Egypt: an emerging powerhouse of green energy
Egypt may lack the Gulf region’s capacity for state-directed investment, but its savvy policy choices and private sector dynamism have still made it a regional leader in renewable energy growth.
From endless desert sunshine to strong coastal winds, the Middle East and North Africa is not short of potential for green energy. Looking at the countries expected to drive most of the region’s renewables growth, Egypt is at the head of the pack.
Given the country’s abundant supply of sunlight, solar power is often what comes to mind when thinking about green energy in Egypt. But the Gulf of Suez is a world class wind source.
BMI Renewables Industry Research expects wind capacity in the MENA region to increase by almost 14GW over the next 10 years. Easily the largest source of growth — providing over half of the predicted increase — will be Egypt.
The government deserves much of the credit. The authorities have worked hard to expand renewables capacity with the aid of international partners. Egypt has used its Sovereign Fund along with collaboration from a range of multinational entities and international investors to tap into its wind potential.
One such project — Gulf of Suez II — will be one of the largest wind farms in Africa. Located in the Ras Ghareb area some 300km southeast of Cairo, the 500MW project is due to come online in 2025 and supply more than 800,000 Egyptian homes with green energy.
Egyptian authorities think the project could reduce Egypt’s CO2 emissions by about 1m tonnes a year. In late 2022, the authorities announced the 500MW Amunet wind project — a joint venture between Japan’s Sumitomo Corp and AMEA Power of the United Arab Emirates.
This year, Egypt has continued to build momentum for wind investment. In July, the New and Renewable Energy Authority announced an agreement with Norwegian firm Scatec to develop a 5GW wind power plant in West Sohag, in the south of the country.
In August, NREA signed a deal with a consortium of Orascom Construction, France-based Engie and Japan’s Toyota Tsusho to provide land for a 3GW wind farm in the same area.
Egypt is also moving forward with a colossal 10GW wind project — which would be one of the largest in the world — first agreed on the sidelines of COP27. NREA recently signed an agreement with a group of firms — including Egyptian-Abu Dhabi joint venture Infinity Power — to provide land for the project, which would avoid 23.8m tonnes of CO2 and an estimated $5bn in natural gas costs each year.
Private sector support
Wind might be driving much of the increase in renewable capacity, but the possibilities for solar are no less impressive. Estimates put the country’s total annual sunshine at up to 4,000 hours, or 11 hours a day.
Egypt is undertaking a mix of large, utility-scale solar projects and using targeted policies to help grow solar in the retail and small scale segment. Financial assistance programmes for farmers are helping them roll out solar-powered irrigation systems that save money and reduce reliance on diesel generators. The government has introduced net metering and feed-in tariffs, meaning residential and commercial property owners can sell excess electricity they generate to the grid.
On the larger end of the scale, Saudi firm Acwa Power recently closed financing for the 200MW Kom Ombo power plant — expected to come online early next year. Funding from multilateral agencies and private banks will create a utility-scale solar plant able to power 130,000 homes.
This touches on a key aspect of Egypt’s progress. Unlike the Gulf states — the other regional green energy powers — in Egypt it is the private sector, foreign investment and debt financing that will drive green growth.
The NREA reported that foreign investment into Egyptian energy projects doubled to $3.5bn in the 2021-22 financial year. Again, sound policy is part of the story. New cross-border power connections are making projects more appealing by boosting
export capacity. Moves to raise electricity prices and lower fuel subsidies will make green power more competitive and support profits in the private sector power industry.
Making banking better
Financial sector support for the energy transition is soaring as Egypt’s banking sector embraces green and sustainable finance as part of its own transformation.
In the last few years, the Central Bank of Egypt and the Financial Regulatory Authority have introduced new regulatory directives across the financial industry.
In late 2022, just before the start of COP 27 in Sharm el-Sheikh, the CBE issued binding sustainable finance regulations with specific requirements and timelines (see table).
Egyptian banks have to introduce sustainable finance products, increase their green portfolios and analyse environmental risk from projects. This requires new policies, creating and staffing new departments, and publishing annual sustainability reports. Mandatory reporting and disclosures started in the second half of 2023.
“The Central Bank of Egypt is establishing an enabling environment for Egyptian banks to benefit from the
opportunities provided by sustainable financing, while managing risks and benefiting all stakeholders’ groups,” says Hussein Abaza, CEO of Commercial International Bank. “The infrastructure base for the Sustainable Finance Roadmap is now being implemented, which starts with sustainable finance capacity building for the Egyptian financial sector, through training programmes and workshops to build up the necessary knowledge and skills in this field.”
In the capital markets, the Egyptian government showcased its commitment to sustainability and inspired other emerging markets by issuing its inaugural green bond for $1.9bn in 2020. The banks have followed in its footsteps. CIB issued Egypt’s first corporate green bond during the pandemic — a $100m note fully subscribed by the International Finance Corp — to increase financing for sustainable solutions to climate change.
Abaza sees potential for green and sustainable financing in many fields — renewable energy, industrial energy efficiency, green buildings, waste and water treatment, sustainable transport, tourism and agriculture.
This also benefits Egypt’s economy, he says, “by increasing the percentage of renewables in the nation’s energy composition, promotes green buildings throughout the country, and develops resource efficiency best practices in the industrial sector.”
In 2023, CIB signed a $100m green funding mechanism for climate finance with IFC to finance mitigation and adaptation projects in several sectors including tourism, transport, agriculture, industrial sectors and water and waste management.
The bank has also expanded its sustainable financing portfolio to include 12 new product offerings designed to serve companies, as well as small and medium-sized enterprises (SMEs) from both the public and private sectors. Applications include water desalination, energy management systems, retrofitting buildings, pollution prevention and control, sustainable agriculture and sustainable transport.
Abaza says CIB’s efforts to increase its climate finance offerings “aim to provide convenient financial solutions to complex environmental challenges for carbon-intensive industries, enabling their transition toward a low carbon economy.”
The SME space, which accounts for over 90% of Egyptian firms, is full of firms in carbon-intensive sectors facing new pressure to adapt. Egyptian garment exporters, for example, serve Europe as a vital market, which increasingly requires high sustainability standards.
SMEs are looking for financial assistance to shift to green production and future-proof their businesses. The pressure on exporters is greater, but domestic firms are also responding to the new dynamic.
Catering to this demand, CIB has its own Sustaining SMEs lending initiative and a Sustaining Sectors programme adapted to different industries.
Major firms face even more security. Listed Egyptian companies now bear the same mandatory environmental, social and governance reporting requirements as banks.
Meanwhile, oil and gas is still a critical part of the Egyptian economy. Yet Egypt is making impressive strides to improve efficiency and lower emissions. Hosting COP 27 was an important catalyst.
At the event, Egyptian firms and government entities signed multiple agreements aimed at creating a more environmentally friendly oil and gas industry.
Egyptian Liquefied Natural Gas Co is working on the possibility of a zero-flaring system at gas terminals. In July this year, Egyptian Natural Gas Holding Co (EGAS) and partner Wintershall Dea announced that their joint venture Disouco had become the first firm in Egypt to achieve zero routine flaring.
EGAS is also working with global firms like Shell and TotalEnergies to study options for decarbonising the petroleum industry.
The combination of banks keen to boost their green portfolios and fossil fuel firms eager to clean up their operations is a winning one.
One emerging energy solution that holds promise for Egypt and its lenders is green hydrogen. In August this year, Swiss firm Smartenergy said it was in discussions to construct a green hydrogen facility in Egypt. In March, Egypt’s government said China Energy Engineering Corp would begin work on a colossal $5bn project using solar and wind generation to produce 140,000 tonnes of green hydrogen a year. Much of this will be exported to European markets as ammonia, enlarging Egypt’s access to foreign exchange.
The outlook for cleaner natural gas, burgeoning renewables and cutting edge green hydrogen could turn Egypt into an energy export powerhouse. Its electricity grid is already connected to many regional neighbours including Jordan, Turkey and Sudan. Recognising the export potential, the government is collaborating with other African countries to improve interconnections through the Nile Basin Initiative.
Even more ambitious projects could strengthen connections with Europe. The Greek and Egyptian governments have held discussions on the GREGY interconnector — a visionary project that has its origins in the private sector.
Infinity Power and Greek conglomerate Copelouzos are driving the plans, which would see a colossal 3GW capacity subsea cable transmit Egyptian solar and wind energy to Greece.
Located at the crossroads of Africa, Asia and Europe, Egypt has been a regional power and crucial source of commodities for hundreds of years. As the world undergoes an unprecedented energy transition, the country looks set to carry its historic role into a new future.
Binding Sustainable Finance Regulations
In November 2022, the Central Bank of Egypt issued binding sustainable finance regulations as part of the country’s commit¬ment to the UN Sustainable De¬velopment Goals and Egypt’s Vi¬sion 2030. The regulations in¬clude:
Banks must incorporate sus¬tainable finance policies within their existing credit and invest-ment policies. In addition, banks must set procedures consistent with the CBE’s Guiding Principles for Sustainable Finance, and sub¬mit the new policies and proce¬dures to the central bank by Oc¬tober 1, 2023.
A bank’s board of directors should ensure the new policies and procedures are put in place and validate the required reports.
Banks must establish an inde¬pendent Department for Sustain¬ability and Sustainable Finance that reports directly to their CEO or deputy CEO by April 1, 2023. This department should include individuals who have expertise in credit and risk, and who can coor¬dinate between the various de¬partments within the bank.
These new departments will take responsiblity for implement¬ing sustainability and sustainable finance policies through the bank.
Banks must consult an environ¬mental expert accredited by the Ministry of Environment to as¬sess environmental risks of large corporate projects from July 2023.
Banks must prepare periodic reports to be provided to the cen¬tral bank’s own Sustainability De¬partment. These reports include:
Semi-annual status reports on the implementation of the Sus¬tainable Finance Guiding Princi¬ples starting from July 2023.
Quarterly quantitative reports on sustainable financing activi¬ties starting from July 2023.
Annual sustainability reports approved by the bank’s board, which should be prepared in ac¬cordance with the Global Report¬ing Initiative. These must be pro¬vided on March 31 each year, starting in 2024.