Rana Alaa & Yaseen Abdel-Ghaffar: The Solar Energy Start-up Scene in Egypt

Rana Alaa & Yaseen Abdel-Ghaffar: The Solar Energy Start-up Scene in Egypt

  The word “energy” derives from the Greek words “en” and “ergon” which mean “in” and “work.” The meaning of the word fits perfectly with the nature of energy as a phenomenon. As humans trot this globe contributing to its technological advancement and urbanization, they increase in number and work more. The larger the number of people, the more energy they consume, for energy is a vital commodity as essential as food and water. Furthermore, energy is no stranger to the stress-nexus where energy, food and water resources are at a risk of falling short of rising demand. Hence,it is without doubt that energy is and will always be in demand, and a lot of high-density spots on Earth are suffering from the downsides of an energy crisis. Egypt being a developing country with a notable population spurt heads the curve of locations that suffer from an energy deficit.

 

  The peak energy demand in Egypt is currently around 30000MW with a supply of a little over 26000MW, leaving us with an energy deficit of 4000MW that result in the frequent power cuts which Egypt suffers from in peak demand seasons. This deficit is not a mere hiccup but a substantial problem, given the continuous increase in population of around 1.6% intertwined with the inevitable rise in power demand. Not to mention, Egypt’s energy supply mix is heavily reliant on unsustainable energy resources having a composition of around 88% fossil fuels while the remaining 12% are mainly hydropower from the high dam. The country’s energy mix has not really earned the title of mix as it is solely focused on conventional powersources despite the abundance of other resources such assolar and wind.

 

Solar Energy Comes to Egypt

  One of the most basic concepts in science is that the sun is the ultimate source of energy for planet Earth. It took humanity quite some time to land upon the Photo Voltaic (PV) technology, which is a raw application of converting solar energy to usable electricity. It took the Egyptian government even longer to finally realize that the only way to attend to the energy crisis is to capitalize on its God-given renewable energy resources. Egypt has an average solar irradiance of over 2000 KWh/m2 which is double the energy produced from the sun in a square meter in Germany. This means that installing a solar plant in Egypt would result in slightly less than double the power production of a plant installed in most places around the world.

  The Egyptian government’s realization has prompted it to introduce the Feed-In-Tariff (FiT) program encouraging investors and entity owners alike to install solar power plants to sell electricity to the government in return for fixed rates. Such rates are an incentive for the entities and investors to install solar power systems. The FiT program is targeting a cap of 2300MW in the next two years.

  One would wonder why didn’t anyone turn to solar from the very start.It was a common misconception that solar energy is too expensive and hence infeasible. This, however, is no longer the case since the Chinese found ways to bring down the unit cost. The actual problem lies in the fact that conventional electricity is almost free, being heavily subsidized by the Egyptian government. This subsidy system, although created for noble reasons, is unsustainable due to the massive losses and not to mention the nation-wide energy crisis taking its toll on the country’s productivity. This finally pushed the government to enact a subsidy removal plan in July 2014 causing an increase in both electricity and fossil fuel prices directing electricity and fossil fuel consumers to seek out alternatives. Subsidy removal is focused on higher groups of electricityconsumers in the residential, industrial, and commercial sectors who rely on grid electricity or diesel generators both of which would suffer from price increases.

 

The Birth of an Industry

  The announcement of the FiT and the subsidy removal programs in late 2014 were perfectly synchronized to give birth to the long awaited solar energy industry in Egypt. Up til 2014, the solar energy industry in Egypt was under-developed with a few companies focused on off-grid technologies for remote areas and telecommunication towers as well as solar water pumping applications.

  In September 2014, the FiT program caused local solar companies to sprout every day. The New and Renewables Energy Authority (NREA) set a rule that for any company to operate, it needs to qualify for a certification. Between November 2014 and May 2015, over 80 companies qualified for the certification most of which hadjust been created the month before. These companies range from start-ups to established corporations who decided to reach-out with a representative in a rising and lucrative industry. Businessmen created other companies, with a quick exit strategy in mind.

  On the international arena, the Egyptian FiT program attracted flocks of international solar companies and investors that are more equipped to cater for mega-watt scale projects. Unfortunately,the local market does not have a wealthy enough portfolio to handle these mega-watt scale installations on its own. The local industry was simply not given enough time to grow and develop, not to mention that the capital needed to build such large plants is not supported by local banks, investors,or solar companies.

  It is also worth mentioning that the Egyptian FiT program is an inverted pyramid going against international norms in the sense that a mega-watt scale project sells electricity to the government at higher rates than the rates at which smaller solar installations would sell a KWh to the government. This is absurd from the economic standpoint since larger plants have lower unit costs as they benefit from economies of scale. However, the government’s intention was to attend to the energy deficit as soon as possible and accordingly it put very attractive rates for mega-watt scale projects to attract foreign investment and know-how to build solar plants to address the energy crisis right away.

  Another aspect of solar energy worth considering is that a country cannot rely solely on solar energy to survive simply because the sun rises only during the day and since storing solar energy for night-use is still not technically nor economically feasible or efficient. Hence, integrating solar energy within a country’s energy mix has its limits. Furthermore, the FiT programs are incentive programs, which make them unsustainable i.e. they have a short life cycle. On the other hand, the grid can only handle a certain percentage of solar feed to stay stable. With these facts on the table, a considerable number of developed countries have no further room for solar energy systems that are financially viable. This, along with the Egypt's power yields that are owed to its unique solar irradiance which are unparalleled in most places across Europe, makes the Egyptian FiT program a magnet to international solar companies and an incentive for them to come running for investment opportunities. . Ultimately, this makes it hard for a local industry to grow organically which is a shame especially that the solar industry does not need unique technical capacities.

  Creating a start-up in Egypt is in itself an ordeal. One lacks the knowledge on how to run a business, the investment capital, the headquarters, the facilities, and in some case the know-how. Start-ups in Egypt start with an idea in the bag and the weight of obstacles pulling them back. The paperwork and bureaucracy to start a legitimate entity, file taxes, rent a place, manufacture material, or import goods are as tedious and vague as renewingone's car license, which require several trips and is plagued with administration. Very few start-ups make it through and they are mostly food outlets or food support services.

 

A Case Study: SolarizEgypt

   Given the solar industry overview painted in the lengthy introduction of this article, a solar energy start-up in Egypt bears at least twice the weight. To put things in perspective, SolarizEgypt- founded by the authors- would be a good case study to portray the challenges and appealsof operating in the ripe solar industry in Egypt.

  SolarizEgypt was established in July 2013 by a couple of university graduates who worked in the oil and gas industry and wanted to go green. The team decided to focus on grid-tie solar systems in hope that the subsidy removal rumors were true. They were also strongly against off-grid solutions being over priced and the batteries causing the system to live a quarter of the lifetime of a grid-tie system. SolarizEgypt was reliant on the government’s net-metering program where a consumer would install a plant to consume the power produced from the solar system and feed the extra onto the grid, ultimately using the gird as its battery bank.The first 8 months were spent self-learning, approaching clients and drafting proposals trying hard to introduce the market to an alien concept of providing energy that was always looked upon as unfeasible.

  SolarizEgypt gathered that its customer base is made up of three sects, the luxury seekers who are willing to pay a little extra in order to gain energy independence and uninterrupted power supply; visionaries who see a future in more sustainable sources of energy and understand the cost and dangers of relying on unsustainable fossil fuels for energy; and practical people who understand the effect of the subsidy removal program on their bills and are hence looking for solutions to cut their bills. The first two projects were built for visionaries, one of whom used the plant for self-consumption and the other intended to use it for the net-metering program.

  Then came the government's FiT program, which brought the practical people customer sect and with it the possibility of building mega-watt scale projects. Not to mention, the flood of local and international competitors whom have larger capital, more employees, and unlimited resources compared to a start-up. International competitors have the capacity and know-how to reduced unit costs due to the advantage they have in gaining most of Egypt’s mega-watt scale projects. The real threat would be that once they are established as mega-watt scale plant providers, they would hunt down the local companies and put them out of business with their massive capital which allows them to operate at a loss for longer periods of time.

  SolarizEgypt tried approaching banks for funding and commercial products to couple financing with their capital-intensive solar systems. However, they were met with resistance; the banking sector lacked the technical capacities required to evaluate the feasibility of the projects. Additionally, the banking sector is extremely risk averse in regards to financing start-ups and usually requires at least financial statements for 3 years of operation. Another hardship (shared by most small business) is the availability of dollars to secure payments for the components required from abroad; which are an essential part of solar systems.

  Despite the obstacles and hurdles that face a start-up in the solar energy industry in Egypt, one must envision a future where solar panels are as vital to a household as an air conditioner. The governmental systems are finally on the right track but the local industry scene must never fail to lobby its suggestions and concerns to ensure more effective legislations and an enabling ecosystem that support local industries, opportunities, and talents.

 

Authors

Rana Alaa graduated in 2010 from the American University in Cairo (AUC), majoring in Electronic Engineering and minoring in Business Administration. She then went on to work as a Platform Power Engineer and Wireless Technology Researcher at Intel, Oregon (USA), after which she published several papers on Wireless Sensor Networks at IEEE conferences. Rana then shifted her career along a more environmental track, pursuing a MSc. in Environmental Engineering at AUC. She worked as an Environmental Engineer in many regional and international companies, among them Shell Egypt, Shell Qatar and Badr El-Deen Petroleum Company. Rana was also Junior Expert in an EU-funded project: “Technical Assistance to Support the Reform of the Energy Sector in Egypt.” In 2013, Rana co-founded SolarizEgypt where she currently holds the position of Technical Director.

 

Yaseen Abdel-Ghaffar holds a BSc in Chemistry from The American University in Cairo (AUC). Yaseen then went on to work as a Management Graduate at Edita Food Industries, and later with ExxonMobil Egypt, where he held the position of Quality Assurance Chemical Engineer. Within the scope of this role, Yaseen performed required tests on finished products and raw materials, additionally providing technical support to the Sales & Marketing department by carrying out the necessary tests to resolve customer complaints. In 2013, Yaseen founded SolarizEgypt, where he currently holds the position of Managing Director. Within the scope of this role Yaseen oversees and supervises company activities, develops and reviews the company’s business strategy, measures the extent of financial performance, quality and customer satisfaction. He also handles strategic business alliance with key suppliers and stakeholders.

 

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