Private-to-private (P2P) power supply leaps ahead

From the newsletter

The Egyptian government has accelerated the implementation of a new law for private-to-private (P2P) power supply, approving the first four projects totalling 400 MW. Under this model, private generators will build their own renewable power plants and supply electricity directly to industrial clients through the country's transmission network at a fee.

• Many African governments are facing power supply shortages, with electricity demand growing faster than generation capacity. They are increasingly turning to the private sector for solutions. Countries such as South Africa and Zambia are examples that already permit a P2P power supply model.

• Egypt's electricity consumption demand is projected to grow by 3% annually until 2027. The nation consistently struggles to balance demand and supply, particularly during the summer due to increased cooling needs. Population growth and economic expansion further drive this rising demand.

More details

• These approved projects represent a total investment of $388 million. These agreements are structured to place no financial burden on the state and do not require sovereign guarantees. The companies awarded these projects include Neptune for Electricity Production and Sales, Dubai-based AMEA Power, TAQA PV and ENARA for Renewable Energy Services. The plants will generate power from wind and solar.

• There are more applications for private power generation. The Egyptian Electric Utility and Consumer Protection Regulatory Agency reports completing its review of 700 MW worth of renewable energy projects from seven companies, with each proposing 100 MW.

• The P2P model has proven effective in South Africa, offering industries multiple options for purchasing power from various producers. This system also enables producers to build their projects in the most suitable locations, as they can wheel electricity through the national grid to their clients. Consumers stand to benefit from competitive tariffs and better service quality.

• This marks a significant step forward for governments that have long been cash-strapped. It represents an upgrade to the traditional public-private partnership (PPP) model, which often still requires some government funding for project success. In contrast, many projects under the PPP framework have struggled to advance quickly due to bureaucratic hurdles and corruption in governments.

• Egypt has ambitious goals to increase the share of renewables in its electricity mix to 42% by 2030, a significant rise from the current share of under 12%. Achieving this target requires a multi-pronged approach, combining both government and private sector efforts. We are already seeing progress in PPP projects, with several mega-projects commencing construction. Since February, Renewables Rising has tracked at least 4,800 MW in projects under development and $4.6 billion in funding.

• The country is focusing not only on meeting local demand but also on expanding into export markets. Currently, it exports electricity to Libya and Jordan and in 2023 earned  $119 million from exports.  It wants to expand and has already struck deals with Saudi Arabia, Greece, and Belgium for electricity exports. By allowing the private sector to sell electricity directly to industries, the government can better focus on these lucrative export markets, which will inject much-needed foreign currency revenue.

Our take

• The shift to a P2P model is expected to accelerate project development because it significantly reduces government involvement, limiting it primarily to the approval process. Private companies, always keen on recouping their investments quickly, have a strong incentive to avoid delays, as prolonged development times add financial risk.

• Both the government and consumers stand to benefit. As competition among private generators intensifies, consumers should see reduced electricity tariffs. The government will also gain increased revenue from fees for using the national grid. This additional revenue can then be reinvested to build and upgrade transmission infrastructure, which in turn supports the development of more projects in different areas.

• African governments need to adopt both P2P and PPP models to support the development of their energy sectors. The progress witnessed in South Africa and Egypt, and the growing competition, should serve as a wake-up call.