Structure of the Power Market and Main Governing Laws
For many years, the power sector in Egypt was based on a single-buyer model, with the Egyptian Electricity Holding Company (EEHC) being the main player and owner of the transmission system and almost all the distribution assets. However, on 8 July 2015, Electricity Law No 87/2015 (the "Electricity Law") was published, followed on 23 May 2016 by its Executive Regulations issued by Decree of the Minister of Electricity and Renewable Energy No 230/2016, which mandated the independence of the power market segments, with a view to achieving a liberalised and competitive electricity market. The initial timeline for achieving the new market structure was eight years, but on 13 June 2021, Law No 70/2021 amending the Electricity Law was published, and extended this period to ten years, during which time EEHC should collaborate with all other companies in the electricity sector to ensure the smooth running of the electricity utility.
Mechanisms to reach renewable energy targets
Renewable power generation is governed by a special Law No 203/2014 published on 21 December 2014, which identified four main mechanisms to reach the country’s renewable energy targets:
These laws and regulations are also complemented by the circulars which are regularly issued by the Egyptian Electric Utility and Consumer Protection Regulatory Agency (EgyptERA), which is the electricity market regulator in Egypt.
Nuclear power generation is governed by the Nuclear Activities Law No 7/2010 published on 29 March 2010, which organises Egypt’s Nuclear Materials Authority and the issuance of licences, as well as regulation of all nuclear power plants projects in Egypt. Additionally, the establishment of nuclear power projects is also specifically governed by the Nuclear Power Plants Construction Oversight Authority Law No 209/2017 published on 29 November 2017.
Alternative energy sources
Solar, wind, hydroelectric, and biomass-generated electricity are the main alternative energy sources currently found in Egypt. The government is working on adding green hydrogen and nuclear power to the energy mix within the next few years.
Electricity Generation Companies
There are six state-owned power generation companies operational in Egypt, which sell electricity to end-user consumers:
In addition, there is a seventh entity – the New and Renewable Energy Authority (NREA) (with a total capacity of 597 MW) – which sells electricity to the Egyptian Electricity Transmission Company (EETC).
Three companies are in operation under the BOO scheme with an actual capacity of 683 MW each, namely: Gulf of Suez Energy Company, East Portsaid Energy Company, and Sidi Krir Company for Electricity Generation (with a total capacity of 2,049 MW).
There are 36 companies operating under the feed-in tariff programme, 32 of which are located in Benban Solar Park with a total capacity of 1,465 MW.
Finally, there are 23 other privately-owned licensed generation companies, as well as a number of small or off-grid power generation companies distributed in several parts of Egypt.
Electricity Distribution Companies
There are nine state-owned electricity distribution companies in Egypt, in addition to 57 privately-owned distribution companies, which mainly operate in new residential compounds or tourist resorts.
The Egyptian Electricity Transmission Company (EETC) is, according to the Electricity Law, the sole owner and operator of the transmission network.
Foreign Investment in the Power Industry
There is no nationality restriction in the power industry. In fact, private investments, including foreign investments, are currently encouraged. However, investment in the generation or distribution streams must, according to the Electricity Law, be channelled through a joint stock company incorporated in Egypt. There is no minimum ownership requirement for Egyptian nationals or any applicable local content, other than that under Labour Law No 12/2003 a 9:1 ratio of Egyptian to foreign employees applies.
According to Companies Law No 159/1981 (the "Companies Law"), a joint stock company must be incorporated by at least three shareholders, with a minimum share capital of EGP250,000. The company is managed by a board of directors, comprising a minimum of three individual or corporate board members, and must have registered premises in Egypt. Acquisition of participation in existing joint stock companies must be carried out through a formal process involving a stockbroker before the Egyptian Stock Exchange, even if the company in question is not listed.
Electricity generation and distribution activities fall within the scope of Investment Law No 72/2017 (the "Investment Law"), which grants a number of incentives, particularly for companies generating or using renewable electricity. Electricity generation and distribution projects may benefit from:
Furthermore, projects generating or using renewable energy, and electricity generation and distribution projects determined by Cabinet decree, can benefit from a deduction of their net taxable income equivalent to 30% of their investment costs.
According to the Investment Law, projects mainly benefit from the following protections:
Change in Ownership and Control
While there are no legal restrictions regarding the sale of power industry assets or businesses as such, the power purchase agreements in place would typically provide for change in control and change in ownership limitations or prior approvals.
In government-tendered projects, there is a lock-up period of two to three years from the commercial operation date, typically related to the key shareholder’s participation in the project. Usually, 25–40% of the project has to be maintained by the key shareholder throughout the lock-up period, to ensure the smooth construction and initial operation of the project. Buyers must have at least equivalent financial and technical capabilities as the original project owners and must be approved by the offtaker. If EgyptERA in its role as regulator deems the acquisition an assignment of licence, its approval would also be required.
Acquisitions usually take place through share purchases of the relevant project companies, rather than through assets sale or transfer. The Companies Law and Investment Law are usually implemented in this case.
The Role of EETC in Central Planning
According to the Electricity Law, EETC, which currently owns and operates the transmission network and is the offtaker in all government-owned generation projects and most private utility-scale projects (and which will become the transmission system operator in the new wholesale electricity market), is tasked with administering the electricity supply in Egypt. This is done in conjunction with EgyptERA, which oversees supply, pricing, licensing and all matters of a regulatory nature in the electricity market in Egypt and ensures fair competition between the various players in the market.
EETC has the responsibility of preparing and issuing a yearly report on supply, demand, and balancing of electricity, as well as forecasting and medium to long-term planning for electricity needs. According to the recent amendment to the Electricity Law passed in June 2021, issued by Law No 70/2021, EEHC should support EETC in its role of carrying out studies and planning for the expansion of electricity generation as well as interconnection projects and power export to other countries during the transitional phase, until the full de-coupling of the electricity sector in Egypt.
Over the past year, there have been two main changes in the legislative framework governing the electricity sector in Egypt.
Law No 70/2021
Published on 13 June 2021, amending the Electricity Law, this extends the transitional phase for realising the electricity sector liberalisation to ten years instead of eight years, and tasks EEHC with a supporting role in connection with planning for the expansion of generation and transmission capacity in Egypt, as well as the interconnection with and power export to other countries.
Circular No 2/2020
Published on the website of EgyptERA on 19 May 2020, this restructured the net-metering scheme in Egypt. The circular puts in place a number of new parameters, which on the whole seem to limit the setting up of new net-metering projects in Egypt, namely:
While the two most recent pieces of legislation passed over the last year have not been particularly encouraging for the expansion of the alternative energy market in Egypt, EgyptERA is expected to issue the guidelines regarding electricity wheeling and banking and the associated charges in the coming months. This is a long-awaited piece of legislation, which will encourage private generation and sizeable offtake of capacity.
The most unique aspect of the power sector in Egypt is that, despite the apparent excess generation capacity, the market continues to attract opportunities for both small and utility-scale generation projects. This may be seen as an anomaly, but in fact not all installed capacities are currently operational or have available evacuation infrastructure. The country is also concluding a number of power export deals which, together with the plans for retiring some of the old and inefficient power generation plants, are expected to offload some of the apparent excess power.
The Egyptian electricity market is expected to be liberalised during the next few years. As it stands, the market continues to be structured around a single-buyer model with EEHC being the main player.
Electricity prices are typically set on a yearly basis by decree of the Minister of Electricity and Renewable Energy, taking into account fuel costs and other grid and infrastructure costs incurred by the Ministry. However, the tariffs applicable from 2021 to 2025 were recently announced in advance.
Egypt is currently exchanging 3,000 MW of electricity with Saudi Arabia, 250 MW with Jordan (expandable to about 500 MW), up to 200 MW with Libya, and 80 MW with Sudan (expandable to a total of 1,300 MW). The government also signed a framework agreement with Cyprus and Greece in May 2019 to allow the exchange of 2,000 MW with them, and a memorandum of understanding in November 2019 to allow the exchange of power between Egypt, Jordan and the Gulf Cooperation Council (GCC) countries. Furthermore, Egypt is part of an initiative to build three synchronous grids to achieve cross-regional interconnection through ultra-high voltage (UHV) lines, collecting large-scale hydro and solar power from Central and Northern Africa and delivering it to Europe and Asia, positioning Egypt as an electricity hub and corridor.
According to the latest statistics published by EEHC, the installed electricity capacity in 2019 was 58,353 MW:
The peak load was 31,400 MW, and the total power generated was 199,843 GWh.
In 2020, the alternative energy figures published by NREA for installed capacities were testament to progress in the alternative energy sphere:
In fact, the actual power generated from renewable sources in December 2020 was:
As the electricity market unbundling and liberalisation has not yet been implemented, there are no concentration limits in place regarding the percentage of electricity supply controlled by one entity.
There is currently no competitive electricity market in Egypt. However, according to the Electricity Law, EgyptERA is responsible for ensuring competitiveness in the market.
UNFCCC and Kyoto Protocol
Egypt is a party to both the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol by virtue of their ratification on 5 March 1995 and 12 December 2005, respectively. The Kyoto Protocol binds its state parties included in Annex to reduce their greenhouse gas emissions to certain targets over the course of commitment periods. While Egypt is not bound by specific emission targets, as it is not an Annex I Party, it is involved in the Protocol’s Clean Development Mechanism (CDM), which allows states with emission-reduction commitments to implement emission-reduction projects in a developing state, thereby earning saleable certified emission reduction (CER) credits equivalent to tonnes of CO₂ reduced.
Egypt also signed the Paris Agreement on 22 April 2016 and ratified it on 29 June 2017. The agreement’s main aim is to strengthen the global response to the threat of climate change by keeping the global temperature rise during the 21st century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 degrees Celsius. Additionally, the agreement aims to increase the ability of countries to deal with the impacts of climate change, and to make finance flows consistent with low greenhouse gas (GHG) emissions and a climate-resilient pathway. The agreement also provides for an enhanced transparency framework for climate action and support.
There is no announced retirement plan of old carbon-based or inefficient electricity generation facilities in Egypt. However, this is understood to be within the plan of the Ministry of Electricity and Renewable Energy, since the facilities are all owned by its affiliated companies.
Renewable Energy Targets
Egypt is officially targeting renewable energy of 20% from peak load by 2022 and 42% from total installed capacity by 2035 (1.98% hydro, 5.52% CSP, 14.04% wind and 21.13% PV, in addition to the 57.33% conventional share). In June 2021, even more ambitious targets of 55% by 2035 and 61% by 2040 were floated.
In general, the country is largely relying on private investments in the alternative energy field, especially in wind and solar generation. The latest announced prices received by 2H2020 for BOO projects were as low as USD2/kWh for solar and USD3/kWh for wind, and the Ministry of Electricity and Renewable Energy might even call soon for auctions to bring generation prices down further.
Incentives for Small-Scale Electricity Generation
In 2013, Egypt introduced a net-metering scheme to promote distributed solar, which was revamped in 2018 to increase the capacity of net-metered projects from 5 MW to 20 MW.
Incentives for Utility-Scale Electricity Generation
Then, in September 2014, the government launched an ambitious feed-in tariff programme for the generation of 4.3 GW of solar and wind energy projects. The programme was rolled out through two Prime Ministerial Decrees, No 1947/2014 published on 27 October 2014, and No 2532/2016 published on 29 September 2016. Under the first regulatory period governed by the first of these decrees, solar projects between 20 MW and 50 MW were paid a tariff of USD0.1434/kWh and wind projects of the same capacity a tariff between USD0.46/kWh and USD0.1148/kWh. Under the second regulatory period governed by the second decree, these tariffs were reduced for the same capacity to USD0.84/kWh for solar projects, and between USD0.4/kWh and USD0.796/kWh for wind projects. The solar programme was a success and led to the creation of the 1,465 MW Benban Solar Park in the south of Egypt in Aswan with a total investment cost of about USD2 billion, but the wind programme targets were unfortunately not achieved.
In Egypt, the main laws governing the establishment and operation of electricity generation facilities in general are the Electricity Law and its Executive Regulations issued by Decree of the Minister of Electricity and Renewable Energy No 230/2016. Renewable energy facilities are also governed by Renewable Energy Law No 203/2014, and nuclear power plants are governed by Nuclear Activities Law No 7/2010 and Nuclear Power Plants Construction Oversight Authority Law No 209/2017.
There are six main types of approvals required for the construction and operation of electricity generation facilities in Egypt.
Approvals Related to the Project Company
Approval Related to the Contractor and/or Operator
The local Engineering, Procurement and Construction (EPC) contractor and Operation and Maintenance (O&M) contractor(s) must be registered with the Egyptian Federation for Construction and Building Contractors (EFCBC) in order to be able to carry out construction works and/or maintenance of power plants in Egypt. Furthermore, smaller solar installers must be accredited by NREA in order to comply with the installation activities’ rules.
All power generation facilities connected to the grid or off-grid but with a capacity of more than 500 kWp must obtain a generation licence from EgyptERA.
However, Article 21 of the Executive Regulations of the Electricity Law allows self-consumers of electricity to apply to EgyptERA for an exemption from obtaining the generation licence if certain conditions are cumulatively fulfilled. This is based on Article 13 paragraph 3 of the Electricity Law which allows EgyptERA to exempt the self-consumer of electricity from obtaining a generation licence.
The owner of a generation project must obtain and present to EgyptERA evidence of title to the site where the project will be located in order to be able to obtain the power generation licence for the project.
If the land is not owned by or formally allocated to the generation company, it would typically seek to lease the land on a long-term basis, either through a lease agreement or a usufruct agreement. The same applies for rooftop projects. The easiest route is to try to obtain a plot of land from those allocated to NREA for the establishment of renewable energy projects, as NREA handles the full licensing process for such plots. The charges paid to NREA are equivalent to 2% of the price of the generated electricity per year. If this is not possible, however, or the electricity generation project will not produce renewable energy, the project developer itself will have to seek the relevant approvals.
The obligation to decommission alternative energy projects is mainly contractual. Both the model power purchase agreement developed by EETC for wind and solar projects where EETC is the offtaker, as well as the model usufruct agreement whereby NREA grants land for renewables projects’ development, contain decommissioning requirements.
The entire transmission network is, according to the Electricity Law, owned and operated by EETC. All associated transmission facilities follow the same ownership and management structure.
The transmission system is fully controlled by the state-owned EETC.
The construction and operation of the transmission system is the sole responsibility of the state-owned EETC.
Chapter 5 of the Electricity Law governs the relationship with private owners of real estate adjacent to electricity utility infrastructure, and mandates that private property is protected as long as there is a substitute location for the electricity infrastructure. If this is not possible, private ownership will have to be maintained unaffected, with adequate compensation being paid to the owner in case of disturbance.
According to the Electricity Law, EETC has monopoly rights to provide transmission services and to construct and operate the entire transmission system all over Egypt.
The Electricity Law requires EETC to allow third parties to use the transmission network without discrimination.
According to the Electricity Law, EgyptERA is tasked with determining the charges for the use of the transmission network.
Article 30 of the Electricity Law requires EETC to grant access to third parties to use the transmission network. Access must be granted without discrimination to ensure that all users have secured access to their electricity needs in consideration for a tariff determined according to the economic basis ratified by EgyptERA.
The construction and operation of electricity distribution facilities are governed by the Electricity Law and its Executive Regulations issued by Decree of the Minister of Electricity and Renewable Energy No 230/2016.
The same process described earlier for electricity generation facilities applies for the licensing of electricity distribution projects.
The construction and operation of electricity distribution projects follow a similar process to that of generation projects. A licence cannot be granted for a company to operate a distribution network within the geographic scope of another distribution company.
Most of the distribution network in Egypt is controlled by government companies affiliated to EEHC. Recently, however, private distribution companies have started operating distribution networks in commercial areas and residential compounds. In this case, access to land is acquired on a private basis and all the licensing requirements described earlier in relation to allocation and approvals would apply.
The Ministry of Electricity and Renewable Energy has been working on expanding the total length of the 500 kV grid in Egypt from 2,364 km in 2014 to about 6,006 km in 2020. The total number of 500 kV substations was increased from 18 in June 2014 with a total capacity of 9,800 MVA, to 48 substations with a capacity of 54,050 MVA. Other upgrades and expansions have been applied to the 220 kV and 66 kV networks and substations, although more work is definitely still needed on the power distribution level. The ministry is studying market needs so as to improve private distribution conditions and encourage private investment in this sector.
Distribution companies may not operate networks within the geographical scope of other licensed distribution companies.
Electricity distribution is governed by the Electricity Law and its Executive Regulations issued by Decree of the Minister of Electricity and Renewable Energy No 230/2016, as well as by Law No 18/1998.
EgyptERA sets the distribution charges, which cannot be exceeded by private distribution companies. The entire charging system is currently being revised, and the market is awaiting the issuance of the revamped rules for the pricing of the different electricity sector services.