to preach the merits of renewable energy, only to find the official was already a keen convert to the cause. When, several months later, the government unveiled a feed-in tariff (FiT) scheme, which guaranteed a price for electricity generated by the private sector’s initial installation of 4.3 gigawatts of wind and solar, Tawfik bid and then successfully qualified, in January 2015, to build a 50-megawatt solar field. With the government offering attractive rates to electricity producers and southern Egypt blessed with some of the most reliable year-round sunshine in the world, convincing investors to get on board had been a cinch.
But in May of this year, all those dreams of crisscrossing the Egyptian desert with banks of solar panels ground to a sudden halt. After dragging its feet through late 2015 and early 2016, the electricity and renewable energy ministry quietly reinserted a discarded clause in its contract with renewables developers that required all disputes to be settled by domestic arbitration. No manner of panicked calls to Shaker’s cell phone could change his mind; nor could he be persuaded during a fraught gathering when he finally agreed to meet. For Cairo Solar and most of the other 45 solar consortiums, which were largely backed by international finance organizations that insisted on the resolution of all disagreements abroad, this more or less killed the first phase of FiT in its tracks. None of the capacity Cairo Solar planned would be installed.
Sitting in his minimalist, glass-fronted workspace, Tawfik was still angry about how the process unraveled. “We were all fooled,” he said. He has lost about $675,000 in cash outlays, and after filing his notice of termination with the ministry, he’s adamant he won’t ever again enter into business with it. “We’ve lost trust. You look at the risk and the reward, and it’s an easy decision.”
But worst of all, he insisted, is the long-term damage this has done to Egypt’s reputation among investors at a time when its economy is tanking and its renewable energy output is minimal. Most of his solar counterparts have or likely soon will pull out of FiT’s first phase. Who in his right mind, Tawfik wondered, would peg his checkbook to Egypt’s flagship wind and solar scheme now? “I doubt anyone rational would accept these new terms. Our big plans are finished.”
Lost Momentum
As fossil fuel dropped from 94 percent to 81 percent of global energy consumption between 1960 and 2013, renewables’ share in Egypt fell. From 1971 to 2013, fossil fuels’ contribution here climbed from 86 percent to 96 percent, mostly due to the Aswan High Dam’s declining share of electricity generation as the population surged. FiT was meant to redress this drop and ensure that wind and solar shouldered a hefty portion of Egypt’s booming energy requirements, which are expected to more than double by 2050.
Until recently the renewables sector looked set to gain a serious foothold in Egypt’s electrical grid and throughout the developing world. By ratifying last year’s Paris climate accord, the world supposedly sent a signal that it was ready to get serious about combating perilously high emissions. Implicit in this agreement was an understanding that fossil fuels must be slowly phased out in favor of more environmentally friendly renewable energy sources. But while the message was seemingly taken on board in major developing countries, and solar installations now provide electricity to an estimated 10 percent of Africans who lack connection to the electricity grid, grid-scale renewable energy isn’t a priority for many officials on the continent.
“Africa is hugely in darkness. Whatever we can do to get Africa from a place of darkness to a place of light…I think we should encourage that to happen,” Nigeria’s energy minister told a U.S.-sponsored summit in 2014. Laila Iskander, Egypt’s former minister of state for environmental affairs, said that while serving in 2013 and 2014, whenever she confronted her colleagues on climate change, they’d answer “that a country that was engaged in economic development could not afford to sacrifice anything.” No matter how much she suggested that environmental protection and economic growth were mutually compatible, powerful ministers couldn’t be shifted.
That attitude seemed to be on the way out in Egypt when President Abdel-Fattah el-Sisi pledged in 2014 that his country would derive up to 20 percent of its energy from renewables by 2020 (now pushed back to 2022). With the cost of solar and wind components falling by up to 25 percent in the last few years, even cash-strapped governments in sub-Saharan Africa spoke of alternative energy sources as a means of reducing some of their reliance on costly fossil fuel imports. Given that places like Egypt’s low-lying Nile Delta and much of densely populated Bangladesh are intensely vulnerable to sea level rise, authorities there have a vested interest in turning to more environmentally sound policies. As things stand, 2.5 percent of Egypt’s total power output is from wind, 9 percent comes from the Aswan High Dam, and solar’s contribution is negligible. The rest mostly comes from natural gas.
But in Cairo and a number of other electricity-hungry capitals, renewables have suffered a series of setbacks that threaten to delay the rollout of some projects for years, or even kill them altogether. A combination of official incompetence, concern over upfront costs, and outdated perceptions of renewables’ affordability have haunted the expansion to the African continent. At a time of low oil prices and stagnant economic growth, some governments are struggling to look beyond the initial teething troubles.
“Across the board, we’re still seeing loads of interest [among investors and governments], but we also see that for lots of countries it’s difficult to pull off,” said Sebastiaan Surie of Climate Fund Managers, an investment group that finances renewables in emerging markets and was set to back several solar projects in Egypt until FiT ran into difficulties. “Remember that many of these governments have been running state-owned and -built power plants, so they’re inexperienced in dealing with independent stakeholders. Sometimes the banks and developers are inexperienced too.”
It’s not just the novelty of it all that’s delaying renewable energy’s progress, proponents say. In many instances, officials and the public continue to labor under the delusion that alternative energy is as expensive as it was in the past. While in some places in the Global North solar power from the grid can be as cheap as fossil fuels at certain times of the day and year (even without subsidies), rooftop panels are still relatively costly for households making only the equivalent of a few thousand dollars a year. So while the cost per kilowatt of solar panels has dropped from an average of 60 cents to 45 cents since 2013, for countries like Egypt and Sri Lanka, whose plans to outfit 100,000 homes with solar panels are in doubt because of financial concerns, large-scale power generation from renewables still sounds prohibitively expensive. “I think there’s inaccurate information circulating freely about the persistent high costs of wind and solar. It’s misinformation,” said Iskander. “The whole world knows the cost has come down, but here the news hasn’t arrived yet.”
Shifting Priorities
Since the government announced the contractual changes that sent FiT into deep freeze, Hisham Tawfik has had plenty of time to dwell on where it all went wrong. After several months of turning it over in his mind, he’s convinced that authorities deliberately sabotaged Egypt’s solar energy sector. With the economy in trouble because of a decline in domestic and foreign investment, a foreign exchange crisis, and erratic government policies, even though renewable energy is cost-effective in the long term the government is keen to reduce its immediate financial commitments. So Tawfik’s theory is that it toyed with developers of renewables in a manner guaranteed to send most of them packing. “There’s just been zero transparency,” he insisted.
Energy analysts tend to agree with this assessment, saying much of the explanation for the official turnabout can be found in an electricity situation that has changed dramatically since FiT was launched in 2014. Back then, Egypt was roiled by frequent power cuts, which were fueling popular unrest, and comparatively flush with more than $20 billion in cash infusions from Gulf states. Now, with blackouts rare in urban areas and Egypt on the hook for three large German-built power plants, the urgency has gone—and with it the drive to get solar connected to the grid. “They might even have a surplus [of electricity]. They don’t need renewables to meet demand,” said Alex Warren, cofounder and director at Frontier MEA, a Cairo-based energy consultancy.
The biggest problem facing wind and solar in some emerging markets is that governments there no longer feel as imperiled by soaring energy bills as they did a few years ago. With fossil fuel prices way down since many of these renewables schemes were first mooted, some of the fuel crises have receded. Falling back on established energy sources has consequently proved all too easy. “A lot of countries are benefiting from the low price of oil, so this has relaxed their decision-making processes,” said Maged Mahmoud, technical director at the Regional Center for Renewable Energy and Energy Efficiency, the Arab region’s intergovernmental advocate for renewables. “It’s made people take their time and maybe question some of their choices.”
In Egypt’s case, the decision to slow the drive toward renewables was seemingly cemented by the authorities’ sense that they were getting played by the business world. The tariff developers and officials had agreed on for round one of FiT was more than three times what a similar scheme in Dubai offered. Developers insisted that Egypt’s tax laws, weaker investment climate, and elevated security risks meant the payoff had to be generous to entice investors, but Tawfik believes “someone ignorant [in government] looked at Dubai and assumed we were just trying to make big bucks off them. They just don’t trust the private sector.” Neither the head of the New & Renewable Energy Authority nor the spokesperson for the Ministry of Electricity & Energy responded to several requests for comment.
Consequences for Health
For decades, Egypt’s government kept oil and natural gas prices artificially low through generous subsidies. Two years ago, in an attempt to balance the budget, authorities cut many such subsidies, making renewables commercially viable in the country for the first time. But in an ironic twist, that same decision also opened the door for the dirtiest of fossil fuels to enter Egypt.
Cut off from cheap gas, Egypt’s powerful and energy-hungry cement industry frantically cast around for an affordable alternative with which to fire its factories. With coal falling out of favor in much of the West and East Asia, its cost had slumped, and cement bosses hit on the idea of importing supplies from South Africa. Now, at least half the country’s major cement plants have converted their kilns to burn coal, according to activists.
For Egyptian environmentalists, disconsolate at wind and solar’s stalled progress, going from the brink of a renewables revolution to using coal for the first time since World War II has rubbed salt in their wounds. “There’s just this sinking feeling, this sense of frustration, because coal was such a distant issue,” said Sarah Rifaat, a Cairo-based activist and campaigner for 350, which advocates for climate change solutions. She first learned of the fossil fuel’s arrival on her country’s shores when a local Greenpeace representative circulated photos of coal piled up at a port. “I was already part of the climate movement, [and] I met people from places like India that have been fighting coal for 20 years, but I never thought that we’d be talking about coal in Egypt.”
Even though only two dozen or so industrial facilities have so far turned to coal, the consequences for those living in proximity to them have been bleak. Cursed with some of the worst air quality in the Middle East, Helwan, an outer district of Cairo, and the Wadi al-Qamar neighborhood of Alexandria have seen a dramatic uptake in respiratory diseases since the arrival of coal at clusters of local factories, activists say. The few residents wealthy enough to relocate to other areas have long since packed their bags; for most others airborne black dust and a range of new ailments have become fixtures in their lives. “Since they started to use coal, problems have just spread,” said Hany Abo Okeil, who has led the campaign against coal in western Alexandria and has been stricken with an array of what he says are trumped-up criminal charges. “Breathing problems, cancer, allergies of the eyes and skin—this is from the smoke, which comes day and night.”
Environmentalists worry that coal could catch on, and government officials announced this year that they hoped to derive at least 15 percent of Egypt’s electricity generation from coal by 2030. In India and Bangladesh, too, authorities have doubled down on coal, saying that they couldn’t afford to be picky amid urgent development demands.
There is nevertheless cause for hope among anti-coal campaigners. They’ve seen thesuspension of construction on Kenya’s first coal plant after vociferous local opposition and have watched as Ghanaians have mobilized against two similar facilities in their country. Should the Egyptian government follow through with any of the 12 memorandums of understanding it has signed with Chinese coal plant developers, activists are adamant that they, too, will up the ante. Cruelly for investors like Tawfik, though, Egyptians’ greatest chance of kicking coal might come from a huge offshore gas discovery in the Mediterranean that’s set to start producing next year, perhaps resolving Egypt’s energy woes for the foreseeable future.
Potential for Revival
Getting the solar industry back on its feet—and for more than a fleeting moment this time—is eminently achievable, advocates say. Egypt’s 350 days a year of unclouded blue skies are as reliable as ever, as is the breeze of the Red Sea coast, a windsurfing mecca. Were the country to add biomass from its more than 8 million acres of farmland to its energy mix, it might be an even more irresistible proposition. “Anyone can generate electricity from agricultural waste,” said Ahmed Kamal, head of the Environmental Compliance Office and Sustainable Development at the Federation of Egyptian Industries. “I see it having even more potential than wind and solar and more consequential for the people of Egypt.”
To get there, it seems that supporters of renewables need to do a better job of showcasing the worth of their cause. Much of the population is still mindful of the shoddy, Chinese-made solar water heaters that entered the Egyptian market in the 1990s and subsequently tainted all renewables by association. By promoting “some success stories, renewable energy can get more of the exposure it needs,” Sarah Rifaat said. Hisham Tawfik did just that when he posted on Facebook a photo of a check he’d received from the government for his first delivery of electricity to the national grid at the beginning of FiT—and then watched as it went viral.
Renewables’ next great opportunity might arise out of Egyptians’ suffering rather than any kind of positive development. Since the government cut subsidies, electricity prices have climbed quickly. For a nation reeling from stagnant wages and high inflation, the prospect of wind and solar reducing its bills could be enough to give the industry a proper hearing. “If people are unhappy with high electricity prices, maybe they will see that this could help them and they’ll apply pressure,” said Iskander.
Desperate economic times and trying political circumstances often result in poorly considered short-term fixes. So it has proved with the crippling of FiT and the promotion of coal. Egypt will, it seems, have to wait for less turbulent times before it can give solar a proper chance to shine.