Egypt bets big on wind power

From the newsletter

Egypt is set to host Africa’s largest wind power plant. This comes after a $703.6 million agreement was reached yesterday between Saudi Arabian-based energy operator ACWA Power & HAU Energy, a renewable energy equity platform, for the development of the Suez Wind Farm. The two companies will co-own the plant. 

• The Suez Wind Farm, with a projected cost of $1.2 billion, will generate 1,100 MW upon completion and will be developed in two phases of 550 MW each. 

• Once fully operational, it will produce over 4,300 GWh annually, reducing CO₂ emissions by 2.2 million tonnes.

• Egypt is working to diversify its energy mix and reduce its reliance on fossil fuels. Currently, natural gas dominates the country's electricity generation, accounting for approximately 70%. However, Egypt has set an ambitious target of increasing the share of renewable energy to 42%, with wind power playing a key role in achieving this goal.

• This commitment to renewable energy is evident in the rapid expansion of wind power projects across the country. ENGIE Energy, for example, is increasing the capacity of its Red Sea Wind Energy project from 500 MW to 650 MW. This follows the successful early grid connection of 306 MW from the project. While the Suez Wind Farm is expected to be fully operational by the second quarter of 2027, the Red Sea project is scheduled for commercialisation by the third quarter of 2025.

• This accelerated development is partly driven by Egypt's demographics. With an annual population growth of approximately 2%, electricity demand is increasing by 5-7%, exceeding the global average of 4% projected by the World Economic Forum. To meet this surging demand, Egypt is looking to diversify its energy mix.

• The New & Renewable Energy Authority estimates Egypt's wind energy potential at 350 GW, yet it remains largely untapped. By the end of 2024, the country's installed wind capacity was only 1.6 GW.  This presents a significant opportunity, especially given Egypt's strategic location. The Gulf of Suez, in particular, benefits from high wind speeds, averaging 8-10 meters per second.

• In North Africa, Egypt currently ranks second in wind energy capacity, trailing behind Morocco with its 3.5 GW of installed capacity. Algeria follows with 1.5 GW, and Libya has 0.5 GW.  Egypt's progress is supported by a favourable regulatory environment.

• The government has implemented financial incentives in the Feed-in Tariff (FiT) program and the Renewable Energy Fund to encourage investment in renewables. These initiatives help bridge the cost gap between renewable electricity and market prices.

• Expanding wind energy is not just about meeting growing demand; it's also crucial for reducing Egypt's carbon footprint.  In 2023 alone, the country's reliance on fossil fuels resulted in an estimated 240 million tonnes of CO₂ emissions. Wind energy projects play a vital role in displacing fossil fuel-based power generation and driving a transition towards a cleaner energy future.

Our take

• Diversifying the country's energy mix will enhance energy security in Egypt. This will ensure a more stable and reliable energy supply for its growing economy and may even help reduce electricity prices.

• However, a significant challenge lies in integrating large amounts of variable renewable energy into the grid. This requires substantial investments in grid infrastructure, smart grid technologies, and energy storage solutions. Therefore, the Egyptian government and service providers must be mindful of this challenge