{"id":571496,"date":"2020-05-13T04:26:06","date_gmt":"2020-05-13T04:26:06","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/hardhats\/how-covid-19-and-oil-price-volatility-are-impacting-egypts-renewable-energy-sector-part-1\/"},"modified":"2020-05-13T04:26:06","modified_gmt":"2020-05-13T04:26:06","slug":"how-covid-19-and-oil-price-volatility-are-impacting-egypts-renewable-energy-sector-part-1","status":"publish","type":"hardhat","link":"https:\/\/enterpriseam.com\/egypt\/hardhats\/how-covid-19-and-oil-price-volatility-are-impacting-egypts-renewable-energy-sector-part-1\/","title":{"rendered":"How covid-19 and oil price volatility are impacting Egypt\u2019s renewable energy sector - Part 1"},"content":{"rendered":"

<\/a> How covid-19 and oil price volatility are impacting Egypt\u2019s renewable energy sector. Part <\/strong>1: The Lockdown. <\/strong>The combination of covid-19 and volatility in the oil<\/a> and natural gas<\/a> markets risks undermining the speed of the transition to renewable energy worldwide. Lockdowns across the world have disrupted supply chains and a market flooded with cheap oil and gas threatens to remove incentives for investment in renewable energy projects<\/a>.<\/p>\n

Egypt is susceptible to both these factors. <\/strong>Fitch Solutions\u2019 BMI Research Egypt Power report (paywall)<\/a> sees renewables becoming the fastest growing energy segment in Egypt through to 2028, and an energy strategy agreed with the Supreme Energy Council in October 2016 (pdf)<\/a> aims for the country to produce 42% of its generated electricity from renewable sources by the middle of the next decade. Whether or not these things happen is contingent on the price of renewable energy falling and hydrocarbons becoming less competitive. Over the next two editions of Hardhat, we look at how measures in place to curb the spread of covid-19 and collapsing oil prices are impacting Egypt\u2019s renewable energy sector.<\/p>\n

Egypt\u2019s renewable energy sector faces major short-term risks from the covid-19 lockdown<\/strong>, which is scrambling the global supply chain and causing uncertainty about the future price of imported components, industry insiders and major funding institutions tell us. Ultimately, our sources do not anticipate a the disruptions and price hikes having a more than medium-term impact on Egypt\u2019s shift towards including a greater proportion of renewables in the energy mix. As with so much right now, the decisive factors will be the duration of the pandemic \u2014 and how badly it hits countries that are core to the renewable energy supply chain.<\/p>\n

Supply chain disruptions were among the biggest covid-related risks to infrastructure projects in Egypt today<\/strong>, said Osama Bishai<\/a>, CEO of Orascom Construction, which is working on a 500 MW wind farm in Ras Gharib. Both he and co-CEOs of Hassan Allam Holding<\/a>, Amr and Hassan Allam, tell us that the lockdown has slowed down development of projects and is expected to continue to do so this year.<\/p>\n

This has been clear for companies operating on the ground.<\/strong> \u201cSolar panel production in China has slowed by about a month, there\u2019s a backlog of orders and a two-week quarantine period in customs for supplies entering the country,\u201d says Hatem Tawfik, managing director of Cairo Solar<\/a>. \u201cI was lucky enough to have ordered a large amount of supplies before the pandemic hit, but my supplier in Egypt has since been facing shortages, so he asked my permission to sell some of the excess stock I had ordered to my competitors.\u201d Empower<\/a>, a waste-to-energy company, was able to purchase materials from Germany for the construction of a new plant while shipping links were operating relatively smoothly, says chairman Hatem Elgamal. But one of his business partners bought products from China in February that (under normal circumstances) would have arrived by March, but that still haven\u2019t arrived. And Elgamal faces his own challenge: He needs a specialist from Germany to operate EUR 4 mn worth of machinery, which is currently impossible due to the suspension of flight travel. He estimates that this is costing him EGP 600k per month in a sector with tight margins.<\/p>\n

\u2026And it\u2019s hitting demand as well as supply.<\/strong> When the crisis started, there was an expectation that the price of equipment would go up because of supply shortages, says Hafez El Salmawy, professor of energy engineering at Zagazig University. \u201cIn fact, we didn\u2019t really see that, but what we saw was that everything came to a standstill. There have basically been no transactions during this time.\u201d<\/p>\n

Competing cost pressures: <\/strong>If global trade policy shifts away from internationalization, prices are going up. A weaker EGP? Prices going up. But an economic slowdown and reduced demand for energy could lead to a surplus of equipment in the market and push prices lower. Tawfik\u2019s Egyptian supplier has not pushed his prices up, and he says that he personally is not aware of higher prices in the market resulting from supply shortages. But if Chinese production were to continue at reduced capacity, he sees price increases becoming more likely. \u201cI guess when they closed in China there was a backlog, so they\u2019re trying to catch up. Once the backlog finishes, prices may increase, but that\u2019s if China\u2019s production capacity remains impacted,\u201d he adds.<\/p>\n

And if the current situation continues<\/strong>, it could (theoretically) affect funding for renewable <\/strong>energy projects.<\/strong> \u201cIf the current situation remains temporary, then we should not expect long-term effects on the enabling environment. But if we start seeing long-term effects, then the situation for future projects to be contracted may change,\u201d said Walid Labadi, Egypt country manager at the International Finance Corporation (IFC)<\/a>, which is actively investing in Egyptian renewable energy projects.<\/p>\n

The hope is that the disruptions are temporary.<\/strong> \u201cIn general a large number of projects supported by IFC around the globe have witnessed disruption, whether to the supply chain, international movement of personnel, or by local curfews,\u201d says Labadi. \u201cTo date these disruptions seem temporary, especially as our clients have shown resilience in adapting and finding workarounds to maintain their operations to the greatest extent possible.\u201d<\/p>\n

Signs are pointing to this being the case<\/strong>, as countries all over the world explore easing lockdown measures. Most significant is China \u2014 the largest producer<\/a> (and buyer) of solar panels \u2014 which has begun unwinding<\/a> its lockdown measures.<\/p>\n

Egypting <\/strong>shipping agents we\u2019ve spoken with<\/a><\/strong> tell us that they expect inbound traffic from China to increase \u201csignificantly\u201d in mid-July.<\/strong> Also potentially helpful: The Madbouly government appears to besignaling that it is winding down<\/a> the lockdown after Ramadan.<\/p>\n

Longer term, c<\/strong>ovid-19 could provide an incentive to localize the supply chain.<\/strong> \u201cWhat consumers may care about more in the future is independence, because there are currently so many broken supply chains,\u201d argues Ahmed Zahran, KarmSolar\u2019s<\/a> co-founder and CEO. \u201cPeople won\u2019t ask if your electricity comes from renewable energy, but they will ask what you are going to do in a time of crisis.\u201d Zagazig University\u2019s El Salmawy agrees there is a pressing need for localization: \u201cWithout research and development, it will be hard to remain competitive, because we\u2019re relying on imported know-how, not indigenous know-how. If we want renewables in Egypt to be sustainable, we have to produce a very strong market within Africa. We could also develop the financial sector to help us export, because you can\u2019t build an industry based solely on a local market,\u201d he says. But any process of localization will need time, resources, and probably huge capital expenditure from Chinese partners, says Tawfik. And, of course, it will depend on market needs. \u201cSome segments of the supply chain may be localized where competitive,\u201d says Labadi, \u201calthough this depends on a large number of factors (such as market growth potential), some of which will not change after the current disruption.\u201d<\/p>\n

This may already be happening here: <\/strong>While government plans to set up a USD 2 bn<\/a> solar panel factory with China\u2019s Golden Concord Group fell through in 2018 after disagreements over what to do with the factory\u2019s output, government sources said in February<\/a> that a Chinese partner would reportedly be contracted in 1H2020 to build two facilities to produce solar panels with a combined annual capacity of 5 GW in Aswan and Zaafarana.<\/p>\n

NEXT WEEK- How will low oil prices impact Egypt\u2019s renewables industry?<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

How covid-19 and oil price volatility are impacting Egypt\u2019s renewable energy sector. Part 1: The Lockdown. The combination of covid-19 and volatility in the oil and natural gas markets risks undermining the speed of the transition to renewable energy worldwide. Lockdowns across the world have disrupted supply chains and a market flooded with cheap oil […]<\/p>\n","protected":false},"featured_media":571497,"menu_order":0,"template":"","categories":[],"tags":[3438,9980,269,72,7116,759,1868,150,3825],"class_list":["post-571496","hardhat","type-hardhat","status-publish","has-post-thumbnail","hentry","tag-ahmed-zahran","tag-empower","tag-enterprise-hardhat","tag-enterpriseam","tag-hardhat","tag-international-finance-corporation","tag-karmsolar","tag-renewable-energy","tag-walid-labadi","wpautop","entry"],"acf":{"mongo_id":"91057a3e-b632-4e38-80c3-5dc98e549eb3","is_powered_by":true,"section_story_id":"2fb911d6-1538-44cf-bbc9-a4f694045051","story_type":"2","photo_url":"https:\/\/ent.news\/2020\/5\/142.jpg","photo_position":"above","related_issue":[571471],"teaser":"","voice_url":""},"yoast_head":"\nHow covid-19 and oil price volatility are impacting Egypt\u2019s renewable energy sector - Part 1 - EnterpriseAM Egypt<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterpriseam.com\/egypt\/hardhats\/how-covid-19-and-oil-price-volatility-are-impacting-egypts-renewable-energy-sector-part-1\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How covid-19 and oil price volatility are impacting Egypt\u2019s renewable energy sector - Part 1\" \/>\n<meta property=\"og:description\" content=\"How covid-19 and oil price volatility are impacting Egypt\u2019s renewable energy sector. 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