By Fitch Solutions
- Egypt’s power supply surplus will remain high over our 10-year forecast period as rapid generation growth outpaces underlying demand trends.
- The country will prioritise investment into new cross-border transmission interconnections, aiming to become a regional electricity supply hub
- Plans to build out its green hydrogen production capacity will offer significant upside risk to our long-term electricity demand and renewables investment projections.
Sustained Investment to Boost Electricity Surplus
We expect that Egypt’s power supply surplus will remain high over our 10-year forecast period, attributable to rapid growth in net electricity generation which significantly outperforms the underlying demand trend. The country’s economic recovery after the Arab Spring saw rapid and sizeable growth in new power capacity under the el-Sisi government, with total power capacity rising by nearly 14GW between 1 January 2018 and 31 December 2019. While this injected 25TWh of new electricity supply into the power grid, total electricity demand grew by only 21TWh over that timeframe to bring about a significant surplus of electricity generating capacity. With a power project pipeline in excess of 22GW and a strong recent track record of project completion, we expect this electricity surplus to last the duration of our forecast period to 2030.
Electricity Exports Will Support Continued Capacity Growth
In order to support ongoing power sector growth and capitalise on its rising excess generation, we expect Egypt to prioritise investment into new cross-border transmission interconnections with the aim of becoming a regional electricity hub. Two major power interconnection plans reinforce our outlook in this regard:
- Egypt-Saudi Interconnector: The Egyptian Electric Holding Company (EEHC) and Saudi Electricity Company (SEC) plan to link the two markets with a 500kV interconnection cable with options to double its voltage in a second phase at a later stage. The project will cost an estimated USD600mn, and is currently in the planning stage with no hard deadline for completion in place at the time of writing.
- EuroAfrica Interconnector: Plans are in place to construct a 500kV sub-sea interconnection between Egypt and Greece via Cyprus with an estimated cost of approximately USD2.7bn. Stakeholders expect that this will offer offtakers a reliable source of renewable electricity from Egypt, feeding into the European interconnected grid system through Greece. The project has made notable progress over the past year, with the first phase connecting Egypt and Cyprus currently expected to reach completion in 2022.
While proposals to expand Egypt’s interconnections with the East African Power Pool (EAPP) and COMELEC (Maghreb Electricity Committee) region both offer significant future export potential for Egypt, we expect the Egypt-Saudi and EuroAfrica interconnectors to take priority over the near-medium term. By expanding its electricity trading capacity, Egypt will be able to avoid mandatory power-downs such as those seen in late-2018. This will be essential in maintaining income stability and investor interest in its power sector. With this in mind, we expect Egypt’s overall electricity exports to rise steadily through our forecast period to 2030.
Green Hydrogen Presents Upside Risk To Long-Term Electricity Demand
Plans to build out its hydrogen production capacity will also hold significant upside potential for Egypt’s domestic electricity consumption over the coming years. In early July 2021, Egyptian Minister of Electricity and Renewable Energy Mohamed Shaker announced plans for the government to invest USD4bn into the construction of a green hydrogen production plant, which will use renewable electricity to power electrolysers. While the plans were not discussed in further detail, the government’s commitment to establish a large-scale green hydrogen project highlights its long-term commitment to energy transition. We highlight that its vast solar and wind power potential, robust economic growth, close proximity to Europe – which we highlight as an emerging green hydrogen demand centre – and easy access to global trade routes all make Egypt ideally suited to become a major market for global green hydrogen production. While we are not yet factoring this demand into our forecasts, given the early stage of the country’s green hydrogen plans, we highlight robust upside risk to our power consumption and renewables growth forecasts over the medium-to-long term. Added to that, a significant rise in renewables-specific electricity demand would have a sizeable impact on solar and wind power investment in the country, presenting further upside risk to our long-term renewables capacity growth outlook.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.
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