Electricity consumption in Egypt: a long‐run analysis of its determinants

• Published date: 01 March 2017
• Author: Paul Adjei Kwakwa
• DOI: http://doi.org/10.1111/opec.12091
• Date: 01 March 2017

Electricity consumption in Egypt: a long-run

analysis of its determinants

Paul Adjei Kwakwa

Presbyterian University College, Okwahu Campus, P.O. Box 57, Abetifi, Eastern Region Ghana. Email:

pauladkwa@gmail.com

Abstract

The study examined the determinants of electricity consumption for the Egyptian economy over

the period of 1971–2012. An Engle-Granger and the Phillips-Ouliaris tests revealed that a long-run

relationship exists between electricity consumption, price, income, urbanisation, financial

development, carbon emission, trade and education. Estimating the effects of these variables on

the country’s electricity consumption, the Phillips and Hansen (Review of Economic Studies, 57,

1990 and 99) Fully Modified OLS and Park’s(Econometrica, 60, 1992 and 119) Canonical

Cointegrating Regression models were employed. The estimated results showed that income,

urbanisation, financial development, trade and education positively affect electricity consumption.

While industrialisation had negative effect, price and carbon emissions were found not to have any

significant effect on electricity consumption in Egypt. Policy implications based on the results are

discussed.

1. Introduction

The current progress of many world economies has thrived on electricity. As a secondary

energy source, electricity is mainly generated from other primary sources of energy

including fossil fuel, hydro, wind and geothermal. Due to its significance in the growth

and development process of economies, it has always been the responsibility of policy

makers to ensure enough supply of electricity to be used by the needed sectors of the

economy. As precious as electricity is, there are many individuals who do not have

access to this energy. Over the last two decades, the OECD/IEA (2012) asserts that rapid

economic development in several developing countries, urbanisation and energy access

programs have enabled hundred millions of people attain modern energy access. As a

result, by 2010 the world’s population that had access to electricity increased by 50

million. The OCED/IEA (2012) have projected that the number of people without access

to electricity will decline from the 2010 figure of 1.3 billion to just over 990 million

people in 2030. This number which will represent about 12 per cent of the projected

global population at that time has been estimated on the grounds of improved economic

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outlook in many countries, stronger progress observed in some countries, and a

significant number of new commitments and policies aimed at improving electricity

access.

In many developing countries, particularly those from the African continent where

accessibility to electricity is comparatively low, the power sector situation has often been

characterised by inadequate supply leading to power rationing. Few countries such as

Egypt have a high proportion of the citizens with access to electricity. The Egyptian

economy for instance, has a high accessibility rate with more than 95 per cent of the

population having access to electricity. The high accessibility rate is associated with a

tremendous increase in the consumption rate of electricity over the years in the country.

Data from the World Bank’s World Development Indicator 2015 edition points out that

per capita electricity consumption in the country increased from 194.228 kWh in 1971

to 694.7669 kWh in 1991. By 2001, per capita consumption had reached 1073.906 kWh

and it got to 1804.492 kWh in 2012. From the available figures, the consumption of

electricity has increased at an average annual rate of 5.14 per cent for the past decade

(2002–2012). However, the present state of the Egyptian power sector (that is inadequate

supply) has incapacitated the nation to meet the rising consumption of electricity in the

country.

The causes of the current energy situation in Egypt are varied, including inadequate

supply of natural gas, ageing infrastructure, and inadequate generation and transmission

capacity (EIA 2015). In 2012, Egypt’s gas production stood at about 6.1 billion cubic

feet of gas per day. By 2014 it had dropped to 4.7 billion cubic feet per day (Fahim and

Thomas, 2014) and since power generation is natural gas dependent in Egypt, its supply

has also fallen against rising demand. The infrastructure for production of electricity has

not been properly maintained whiles the ageing ones have not been replaced. This could

be attributed to the low investment in the power industry which is partly due to the

political upheaval the country experienced in 2011. The end result is that government’s

budget of millions of LE to be channelled into the power sector has not seen the light of

day. In addition, there has been low foreign investment following government’s inability

to pay international oil companies and the political insecurity in the country (Fahim and

Thomas, 2014).

The current power situation in Egypt poses great developmental challenges to the

country. With inadequate power supply, the economy has resorted to unbearable power

outages that last for longer hours with untold hardships on households and firms in the

country. The power generation in Egypt has been dominated by fossil fuel primarily

natural gas which offers 70 per cent of electricity production followed by petroleum and

other renewable source (EIA, 2015). With a decline in the contribution of hydro and

other renewable source to electricity, the demand for fossil fuel source for electricity has

been on the increase. Because fossil fuels are major source of carbon dioxide emission,

OPEC Energy Review March 2017 ©2017 Organization of the Petroleum Exporting Countries

4Paul Adjei Kwakwa