It’s Ramadan, it’s summer and it’s hot. The last thing anyone wants to deal with right now is a power outage, but rolling blackouts have been plentiful these last two months and have become the topic of almost everyone’s tweet or Facebook post. Behind all the satirical jokes, Egyptians are getting fed up and some are furious. Although the government monopolizes power supply, some people have threatened not to pay their utility bills to protest the inconsistent service.
Answering the ‘who’s to blame?’ question results in fingers pointed in every direction: From the newly appointed government exporting much needed natural gas to the Gaza Strip, to old regime cronies who are intentionally cutting the power to embarrass the newly elected president.
Conspiracy theories aside, the real culprit behind these power outages appears to be a surge in demand that has not been met with an increase in capacities. Typically the summer heat exacerbates the problem as we all crank up our air conditioners, demanding more electricity than our grids can give us.
“The available capacity for consumption [stands at] 24,000 MW while the maximum load reached 27,000 MW in August 2012,” said Egyptian Prime Minister Hisham Kandil at a press conference last month. “There is a deficit that ranges between 10–12% in the [available capacities] to meet the needs of industry, agriculture and household consumption.”
With 218 fossil fuel plants, hydroelectric and other power plants, Egypt’s total installed power producing capacities come in at 28,000 MW. However, installed capacities are not all productive with some plants being shut down for maintenance and others bound by limitations of their age, heat or a shortage in fuel.
The question that begs to be asked is why the previous governments failed to install new capacities that would meet the rising demand. Egyptian Marketing Consultants (EMC) chairman Ahmed El Sayed, whose company provides engineering and marketing services for the power sector — blames it on the lack of financing and delays in construction.
“The government had made serious investments in the power sector over the past few years. However, [the] lack of financing as well as several delays in [some] projects [as well as] some [projects] being cancelled altogether brought us to the situation we are in now,” says El Sayed.
One example El Sayed highlights is that of a 750 MW plant planned for the Red Sea city of Nuweiba. Locals protested to the project financier — the European Investment Bank (EIB) — claiming that the plant would be harmful to the environment. The EIB cancelled the funds and the project was scrapped. “This plant would have been operational by now if it hadn’t been for the protests,” El Sayed explains.
El Sayed’s remarks regarding delayed projects due to protesting locals echoes those made by the government. In his August press conference, Kandil pointed to similar incidents relating to the West Damietta and Abu Qir facilities.
“Part of the problem will be overcome after the West Damietta and Abu Qir facilities [with combined capacities of 1,800 MW] enter into service. Their service was delayed due to the exaggerated compensation demanded by locals for the power lines to pass through their land as well as sit-ins by people requesting the hiring of their sons [at the new plants],” the prime minister explained.
The excessive demand for electricity has made it harder to shut down operational power plants for their routine maintenance, which in turn has resulted in over-deterioration of the plants and ultimately affecting supply. El Sayed reveals that, “For a plant to [undergo] maintenance [it] requests for outage from the National Control Center (NCC) for the duration of the maintenance work.
In the last few years, the NCC has refused or delayed every outage request it received,” says El Sayed.
By refusing these outage requests in order to avert an immediate shortage in supply, the NCC has effectively postponed the problem, leading to some plants falling out of service suddenly or becoming unable to generate their designed capacities.
The idea that the consumer also bears a responsibility when it comes to averting these power outages was clearly implied in the prime minster’s statement. He asserts that some simple measures taken by consumers could go a long way in reducing the severity of the problem.
“If each citizen turns off one 40 W lamp during peak hours and the number of participants reaches 25 million, we will save up to 1,000 MW. Furthermore, if there are 6.5 million air conditioning units and those who have two or more switch one off, we find that one million units save about 1,500 MW,” Kandil says.
Other measures, such as switching to energy-saving bulbs, setting the temperature on air conditioners to 25 degrees Celsius and not leaving electrical appliances on standby mode would also help in limiting the surge in demand.
However, El Sayed explains that consumers will most likely rationalize consumption only if electricity is sold at its real value.
With Egypt being a country that heavily subsidies energy, electricity for consumers comes cheap.
“The overload in demand will continue as long as energy is heavily subsidized. People here complain about how expensive electricity is but in reality it is way below international prices,” says El Sayed, betting on human behavior to only reduce consumption when the price becomes too high. As is the case with any other subsidized commodity in Egypt, there is always a concern about the lower income class that actually does need the subsidy. El Sayed, and many others would agree, that consumption should be used as the yardstick by which the government could identify those who deserve the subsidy.
The lower income class would typically have a much lower level of consumption as compared to richer households who have air conditioning units and more electrical appliances.
Obstacles to investment
With fuel being heavily subsidized and the electricity tariff being fixed by the government, the power sector in Egypt is consequently dominated by public sector companies. However, as it has become evident that the government is struggling to keep up with demand, pressure is building up to allow for private sector investment.
El Sayed explains that one of the main obstacles facing the private sector is getting a natural gas commitment from the government at the same price for which it is being sold to public sector companies.
“You can’t supply the public companies with natural gas at say $1.25 (LE 7.55) per thousand British thermal unit (MBtu) and at the same time sell it to an investor for $3 (LE 18.12) or $4 (LE 24.16) per MBtu. He will simply be uncompetitive and nobody will buy from him,” says the chairman.
Also at the industrial level, if it is sometimes possible for steel factories or any other energy intensive industries to generate their own electricity and be independent from the power grid, they will simply not do it because it is cheaper to buy from the government.
El Sayed also explains that for the private sector to invest in electricity generation they have to be allowed to sell their surplus to the ministry in order for it to be economically viable.
“If I have a power plant that sells to a single consumer my load factor will be very low as it is dependent on this consumer’s activity and whether he shuts down at night or during the weekends. So for this plant to be economical it has to sell its surplus to the utility or use the grid to sell to another third party,” he explains.
This market structure would require legislation to control it and according to El Sayed this law has been drafted almost two or three years ago, but the government hasn’t pushed for its ratification in Parliament.
Although it is expected that as the summer heat wanes and the demand for electricity starts to decline these power outages will become less frequent, it is becoming clearer that the problem requires intervention at the roots.
With the government becoming increasingly burdened by debt, which makes it difficult to further finance any increase in capacities, in addition to a subsidy bill that is aching for restructure, it seems that any long-term solution for Egypt’s energy problems will most likely require the market to be freed and for consumers to simply bite the bullet. bt