Mohamed Tawfick is the Chairman of Gree Solar, which he founded as an Egyptian business with British engineering technology. He talks to Law Today about the growth of the solar power industry and its potential for meeting Egypt’s ever-increasing energy needs.
Can you set the context for our readers by telling us about Gree Solar and what you as an organisation are setting out to achieve?
The best way to describe Gree Solar is as an Egyptian business that utilises the best technology from overseas, notably British engineering. We have our roots in the United Kingdom, where two of our senior directors ran a successful solar energy company for eight years. I personally lived in the UK for 35 years and learned a lot during that time; I would like to import this knowledge to ensure that growth happens in Egypt in this important industry.
The whole world is currently calling for renewable energy and as an organization, Gree Solar’s aim is simply to become the most successful solar energy company in Egypt operating in the commercial sector. We have undertaken a number of successful projects here in Egypt within the last year and we hope to undertake many more in the coming year. In October 2016 we installed what was at that point the largest on-roof solar power station in Egypt and in February 2017 we built an even larger one for the prestigious Zamalek Police Club.
From all logical viewpoints, solar energy should be growing in Egypt. We’re a country that has some of the best irradiation levels on the planet and yet currently we generate very little solar energy. At Gree Solar, we fully believe that 2017 will be the year of solar energy in Egypt and we want to be the company leading the way. I think that we have reason to believe that this can happen by looking at the calibre of companies that are reaching out to us now.
In terms of our vision, we place a lot of emphasis on using the best technology available. We offer longstanding warranties and guarantees and our technicians are trained to do nothing less than excellent work. We care very much about the name Gree Solar being synonymous with respectable, comprehensive service, delivering on quality. For me, this is an issue of principle and it is also my way of helping my country.
What are the challenges and opportunities facing the renewable energy sector in Egypt and how would you say these compare to other countries in the region?
It’s still early days for the renewable energy sector in Egypt, so there is only so much we can understand and predict right now.
The main challenge at the moment is that electricity in Egypt is still very heavily subsidised by the government. Prices did increase by around 40% in August 2016, however they are still very low in comparison with the rest of the region and the rest of the world. Current indications are that electricity prices will go up somewhere between 30-60% this coming July.
One of the conditions of Egypt’s IMF loan is that we must ensure that fossil-based fuels are no longer subsidised by 2020, a development which would rapidly bring the rate that Egyptians pay for fuel and electricity up to European levels. This is going to bring about a big change but I am not certain that most businesses in Egypt have realised that it will happen yet.
I believe that President Sisi and the government are committed to bringing solar energy to Egypt. But the electricity companies benefit considerably from the current system so they clearly want the status quo to remain.
Last year Egypt was supposed to build facilities that would generate 100 megawatts of solar power; the government gave money so that companies could build facilities for that purpose. However what was built was not enough to generate even nine megawatts of solar power, not even 10% of what was originally planned.
Government subsidies for electricity and fuel equal something in the range of 1.3 trillion Egyptian pounds. If, for example, a company is taking 25 million pounds worth of electricity, the government will subsidise it with 75 million pounds, meaning that no matter what tax is being paid, this entity is nevertheless making money from the subsidies it receives. The point of subsidies should be to offset costs, not for large companies to profit from them. I really believe that the country cannot move forward without lifting, or at least reducing, these subsidies.
Every single business entity I speak to is extremely interested in our technology but there is a noticeable difference between the approach taken by successful forward-thinking businesses, which know that to stay ahead of the competition you have to anticipate how the economic situation may change, and risk-averse businesses more focused on short-term expense. Solar energy is an upfront cost with a payback period of around five years and the prospect of economic and environmental rewards lasting over 30 years.
Before 2016, the initial flat cost of investing in alternative energy was high and alternative energy did not seem an attractive option. Now, looking at 2017 and beyond, we know that electricity prices will jump by a significant amount each year, and this is why businesses should be investigating alternative energy systems now.
Despite the challenges opportunities abound, and this is good news for the economy and the environment. While solar energy is a relatively new technology to arrive in Egypt, it is by no means new to the world, so this bodes well for the rapid growth of the sector. Globally, financial companies are becoming ever more aware of how safe investments in solar energy are.
With the IMF demanding that Egypt lifts its subsidies, I believe that the fuel price will be raised by 40% every July for five years in order to comply. This opens up the prospect of a solar energy boom, which would ultimately offer environmental and economic benefits. The air here in Egypt has become smoggy and poisonous so of course we should be looking at alternative energy options.
Can you talk about what kind of partnerships Gree Solar has undertaken in order to effectively respond to the challenges of energy provision in Egypt?
To have any successful deal you must have partnerships. We work with local partners here in Egypt for our procurement, managing the importation of merchandise and arranging delivery to our sites. We have a local partner that handles all of our importing; in fact all top solar panel manufacturers here have an exclusive local agent who arranges their imports.
Meanwhile we have also brought experience and investment from the UK. We see this as the perfect mix of combining international skillsets and local knowledge.
Again, it all goes back to our philosophy at Gree Solar of focusing on long-term investment and returns. We are trying, amongst other things, to build capacity. We deliver a comprehensive service, demanding the highest quality products and training for ourselves and our partners. Solar power is very durable and a single installation may last you 25 years: you may need to change the inverters every 15 years but the solar panels themselves will last much longer. If you compare that to what you would pay in electricity over the next 25 years using the current system, the prices are almost incomparable. You might currently pay 30 irsh per kWh, but in 25 years in could be six or seven pounds per kWh. By contrast, when it comes to solar power, you pay for the original installation, but if high quality components are used this is all you will pay for years, so it works out as being much less expensive.
Can you give us an overview of how your pricing system works? Is it determined through dialogue with any particular authority?
We focus on providing a solution that is known as “self-consumption”, whereby we present an offer and calculate how much electricity a particular system will produce every year and how much you as a consumer will save by not paying money to an electricity company. If you only have a small amount of roof-space we could install a 30kW station, for example. If you have a large space we may suggest installing a 1MW on-roof system. We always conduct a full electricity-usage analysis, as the credibility of our entire model requires that we don’t install a system generating electricity that consumers don’t use. We offer comparative prices but we make it clear that in terms of long-term quality and sustainability, we are offering the best service in the market.
When it comes to complying with legal regulations in Egypt, does Gree Solar have an in-house counsel or do you work with private practice lawyers?
We have an in-house lawyer now and I work with him. Fortunately, my background is in law and this is also the case with several senior members of our team. The main legal regulation that we needed to comply with so as to work here was to become qualified by the New and Renewable Energy Authority (NREA) to connect to the grid. While this was a lengthy and challenging process, we received our qualification in 2016. Because we focus on working with the private sector, there are few additional legal regulations for us to comply with, other than standard things such as producing contracts.
Are there ways in which the legal framework in Egypt could better support the growth of the renewable energy sector?
Governmental involvement has a significant role to play in the growth of solar energy, as the models for growth around the world show clearly. In the US and Europe a feed-in tariff (FiT) system was used, whereby entities were either offered a financial reward for producing a green unit of energy or could choose to keep the energy produced rather than purchasing energy from an electricity company. The FiT figure increased at the rate of inflation and was guaranteed by the government for 20 years.
Because of its high levels of irradiation, Egypt is almost at a point where it could be following this model without there necessarily needing to be a financial incentive. But until business owners understand the long-term cost saving in using alternative energy, solar power is still unlikely to remain a popular option. Electricity – and I cannot stress this enough – is so artificially low here in Egypt, but the common perception is that it is expensive and business owners can’t grasp the planned price increases – which nevertheless are definitely coming because of the condition imposed by the IMF in relation to the loan.
A FiT system has been established here in Egypt for both wind and solar power, with the NREA overseeing its conditions and determining what percentage of investors in this system can be local and what percentage can be international. However many investors have pulled out of the second phase of this initiative, essentially because of a clause inserted by the government that required any disputes to be settled by domestic arbitration. As many of the hundreds of prospective investors were international, they were strongly opposed to this and chose to withdraw their funds.
This being said, the European Investment Bank has given 140 million Euros for Egypt’s renewable energy sector; there is phenomenal potential here in Egypt and I really believe that 2017 will be the year of renewables for Egypt.
It is imperative that different ministries in the government work together, along with the media, to inform and educate citizens about the current energy situation and disavow business owners and ordinary citizens of the misinformation that alternative energy is the more costly option, particularly given the conditions of the IMF loan.
A solid legal framework and the enforcement of existing laws, to attract and retain investors, is also key to ensuring that alternative energy models, which I really believe are the future, can soon be well established in Egypt so as to meet our growing energy needs.